First
Financial
Fund, Inc.
ANNUAL
REPORT
March 31, 1999
<PAGE>
Letter To Shareholders April
29, 1999
Dear Fellow Shareholder:
It is over. That's the best thing we can say about the last
six months.
Strangely enough, it was the Russian bond default last
October that
started toppling the world dominoes which reached our shores
in the
form of a plain old fashioned Wall Street liquidity crisis.
Those
financial entities lacking insured deposits or long-term
investment
grade funding were particularly hard hit as wholesale lines
were
pulled and short-term loans not renewed, in turn, forcing
sales of
assets in a severely distressed market. While the
fundamental
performance of the Fund's small banks and thrifts continued
to
be strong, this flight to liquidity crushed the stocks, as
investors
rushed to take money out of small-cap funds, finance sector
funds
and financially oriented hedge funds. The Fund's -11.9%
negative
return for the past six months ranks as the second worst
we've seen
since the great financial crisis of 1990.
<TABLE>
TOTAL RETURN
<CAPTION>
For The Period Ended March 31, 1999
6 Mos. 1 Year 3 Years
5 Years
<S> <C> <C> <C>
<C>
First Financial Fund's NAV1 -11.9% -38.4% 8.2%
18.8%
S&P 500 Index 27.3 18.5 28.1
26.2
NASDAQ Composite2 45.3 34.1 30.7
27.1
NASDAQ Banks2 1.1 -21.0 18.5
21.0
SNL All Daily Thrift2 8.6 -18.6 22.8
24.0
</TABLE>
1. Source: Prudential Investment Fund Management. The Fund
total
return represents the change in net asset value from the
beginning
of the period noted through March 31, 1999 and assumes the
reinvestment of dividends and distributions. Past
performance
is no guarantee of future results.
2. Principal only.
Note: Returns for periods greater than one year are
annualized.
As you know, we have not been particularly sanguine about
the
opportunities in our area for significant stock price
appreciation.
Today, however, we are. The reasons are severalfold.
First, the
valuations are as compelling now as they were in the early
90's,
with banks, mortgage REITs and asset resolutions firms at
single
digit forward P/E's and opportunities again to buy thrift
conversions
well below book value. Second, acquisition activity is
heating up
again, spurred in part by the huge valuation gap between
large-cap
financials and small. Resolution of Year 2000 concerns as
well as
the pending elimination of pooling accounting are also
contributing
to the renewed urge to merge. Third and finally, the
torrential
outflow of funds from small-cap financials seems to be
abating.
Whether it is investor disenchantment with the large-cap
growth
stocks or simply a belated recognition of outstanding value
in
small-cap financials, we're not sure. But, spring may be in
the air.
1
<PAGE>
April, so far, has logged in a very good month of
performance.
With a week to go, the Fund's stocks are up 4%. We've been
particularly impressed with first quarter earnings results;
thus far, those reported, have been, almost without
exception,
better than expected. A steeper yield curve, a recovery of
the
asset backed securities market, gains in efficiency, good
loan
growth and more aggressive buybacks have all helped. While
the
domestic economy should cool down some as the year
progresses,
we don't see a meltdown, thanks to some early signs of
recovery
in Asia, the aversion of a severe crisis in Latin America
and
the continued gains in productivity domestically.
We look forward to some rewarding returns over the next
several quarters.
Sincerely,
Nicholas C. Adams
Portfolio Manager
Senior Vice President
Wellington Management Company, LLP
2
<PAGE>
Portfolio of Investments as of March 31, 1999 FIRST
FINANCIAL FUND, INC.
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
LONG-TERM INVESTMENTS--119.3%
COMMON STOCKS--117.7%
- ------------------------------------------------------------
Banks & Thrifts--80.6%
34,600 Algiers Bancorp, Inc. $
354,650
289,180 Ambanc Holding Co., Inc.
4,843,765
140,400 Bay State Bancorp, Inc.*
2,878,200
125,000 Big Foot Financial Corp.*
1,609,375
214,762 Bostonfed Bancorp, Inc.
3,865,716
89,640 Broadway Financial Corp., Delaware
582,660
144,500 Cameron Financial Corp.
2,023,000
324,000 Catskill Financial Corp.
4,920,750
91,000 CBES Bancorp Inc.
1,342,250
142,538 CCF Holding Co.
1,924,263
375,800 Cohoes Bancorp, Inc.
3,922,412
118,000 Commercial Bank New York
1,534,000
146,500 Community Financial Corp.
1,410,063
74,600 CSB Financial Group, Inc.*
680,725
154,000 Downey Financial Corp.
2,820,125
736,000 East West Bancorp, Inc.
6,578,000
202,900 Fidelity Federal Bancorp
786,238
109,200 First Commerce Bancshares, Inc.
2,712,900
24,000 First Financial Corp.
294,000
390,300 First Place Financial Corp.,
Delaware
3,951,787
281,500 FirstFed America Bancorp, Inc.
3,378,000
252,000 FirstFed Bancorp, Inc.
2,299,500
154,000 Fort Bend Holding Corp.
2,695,000
166,800 GBC Bancorp
2,502,000
133,000 GreenPoint Financial Corp.
4,621,750
115,800 Hallmark Capital Corp.*
1,230,375
110,500 Hawthorne Financial Corp.*
1,657,500
16,666 HFB Financial Corp.
249,990
42,600 Highland Bancorp, Inc.*
1,565,550
790,000 Hudson River Bancorp, Inc.
8,640,625
9,375 Independent Bankshares, Inc.
98,438
120,000 Innes Street Financial Corp.
1,365,000
346,000 ITLA Capital Corp.*
5,017,000
91,923 Jeffbanks, Inc.
1,918,893
200,000 Lincoln Bancorp Indiana
2,087,500
104,000 Metrocorp Bancshares, Inc.
1,007,500
147,200 Mystic Financial, Inc.
1,711,200
120,000 Niagara Bancorp, Inc.
1,200,000
287,500 Northeast Pennsylvania Financial
Corp.
3,144,531
221,200 PBOC Holdings, Inc.
1,990,800
358,000 People's Bank $
10,650,500
34,600 Peoples Financial Corp.
302,750
183,330 Perpetual Federal Savings Bank
4,216,590
331,050 Progress Financial Corp.
4,800,225
397,000 Provident Financial Holdings, Inc.*
6,600,125
64,650 Redwood Financial, Inc.*
808,125
187,500 Republic Bancshares, Inc.*
4,007,812
77,000 River Valley Bancorp
1,020,250
47,800 Rowan Bancorp, Inc.*
1,075,500
197,200 Seacoast Financial Services Corp.
1,947,350
153,700 Security Pennsylvania Financial
Corp.
1,440,937
100,600 SFS Bancorp, Inc.*
1,886,250
60,000 Southwest Bancorp of Texas
738,750
135,000 Southwest Bancorp Inc. Oklahoma
3,113,437
32,500 ST Landry Financial Corp.
426,725
40,100 TF Financial Corp.
636,588
18,150 Three Rivers Financial Corp.
240,488
7,276 Tri-County Bancorp, Inc.
76,398
125,400 Troy Financial Corp.*
1,244,595
396,000 UCBH Holdings Inc.
5,445,000
360,400 Unionbancal Corp.
12,276,125
355,600 Virginia Capital Bancshares, Inc.
4,489,450
1,000 Warwick Community Bancorp
13,250
181,900 Western Bancorp *
5,627,531
189,700 Woronoco Bancorp, Inc.*
1,802,150
344,000 WSFS Financial Corp.
5,031,000
103,400 Yonkers Financial Corp.
1,551,000
---------
- ---
178,884,932
---------
- ---
- ------------------------------------------------------------
Other Financial Intermediaries--37.1%
511,800 Anthracite Capital, Inc.
3,838,500
2,800 Autobytel Inc.*
117,250
248,200 Central Financial Acceptance Corp.*
620,500
789,700 Dynex Capital, Inc.
2,615,881
227,875 First Mortgage Corp.*
911,500
300,000 Fortress Investment Corp.*
5,062,500
612,400 Franchise Mortgage Acceptance Co.*
4,439,900
312,500 Healthcare Financial Partners, Inc.*
6,250,000
829,900 Imperial Credit Industries, Inc.*
6,068,644
128,016 Inco Homes Corp.*
256,032
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 3
<PAGE>
Portfolio of Investments as of March 31, 1999 FIRST
FINANCIAL FUND, INC.
- ------------------------------------------------------------
- -------------------
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Shares Description Value (Note 1)
<C> <S> <C>
- ------------------------------------------------------------
Other Financial Intermediaries (cont'd.)
448,300 LASER Mortgage Management, Inc. $
2,437,631
777,100 LNR Property Corp.
15,347,725
450,700 Novastar Financial, Inc.*
2,760,537
583,300 Ocwen Asset Investment Corp.
2,150,919
805,100 Ocwen Financial Corp.*
7,094,944
330,000 Prime Capital Corp., Inc.*
660,000
336,300 RB Asset, Inc.*
630,563
286,400 Redwood Trust, Inc.
4,582,400
570,000 Resource America, Inc.
4,916,250
515,450 Resource Bancshares Mortgage Group,
Inc.
6,636,419
545,300 Sundance Homes, Inc.*
340,813
807,600 Ugly Duckling Corp.*
4,467,037
---------
- ---
82,205,945
---------
- ---
Total common stocks
(cost $310,132,243)
261,090,877
---------
- ---
- ------------------------------------------------------------
Preferred Stocks--1.2%
100,000 Community Bank, Inc.
13.00%, Ser. B
(cost $2,400,000)
2,712,500
---------
- ---
- ------------------------------------------------------------
Warrants*--0.4%
Warrants
50,000 Community Bank, Inc.,
expiring June '99
875,000
1 Golden State Bancorp, Inc.,
expiring January '01
5
125,000 Healthcare Financial Partners,
expiring December '01
0
---------
- ---
Total warrants
(cost $100,000)
875,005
---------
- ---
Total long-term investments
(cost $312,632,243)
264,678,382
---------
- ---
SHORT-TERM INVESTMENTS--0.8%
- ------------------------------------------------------------
Repurchase Agreement--0.8%
$1,761 PaineWebber, Inc.,
4.90%, due 4/01/99 in the amount
of $1,761,240 (cost $1,761,000;
collateralized by $1,500,000 U.S.
Treasury Notes, 6.875%, due
7/31/99, value of collateral
including interest $1,796,911) $
1,761,000
---------
- ---
- ------------------------------------------------------------
Certificates Of Deposit
Brookline Savings,
1 4.35%, 5/29/99
1,361
First Federal Bank,
20 4.50%, 4/14/99
20,000
Nauatuck Valley Saving & Loan
Assoc.,
20 4.10%, 4/27/99
20,000
---------
- ---
Total certificates of deposit
(cost $41,361)
41,361
---------
- ---
Total short-term investments
(cost $1,802,361)
1,802,361
---------
- ---
- ------------------------------------------------------------
Total Investments--120.1%
(cost $314,434,604; Note 3)
266,480,743
Liabilities in excess of other
assets--(20.1%)
(44,599,991)
---------
- ---
Net Assets--100%
$221,880,752
---------
- ---
---------
- ---
</TABLE>
- ---------------
* Non-income-producing security.
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 4
<PAGE>
Statement of Assets and Liabilities FIRST
FINANCIAL FUND, INC.
- ------------------------------------------------------------
- -------------------
<TABLE>
<CAPTION>
Assets
March 31, 1999
<S>
<C>
Investments, at value (cost
$314,434,604)...............................................
................... $266,480,743
Cash........................................................
...............................................
168
Receivable for investments
sold........................................................
.................... 2,446,580
Dividends and interest
receivable..................................................
........................ 347,629
Other
assets......................................................
......................................... 146,066
- --------------
Total
assets......................................................
...................................... 269,421,186
- --------------
Liabilities
Loan payable (Note
4)..........................................................
............................ 45,000,000
Payable for investments
purchased...................................................
....................... 1,930,219
Advisory fee
payable.....................................................
.................................. 356,747
Loan interest payable (Note
4)..........................................................
................... 140,698
Administration fee
payable.....................................................
............................ 81,869
Deferred directors'
fees........................................................
........................... 18,806
Accrued
expenses....................................................
....................................... 12,095
- --------------
Total
liabilities.................................................
...................................... 47,540,434
- --------------
Net
Assets......................................................
...........................................
$221,880,752
- --------------
- --------------
Net assets were comprised of:
Common stock, at par; 25,064,981 shares
issued......................................................
.... $ 25,065
Paid-in capital in excess of
par.........................................................
............... 278,076,064
- --------------
278,101,129
Accumulated net realized
losses......................................................
................... (8,266,516)
Net unrealized depreciation of
investments.................................................
............. (47,953,861)
- --------------
Net assets, March 31,
1999........................................................
...................... $221,880,752
- --------------
- --------------
Net asset value per share ($221,880,752 /25,064,981 shares
of common stock outstanding)....................
$8.85
- --------------
- --------------
</TABLE>
- ------------------------------------------------------------
- --------------------
See Notes to Financial Statements. 5
<PAGE>
FIRST FINANCIAL FUND, INC.
Statement of Operations
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Net Investment Income March 31,
1999
<S> <C>
Income
Dividends (net of foreign withholding
taxes of $9,648)...................... $ 6,892,202
Interest................................. 565,622
-------------
- -
Total income.......................... 7,457,824
-------------
- -
Expenses
Investment advisory fee.................. 1,917,124
Administration fee....................... 445,110
Legal fees and expenses.................. 93,000
Reports to shareholders.................. 90,000
Custodian's fees and expenses............ 69,000
Insurance expense........................ 57,000
Listing fees............................. 33,000
Transfer agent's fees and expenses....... 24,500
Audit fee and expenses................... 22,000
Directors fees........................... 16,000
Miscellaneous............................ 13,049
-------------
- -
Total operating expenses.............. 2,779,783
Loan interest (Note 4)................... 1,991,531
-------------
- -
Total expenses........................ 4,771,314
-------------
- -
Net investment income....................... 2,686,510
-------------
- -
Realized and Unrealized
Gain (Loss) on Investments
Net realized gain on investment
transactions............................. 31,773,999
Net change in unrealized appreciation
(depreciation) of investments............
(181,559,749)
-------------
- -
Net loss on investments.....................
(149,785,750)
-------------
- -
Net Decrease in Net Assets
Resulting from Operations...................
$(147,099,240)
-------------
- -
-------------
- -
</TABLE>
FIRST FINANCIAL FUND, INC.
Statement of Cash Flows
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
Increase (Decrease) in Cash March 31,
1999
<S> <C>
Cash flows used for operating activities
Dividends and interest received............ $
8,034,181
Operating expenses paid....................
(2,848,475)
Loan interest paid.........................
(2,075,451)
Purchases of short-term portfolio
investments, net........................
3,411,133
Purchases of long-term portfolio
investments.............................
(253,096,162)
Proceeds from disposition of long-term
portfolio investments...................
239,833,620
Deferred expenses and other assets.........
(3,211)
------------
- --
Net cash used for operating activities.....
(6,744,365)
------------
- --
Cash provided from financing activities
Cash dividends paid........................
(18,871,946)
Net increase in notes payable..............
25,000,000
------------
- --
Net cash provided from financing
activities..............................
6,128,054
------------
- --
Net decrease in cash.......................
(616,311)
Cash at beginning of year..................
616,479
------------
- --
Cash at end of year........................ $
168
------------
- --
------------
- --
Reconciliation of Net Decrease in Net Assets
to Net Cash Used for Operating Activities
Net decrease in net assets resulting from
operations.................................
$(147,099,240)
------------
- --
Decrease in investments.......................
540,801
Net realized gain on investment
transactions...............................
(31,773,999)
Net decrease in unrealized appreciation
(depreciation) of investments..............
181,559,749
Increase in receivable for investments sold...
(2,211,838)
Decrease in dividends and interest
receivable.................................
475,246
Increase in other assets......................
(3,211)
Decrease in payable for investments
purchased..................................
(8,079,261)
Decrease in accrued expenses and other
liabilities................................
(152,612)
------------
- --
Total adjustments.......................
140,354,875
------------
- --
Net cash used for operating activities........ $
(6,744,365)
------------
- --
------------
- --
</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 1999 1998
------------- --------
- ----
<S> <C> <C>
Operations
Net investment income...... $ 2,686,510 $
2,632,906
Net realized gain on
investment
transactions............ 31,773,999
47,574,880
Net change in unrealized
appreciation
(depreciation)
of investments.......... (181,559,749)
81,471,172
------------- --------
- ----
Net increase (decrease) in
net assets resulting
from operations......... (147,099,240)
131,678,958
------------- --------
- ----
Dividends and distributions (Note 1)
Dividends from net
investment income....... (1,023,852)
(2,481,971)
Distributions from net
realized gains on
investments............. (51,039,444)
(47,574,880)
Distributions in excess of
net realized gains...... (11,214,443)
(11,105,995)
Value of Fund shares issued to
shareholders in reinvestment
of dividends and
distributions................. 44,405,793
46,840,234
------------- --------
- ----
Total increase (decrease)..... (165,971,186)
117,356,346
Net Assets
Beginning of year............. 387,851,938
270,495,592
------------- --------
- ----
End of year(a)................ $ 221,880,752
$387,851,938
------------- --------
- ----
------------- --------
- ----
- ---------------
(a) Includes undistributed net
investment income of........ $ -- $
908,927
------------- --------
- ----
</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, LLP (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: Securities for which market quotations
are readily
available--including securities listed on national
securities exchanges and
those traded over-the-counter--are valued at the last quoted
sales price on the
valuation date on which the security is traded. If such
securities were not
traded on the valuation date, but market quotations are
readily available, they
are valued at the most recently quoted bid price provided by
an independent
pricing service or by principal market makers. Securities
for which market
quotations are not readily available will be valued at fair
value as determined
in good faith 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.
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
- ------------------------------------------------------------
- --------------------
7
<PAGE>
Notes to Financial Statements FIRST
FINANCIAL FUND, INC.
- ------------------------------------------------------------
- --------------------
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.
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.
Reclassification of Capital Accounts: The Fund accounts for
and reports
distributions to shareholders in accordance with the
American Institute of
Certified Public Accountants Statement of Position 93-2:
Determination,
Disclosure and Financial Statement Presentation of Income,
Capital Gain, and
Return of Capital Distributions by Investment Companies. The
effect of applying
this statement was to decrease undistributed net investment
income by
$2,571,585, increase accumulated net realized gain on
investments by $2,947,927
and decrease paid-in capital by $376,342 for the year ended
March 31, 1999, due
to distributions from paid-in capital. Net investment
income, net realized gains
and net assets were not affected by this change.
- ------------------------------------------------------------
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, 1999 were $245,016,901 and
$211,331,213,
respectively.
The cost basis of the Fund's investments for federal income
tax purposes,
including short-term investments, at March 31, 1999 was
$314,697,235; and,
accordingly, net unrealized depreciation for federal income
tax purposes was
$(48,216,492) (gross unrealized appreciation--$28,747,894;
gross unrealized
depreciation--$76,964,386). The Fund elected to treat
capital losses of
approximately $8,003,900 incurred in the five month period
ended March 31, 1999
as having occurred in the following fiscal year.
- ------------------------------------------------------------
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, 1999 was
$29,890,411 at a weighted average interest rate of 6.11%.
The highest face
amount of borrowing outstanding at any month-end during the
year ended March 31,
1999 was $45,000,000 (as of March 31, 1999). The current
borrowings of
$45,000,000 (at a weighted average interest rate of 5.65%)
mature between the
period April 2, 1999 and April 14, 1999.
- ------------------------------------------------------------
Note 5. Capital
There are 50 million shares of $.001 par value common stock
authorized. Of the
25,064,981 shares issued as of March 31, 1999, the
Investment Adviser owned
10,994 shares. During the fiscal years ended March 31,
- ------------------------------------------------------------
- --------------------
8
<PAGE>
Notes to Financial Statements FIRST
FINANCIAL FUND, INC.
- ------------------------------------------------------------
- --------------------
1998 and 1999, the Fund issued 2,748,679 and 4,587,941
shares in connection with
a cash distribution paid in stock.
- ------------------------------------------------------------
Note 6. Subsequent Event
Effective April 14, 1999 the Fund's credit agreement expired
and has not been
renewed. Also effective April 14, 1999 the Fund entered into
a credit agreement
under the same terms except that the Fund now incurs a
commitment fee at an
annual rate of .09 of 1% on any unused portion of the credit
facility. The
maximum commitment under the agreement is $45,000,000. While
outstanding, each
borrowing will bear interest, payable on a monthly basis.
- ------------------------------------------------------------
- --------------------
9
<PAGE>
Financial Highlights FIRST
FINANCIAL FUND, INC.
- ------------------------------------------------------------
- --------------------
<TABLE>
<CAPTION>
Year Ended March 31,
- ------------------------------------------------------------
1999 1998 1997 1996 1995
<S>
<C> <C> <C> <C> <C>
- -------- -------- -------- -------- --------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of
year........................... $ 18.94 $ 15.26
$ 13.71 $ 11.05 $ 12.74
- -------- -------- -------- -------- --------
Income from investment operations
Net investment
income........................................ .11
.14 .22 .13 .05
Net realized and unrealized gain (loss) on
investments....... (7.20) 6.84 4.84
4.99 2.76
- -------- -------- -------- -------- --------
Total from investment
operations.......................... (7.09)
6.98 5.06 5.12 2.81
- -------- -------- -------- -------- --------
Less dividends and distributions
Dividends from net investment
income......................... (.05) (.14)
(.21) (.15) (.03)
Distributions from net realized
gains........................ (2.59) (2.68)
(3.36) (2.31) (4.38)
Distributions in excess of net realized
gains................ (.45) (.63) --
- -- --
- -------- -------- -------- -------- --------
Total dividends and
distributions......................... (3.09)
(3.45) (3.57) (2.46) (4.41)
- -------- -------- -------- -------- --------
Increase resulting from Fund share
repurchase................ -- --
.06 -- --
Net change resulting from the issuance of Fund
shares........ .09 .15 --
- -- (.09)
- -------- -------- -------- -------- --------
Net asset value, end of
year(a).............................. $ 8.85 $
18.94 $ 15.26 $ 13.71 $ 11.05
- -------- -------- -------- -------- --------
- -------- -------- -------- -------- --------
Market price per share, end of
year(a)....................... $ 7.3125 $ 20.813
$ 14.500 $ 12.625 $ 11.125
- -------- -------- -------- -------- --------
- -------- -------- -------- -------- --------
TOTAL INVESTMENT
RETURN(b):.................................. (53.65)%
72.59% 42.10% 35.46% 34.83%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000)................................ $221,881
$387,852 $270,496 $214,130 $158,214
Average net assets
(000)..................................... $296,740
$320,484 $238,967 $195,421 $164,322
Ratios to average net assets:
Expenses, before loan interest, commitment fees and
nonrecurring
expenses.................................. .94%
.91% 1.03% 1.00% 1.03%
Total
expenses............................................
1.61% 1.25% 1.56% 1.23% 1.58%
Net investment
income..................................... .91%
.82% 1.43% .97% 0.46%
Portfolio turnover
rate...................................... 65%
43% 70% 82% 103%
Total debt outstanding at end of year (000
omitted).......... $ 45,000 $ 20,000 $ 18,400
$ 9,700 $ 16,000
Asset coverage per $1,000 of debt
outstanding................ $ 5,931 $ 20,393 $
15,701 $ 23,075 $ 10,888
</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, 1999, 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, 1999 by
correspondence with the custodian and brokers, provide a
reasonable basis for
the opinion expressed above. The accompanying financial
highlights for each of
the two years in the period ended March 31, 1996 were
audited by other
independent accountants, whose opinion dated May 9, 1996 was
unqualified.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
May 20, 1999
- ------------------------------------------------------------
- --------------------
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, 1999) 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,
1999, the Fund paid dividends and distributions totalling
$3.09 per share,
comprised of $.05 ordinary income and $.435 short-term
capital gains which are
taxable as ordinary income and $2.605 long-term capital
gains which is taxable
as 20% rate gains. Further, we wish to advise you that
34.86% of the dividends
taxable as ordinary income and paid in the fiscal year ended
March 31, 1999
qualified for the corporate dividend received deduction
available to corporate
taxpayers.
In January 2000, 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 1999 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
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, NY 10036
Legal Counsel
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Notice is hereby given in accordance with Section 23(c) of
the
Investment Company Act of 1940 that the Fund may purchase,
from
time to time, shares of its common stock at market prices.
The views expressed in this report and the information about
the
Fund's portfolio holdings are for the period covered by this
report and are subject to change thereafter.
This report is for stockholder information. This is not a
prospectus intended for use in the purchase or sale of Fund
shares.
First Financial Fund, Inc.
Gateway Center Three
100 Mulberry Street
Newark, NJ 07102-4077
For information call toll-free (800) 451-6788
320228109
