(LOGO) ANNUAL REPORT March 31, 2002 Letter To Shareholders April 30, 2002 Dear Fellow Shareholder: The smell of accountability is in the air. And it's not just Enron. Wall Street, the accounting profession, and overpaid corporate CEOs--all are suffering from disclosure issues, specifically, a lack thereof. Ironic, isn't it, this being the "information age"? While we are spectacularly unqualified to opine on geo-socio-political affairs, such ignorance will not prevent us from offering a solution to the current corporate malaise. Look in the mirror. Over the last 20 years, we've seen stock analysis evolve from dry, considered studies of the balance sheet and cash flow to what seems like Derby day at Churchill Downs complete with "whisper numbers," consensus expectations and minute-by-minute updates on CNBC. Investors turn over stocks and mutual funds faster than a hand of canasta. The public has paid CEOs with truckloads of stock options asking only for a better-than-expected next quarter earnings number in return. Is it any wonder, then, that a few short cuts were taken: a little barter revenue here, a little special purpose vehicle there and don't count the options--they are below the line. Simply put, the market got what it asked for--an upward spiral of stock prices--but at a cost. The cost is what you read and gnash your teeth about today. TOTAL RETURNS For the Periods Ended 3/31/02 6 Mos. 1 Year 3 Years 5 Years First Financial Fund's NAV1 22.38% 35.20% 26.09% 13.21% S&P 500 10.99 0.24 -2.53 10.18 NASDAQ Composite* 23.12 0.28 -9.16 8.60 NASDAQ Banks* 13.55 24.20 10.14 11.16 SNL All Daily Thrift* 5.54 13.73 12.47 13.79 SNL MBS REITS 20.80 53.18 12.21 1.67 SNL Mortgage Banks* 5.88 9.30 5.77 -2.52 1 Source: Lipper Analytical Services, Inc. The Fund's total return represents the change in net asset value from the beginning of the period noted through March 31, 2002 and assumes the reinvestment of dividends and distributions. Past performance is no guarantee of future results. Returns based on market price performance of the Fund's shares would be different. * Principal only. Note: Returns for periods greater than one year are annualized. Our bet that the yield curve would remain steep and credit costs high proved remunerative this quarter, as did the market's love affair with small cap and value. Given investors' increasing fascination with the quality of earnings, our focus on strong balance sheets and understated ---------------------------------------------------------------------------- 1 values seemed timely as well. Among our current worries are the sustainability of strong residential and commercial real estate markets, the vulnerability of "less than prime" borrowers and another terrorist attack. While the current stock market offers few outstanding values, an especially skittish climate has yielded more than the usual trading opportunities. We appreciate your continued interest and support of the Fund. Nicholas C. Adams --------------------------------------------------------------------------- 2 Portfolio of Investments as of March 31, 2002 FIRST FINANCIAL FUND, INC. -------------------------------------------- ------------------------- Shares Description Value (Note 1) ------------------------------------------------------------ LONG-TERM INVESTMENTS--88.3% COMMON STOCKS--86.3% -------------------------------------------------------------- Banks & Thrifts--46.1% 12,800 Abington Bancorp, Inc. $ 210,560 34,600 Algiers Bancorp, Inc. 302,750 125,600 American Home Mortgage Holdings, Inc. 1,946,800 339,500 Astoria Financial Corp. 9,862,475 645,950 Bay View Capital Corp. 4,418,298 125,300 Bostonfed Bancorp, Inc. 3,163,825 64,640 Broadway Financial Corp. 827,392 160,900 Capital Crossing Bank* 3,571,980 75,400 Capital One Financial Corp. 4,814,290 69,100 CB Bancshares, Inc. 2,564,301 86,600 CBES Bancorp, Inc. 1,177,760 142,538 CCF Holding Co. 3,028,933 24,400 Charter Financial Corp. 590,968 57,800 Charter One Financial, Inc. 1,804,516 60,000 Community Bank San Jose California(a) 2,099,400 131,600 Connecticut Bancshares, Inc. 3,617,684 195,000 Dime Bancorp, Inc.* 25,350 190,400 Downey Financial Corp. 8,682,240 413,565 Fidelity Federal Bancorp.* 1,157,982 22,900 First Citizens BancShares, Inc. 2,357,784 45,000 First Community Bancorp, Inc. 1,183,500 29,000 First Financial Corp. 936,700 319,150 First Republic Bank* 9,063,860 297,100 FirstFed America Bancorp, Inc. 7,100,690 252,000 FirstFed Bancorp, Inc. 1,751,400 214,800 Friedman, Billings, Ramsey Group, Inc. * 1,503,600 241,600 Golden State Bancorp, Inc. 7,173,104 199,525 Hanmi Financial Corp.* 3,391,921 291,400 Hawthorne Financial Corp.* 8,523,450 19,999 HFB Financial Corp. 291,985 50,000 Hibernia Corp. 955,000 19,500 Iberiabank Corp. 676,065 131,300 KeyCorp 3,499,145 175,000 Macatawa Bank Corp. 3,465,000 219,600 MetroCorp Bancshares, Inc. 2,569,320 224,000 North Valley Bancorp 3,673,600 90,000 Northeast Pennsylvania Financial Corp. 1,471,500 339,200 Ocwen Financial Corp.* 2,235,328 102,900 Pacific Crest Capital, Inc. 2,510,760 341,660 Pacific Union Bank* 3,928,236 34,600 Peoples Financial Corp. $ 422,120 165,930 Perpetual Federal Savings Bank* 3,509,419 225,900 Port Financial Corp. 7,124,886 94,900 PrivateBankcorp, Inc.* 2,325,050 151,678 Progress Financial Corp.(a) 1,220,401 317,300 Provident Financial Holdings, Inc.* 9,388,907 40,650 Redwood Financial, Inc.* 389,021 45,000 River Valley Bancorp 1,073,250 47,800 Rowan Bancorp, Inc.* 1,625,200 82,280 Southern Financial Bancorp, Inc. 2,052,886 210,000 Southwest Bancorp, Inc. 4,255,860 32,500 St. Landry Financial Corp.(a)* 340,275 21,100 Team Financial, Inc. 187,790 150,800 Thistle Group Holdings Co. 1,898,572 35,000 Trico Bancshares 736,750 100,700 Unionbancal Corp. 4,432,814 77,595 Vista Bancorp, Inc. 2,095,065 172,000 Woronoco Bancorp, Inc. 3,225,000 ------------ 168,432,718 ------------ --------------------------------------------------------------- Mortgage & REITS--13.5% 538,800 Apex Mortgage Capital, Inc. 6,244,692 131,600 Fannie Mae 10,512,208 227,875 First Mortgage Corp.* 1,197,483 218,800 IMPAC Mortgage Holdings, Inc. 2,061,096 272,590 Medical Office Properties, Inc.(a) 2,725,900 243,000 New Century Financial Corp.(a) 4,964,490 155,504 Newcastle Investment Corp. REIT(a) 2,973,237 219,970 Novastar Financial, Inc. 4,135,436 708,400 RAIT Investment Trust 14,274,260 ------------ 49,088,802 ------------ ------------------------------------------------------------ Other Financial Intermediaries--13.9% 30,600 Ambac Financial Group, Inc. 1,807,542 25,500 Aon Corp. 892,500 574,200 Banner Central Finance Co.* 1,177,110 447,000 Ceres Group, Inc.* 2,033,850 186,200 FBR Asset Investment Corp. 5,064,640 574,200 Hispanic Express, Inc.* 1,119,690 ---------------------------------------------------------------- See Notes to Financial Statements. 3 Portfolio of Investments as of March 31, 2002 FIRST FINANCIAL FUND, INC. --------------------------------------------- -------------------------- Shares Description Value (Note 1) --------------------------------------------------------------- 318,700 IPC Holdings Ltd., ADR (Bermuda) $ 10,370,498 64,000 Legg Mason, Inc. 3,397,120 84,300 Philadelphia Consolidated Holding Corp.* 3,355,140 167,000 PMA Capital Corp. 3,830,980 170,300 Prudential Financial, Inc.* 5,287,815 959,315 Resource America, Inc. 10,581,244 73,200 Willis Group Holdings Ltd.* 1,808,040 ------------ 50,726,169 ------------ ------------------------------------------------------------ Savings & Loan--12.8% 114,600 Brookline Bancorp, Inc. 1,955,076 71,800 Chesterfield Financial Corp.* 1,262,244 238,500 Citizens First Bancorp, Inc. 4,545,810 181,800 Fidelity Bankshares, Inc. 3,272,400 35,500 First Bell Bancorp, Inc. 552,025 170,000 First Federal Bancshares, Inc. 2,852,600 184,400 FloridaFirst Bancorp, Inc. 3,374,520 163,100 Golden West Financial Corp. 10,356,850 90,000 HMN Financial, Inc. 1,444,500 320,300 Hudson City Bancorp, Inc. 10,396,938 95,000 Parkvale Financial Corp. 2,384,500 139,700 Quaker City Bancorp, Inc.* 4,425,697 ------------ 46,823,160 ------------ Total common stocks (cost $239,944,552) 315,070,849 ------------ ------------------------------------------------------------ Preferred Stocks--1.8% 121,000 Commerce Bancorp, Inc., 5.95% (cost $6,050,000) 6,382,750 ------------ Principal Amount (000) ------------------------------------------------------------ Convertible Bonds--0.2% $1,000 Online Resources Communications Zero Coupon, 9/30/05 (cost $1,000,000) 830,000 ------------ Total long-term investments (cost $246,994,552) 322,283,599 ------------ Principal Amount (000) Description Value (Note 1) ----------------------------------------------------------- SHORT-TERM INVESTMENTS--12.4% Repurchase Agreement--12.4% $45,403 Paribas Corp., 1.80%, dated 3/28/2002, due 4/1/2002 in the amount of $45,412,080 (cost $45,403,000; collateralized by $37,259,000 U.S. Treasury Bonds, 8.125%, due 8/15/19, value of collateral including interest $46,332,399) $ 45,403,000 ------------ ------------------------------------------------------------ Certificates of Deposit 2 Brookline Savings, 2.25%, 5/29/02 1,576 23 First Federal Savings Bank, 3.25%, 4/14/02 22,666 22 Naugatuck Valley Savings & Loan Assoc., 3.00%, 4/27/02 22,375 ------------ 46,617 ------------ Total short-term investments (cost $45,449,617) 45,449,617 ------------ ------------------------------------------------------------ Total Investments--100.7% (cost $292,444,169; Note 4) 367,733,216 Liabilities in excess of other assets--(0.7%) (2,526,053) ------------ Net Assets--100% $365,207,163 ------------ ------------ --------------- * Non-income-producing security. (a) Indicates a fair valued security. ADR--American Depository Receipt. REIT--Real Estate Investment Trust. ------------------------------------------------------------------------------- See Notes to Financial Statements. 4 Statement of Assets and Liabilities FIRST FINANCIAL FUND, INC. ------------------------------------------------------------------------------ Assets March 31, 2002 Investments, at value (cost $247,041,169).................................................................. $322,330,216 Repurchase agreement, at value (cost $45,403,000).......................................................... 45,403,000 Cash....................................................................................................... 43,474 Receivable for investments sold............................................................................ 4,987,512 Dividends and interest receivable.......................................................................... 829,446 Other assets............................................................................................... 157,993 -------------- Total assets............................................................................................ 373,751,641 -------------- Liabilities Payable for investments purchased.......................................................................... 7,786,034 Advisory fee payable....................................................................................... 536,177 Administration fee payable................................................................................. 124,932 Deferred directors' fees................................................................................... 34,895 Accrued expenses........................................................................................... 62,440 -------------- Total liabilities....................................................................................... 8,544,478 -------------- Net Assets................................................................................................. $365,207,163 -------------- -------------- 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 Cost of 1,442,594 shares held in treasury............................................................... (15,956,087) -------------- 262,145,042 Undistributed net investment income..................................................................... 1,857,604 Accumulated net realized gains.......................................................................... 25,915,470 Net unrealized appreciation on investments.............................................................. 75,289,047 -------------- Net assets, March 31, 2002.............................................................................. $365,207,163 -------------- -------------- Net asset value per share ($365,207,163 / 23,622,387 shares of common stock outstanding)................... $15.46 -------------- -------------- -------------------------------------------------------------------------------- See Notes to Financial Statements. 5 FIRST FINANCIAL FUND, INC. Statement of Operations ------------------------------------------------------------ Year Ended Net Investment Income March 31, 2002 Income Dividends................................ $ 6,235,852 Interest................................. 1,718,685 -------------- Total income.......................... 7,954,537 -------------- Expenses Investment advisory fee.................. 2,197,506 Administration fee....................... 512,401 Legal fees and expenses.................. 200,000 Insurance expense........................ 87,000 Reports to shareholders.................. 82,000 Custodian's fees and expenses............ 75,000 Transfer agent's fees and expenses....... 40,000 Listing fees............................. 40,000 Directors fees........................... 30,000 Audit fee................................ 26,000 Miscellaneous............................ 8,381 -------------- Total operating expenses.............. 3,298,288 Loan interest (Note 5)................... 134,764 -------------- Total expenses........................ 3,433,052 -------------- Net investment income....................... 4,521,485 -------------- Realized and Unrealized Gain on Investments Net realized gain on investment transactions............................. 60,925,158 Net change in unrealized appreciation of investments.............................. 34,818,254 -------------- Net gain on investments..................... 95,743,412 -------------- Net Increase in Net Assets Resulting from Operations................... $100,264,897 -------------- -------------- FIRST FINANCIAL FUND, INC. Statement of Changes in Net Assets ------------------------------------------------------------ Year Ended March 31, Increase in ------------------------------ Net Assets 2002 2001 ------------ ------------ Operations Net investment income....... $ 4,521,485 $ 3,434,275 Net realized gain on investment transactions............. 60,925,158 15,308,555 Net change in unrealized appreciation of investments.............. 34,818,254 85,599,520 ------------ ------------ Net increase in net assets resulting from operations............... 100,264,897 104,342,350 ------------ ------------ Dividends and distributions (Note 1) Dividends from net investment income........ (4,724,478) (2,462,878) Distributions from net realized gains on investment transactions............. (34,535,923) -- Cost of Fund shares reacquired.................. (11,189,671) (1,148,855) ------------ ------------ Total increase................. 49,814,825 100,730,617 Net Assets Beginning of year.............. 315,392,338 214,661,721 ------------ ------------ End of year(a)................. $365,207,163 $315,392,338 ------------ ------------ ------------ ------------ --------------- (a) Includes undistributed net investment income of........ $ 1,857,604 $ 2,060,597 ------------ ------------ ------------------------------------------------------------------------------ See Notes to Financial Statements. 6 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 management investment company. The Fund's primary investment objective is to achieve long-term capital appreciation with the secondary objective of current income by investing in securities issued by savings and banking institutions, mortgage banking institutions and their holding companies. The ability of issuers of debt securities held by the Fund to meet their obligations may be affected by economic developments in a specific industry or region. ------------------------------------------------------------ Note 1. Accounting Policies The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. Securities Valuation: Securities for which market quotations are readily available--including securities listed on national securities exchanges and those traded over-the-counter--are valued at the last quoted sales price on the valuation date on which the security is traded. If such securities were not traded on the valuation date, but market quotations are readily available, they are valued at the most recently quoted bid price provided by an independent pricing service or by principal market makers. Securities for which market quotations are not readily available will be valued at fair value as determined in good faith by or under the direction of the Board of Directors of the Fund. Short-term securities which mature in more than 60 days are valued at current market quotations. Short-term securities which mature in 60 days or less are valued at amortized cost. Repurchase Agreement: In connection with repurchase agreement transactions with financial institutions, it is the Fund's policy that its custodian take possession of the underlying collateral securities, the value of which exceeds the principal amount of the repurchase transaction, including accrued interest. To the extent that any repurchase transaction exceeds one business day, the value of the collateral is marked-to-market on a daily basis to ensure the adequacy of collateral. If the seller defaults, and the value of the collateral declines or if bankruptcy proceedings are commenced with respect to the seller of the security, realization of the collateral by the Fund may be delayed or limited. Securities Transactions and Net Investment Income: Securities transactions are recorded on the trade date. Realized gains 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 policy to continue to meet the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute all of its taxable income to shareholders. Therefore, no federal income tax provision is required. Dividends and Distributions: The Fund expects to declare and pay dividends from net investment income and any net capital gains, if any, annually. Dividends and distributions are recorded on the ex-dividend date. ------------------------------------------------------------ Note 2. Agreements The Fund has agreements with Wellington Management Company, LLP (the 'Investment Adviser') and with Prudential Investments LLC (the 'Administrator'). The Investment Adviser makes investment decisions on behalf of the Fund; the Administrator provides occupancy and certain clerical and accounting services to the Fund. The Fund bears all other costs and expenses. The investment advisory agreement provides for the Investment Adviser to receive a fee, computed monthly and payable quarterly, at the following annual rates: ..75% of the Fund's average month-end net assets up to and including $50 million, and .625% of such assets in excess of $50 million. The administration agreement provides for the Administrator to receive a fee, computed monthly and payable quarterly, at the annual rate of .15% of the Fund's average month-end net assets. ------------------------------------------------------------ Note 3. Portfolio Securities Purchases and sales of investment securities, other than short-term investments, for the year ended March 31, 2002 were $342,926,500 and $363,763,432, respectively. ------------------------------------------------------------ Note 4. Distributions and Tax Information For the year ended March 31, 2002, the tax character of dividends paid was $19,063,267 of ordinary income and $20,197,134 of long-term capital gains. As of March 31, 2002, the accumulated undistributed earnings on a tax basis were $12,121,422 of ordinary income and $15,738,060 of long-term capital gains. -------------------------------------------------------------------------------- 7 Notes to Financial Statements FIRST FINANCIAL FUND, INC. ------------------------------------------------------------------------------- The United States federal income tax basis of the Fund's investments and the net unrealized appreciation as of March 31, 2002 were as follows: Total Net Unrealized Tax Basis Appreciation Depreciation Appreciation -------------- ------------ ------------ ------------ $292,530,576 $ 80,778,941 $ (5,576,301) $ 75,202,640 The differences between book and tax basis are primarily attributable to deferred losses on wash sales. ------------------------------------------------------------ Note 5. Borrowings The Fund has a credit agreement (the 'Agreement') with an unaffiliated lender. The maximum commitment under the Agreement is $45,000,000. These borrowings may be set to any desired maturity at a rate of interest determined by the lender at the time of borrowing. The Agreement expired on April 29, 2002. On May 6, 2002, the Agreement was amended. The maximum commitment was increased to $75,000,000. The expiration date of the amended Agreement is April 28, 2003. All other terms and conditions are unchanged. While outstanding, the borrowings will bear interest, payable monthly. During the period while the loan was outstanding, the average daily balance for the year ended March 31, 2002 was approximately $6,647,000 at a weighted average interest rate of 2.32%. The highest face amount of borrowing at any month-end during the year ended March 31, 2002 was $10,000,000. The Fund did not have a loan balance at March 31, 2002. ------------------------------------------------------------ Note 6. Capital There are 50 million shares of $.001 par value common stock authorized. Of the 25,064,981 shares issued as of March 31, 2002, the Investment Adviser owned 10,994 shares. During the years ended March 31, 2002 and 2001, the Fund repurchased 902,300 and 104,094, respectively, of its own shares at a weighted average discount of 14.8% and 15.2%, respectively. ------------------------------------------------------------------------------- 8 Financial Highlights FIRST FINANCIAL FUND, INC. ------------------------------------------------------------------------------- Year Ended March 31, ----------------------------------------------- 2002 2001 2000 1999 -------- -------- -------- -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year....................................... $ 12.86 $ 8.72 $ 8.85 $ 18.94 -------- -------- -------- -------- Income from investment operations Net investment income.................................................... .19 .14 .12 .11 Net realized and unrealized gain (loss) on investments................... 3.99 4.09 (.20) (7.20) -------- -------- -------- -------- Total from investment operations...................................... 4.18 4.23 (.08) (7.09) -------- -------- -------- -------- Less dividends and distributions Dividends from net investment income..................................... (.20) (.10) (.08) (.05) Distributions from net realized gains.................................... (1.46) -- -- (2.59) Distributions in excess of net realized gains............................ -- -- -- (.45) -------- -------- -------- -------- Total dividends and distributions..................................... (1.66) (.10) (.08) (3.09) -------- -------- -------- -------- Increase resulting from Fund share repurchase............................ .08 .01 .03 -- Net change resulting from the issuance of Fund shares.................... -- -- -- .09 -------- -------- -------- -------- Net asset value, end of year(a).......................................... $ 15.46 $ 12.86 $ 8.72 $ 8.85 -------- -------- -------- -------- -------- -------- -------- -------- Market price per share, end of year(a)................................... $ 15.75 $ 11.29 $ 7.8125 $ 7.3125 -------- -------- -------- -------- -------- -------- -------- -------- TOTAL INVESTMENT RETURN(b):.............................................. 35.20% 49.40% 7.93% (53.65)% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (000)............................................ $365,207 $315,392 $214,662 $221,881 Average net assets (000)................................................. $341,601 $258,156 $230,163 $296,740 Ratios to average net assets: Expenses, before loan interest and commitment fees.................... .97% 1.09% 1.06% .94% Total expenses........................................................ 1.00% 2.12% 2.20% 1.61% Net investment income................................................. 1.32% 1.33% 1.33% .91% Portfolio turnover rate.................................................. 114% 85% 63% 65% Total debt outstanding at end of year (000 omitted)...................... $ -- $ -- $ 45,000 $ 45,000 Asset coverage per $1,000 of debt outstanding............................ $ -- $ -- $ 5,768 $ 5,931 1998 -------- PER SHARE OPERATING PERFORMANCE: Net asset value, beginning of year....................................... $ 15.26 -------- Income from investment operations Net investment income.................................................... .14 Net realized and unrealized gain (loss) on investments................... 6.84 -------- Total from investment operations...................................... 6.98 -------- Less dividends and distributions Dividends from net investment income..................................... (.14) Distributions from net realized gains.................................... (2.68) Distributions in excess of net realized gains............................ (.63) -------- Total dividends and distributions..................................... (3.45) -------- Increase resulting from Fund share repurchase............................ -- Net change resulting from the issuance of Fund shares.................... .15 -------- Net asset value, end of year(a).......................................... $ 18.94 -------- -------- Market price per share, end of year(a)................................... $ 20.813 -------- -------- TOTAL INVESTMENT RETURN(b):.............................................. 72.59% RATIOS/SUPPLEMENTAL DATA: Net assets, end of year (000)............................................ $387,852 Average net assets (000)................................................. $320,484 Ratios to average net assets: Expenses, before loan interest and commitment fees.................... .91% Total expenses........................................................ 1.25% Net investment income................................................. .82% Portfolio turnover rate.................................................. 43% Total debt outstanding at end of year (000 omitted)...................... $ 20,000 Asset coverage per $1,000 of debt outstanding............................ $ 20,393 --------------- (a) NAV and market value are published in The Wall Street Journal each Monday. (b) Total investment return is calculated assuming a purchase of common stock at the current market value on the first day and a sale at the current market value on the last day of each year reported. Dividends and distributions are assumed for purposes of this calculation to be reinvested at prices obtained under the dividend reinvestment plan. This calculation does not reflect brokerage commissions. Contained above is selected data for a share of common stock outstanding, total investment return, ratios to average net assets and other supplemental data for the year indicated. This information has been determined based upon information provided in the financial statements and market price data for the Fund's shares. -------------------------------------------------------------------------------- See Notes to Financial Statements. 9 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 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, 2002, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. 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 auditing standards generally accepted in the United States of America, 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, 2002 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York 10036 May 21, 2002 -------------------------------------------------------------------------------- 10 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, 2002) 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, 2002, the Fund paid dividends of ordinary income of $.200 and distributions of short-term capital gains of $.607, taxable as ordinary income, and long-term capital gains of $.855, taxable as such. Further, we wish to advise you that 33.8% of the dividends taxable as ordinary income and paid in the fiscal year ended March 31, 2002 qualified for the corporate dividend received deduction available to corporate taxpayers. In January 2003, 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 2002 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 (Unaudited) 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 Company (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. -------------------------------------------------------------------------------- 11 Management of the Fund (Unaudited) FIRST FINANCIAL FUND, INC. ------------------------------------------------------------------------------- Information pertaining to the Directors of the Fund is set forth below. Directors Term of Office Position and Length Name, Address and Age With Fund of Time Served* ---------------------------------------------------------------------- Richard I. Barr (65) Director Since 2001 6831 East Solano Drive (Class III) Phoenix, AZ 85061 Eugene C. Dorsey (75) Director Since 1996 2010 Harbourside Drive, Pound2003 (Class I) Longboat Key, FL 34228 Principal Occupations and Other Name, Address and Age Directorships Held** ---------------------------------------------------------------------------- Richard I. Barr (65) Director of Boulder Total Return Fund, 6831 East Solano Drive Inc. (since 1999) and USLIFE Income Phoenix, AZ 85061 Fund, Inc. (since 2002); formerly President and Director of Advantage Sales and Marketing (1997-1999); formerly President and Chief Executive Officer of CBS Marketing (1976-1997); former President, Arizona Food Brokers Association (1996); former Director, Association of Sales and Marketing Companies (formerly National Food Brokers Association) (1992-1998); former Director, St. Mary's Food Bank (1990-1996), and currently advisory board member of Kansas University Business School and Arizona State University. Eugene C. Dorsey (75) Retired. Director or Trustee of 78 2010 Harbourside Drive, Pound2003 portfolios within the Prudential Fund Longboat Key, FL 34228 Complex and Director of The High Yield Plus Fund, Inc.; formerly President, Chief Executive Officer and Trustee, Gannett Foundation (now Freedom Forum) (1981-1989); former publisher of four Gannett newspapers and Vice President of Gannett Co., Inc. (publishing) (1978-1981); past Chairman, Independent Sector, Washington, D.C. (national coalition of philanthropic organizations) (1989-1992); and former Chairman of the American Council for the Arts; and former Director, Advisory Board of Chase Manhattan Bank of Rochester. ------------------------------------------------------------------------------- 12 Management of the Fund (Unaudited) FIRST FINANCIAL FUND, INC. ------------------------------------------------------------------------------- Term of Office Position and Length Name, Address and Age With Fund of Time Served* ---------------------------------------------------------------------- Robert E. La Blanc (68) Director Since 1999 323 Highland Avenue (Class I) Ridgewood, NJ 07450 Thomas T. Mooney (60)*** Director, Since 1986 55 St. Paul Street President and (as Director) Rochester, NY 14604 Treasurer (Class II) Clay T. Whitehead (63) Director Since 2000 P.O. Box 8090 (Class II) McLean, VA 22106 Principal Occupations During Past 5 Years and Other Name, Address and Age Directorships Held** ----------------------------------------------------------------------------- Robert E. La Blanc (68) President of Robert E. La Blanc 323 Highland Avenue Associates, Inc. (information Ridgewood, NJ 07450 technologies consulting) (since 1981); Director or Trustee of 74 portfolios within the Prudential Fund Complex; Director of The High Yield Plus Fund, Inc.; formerly Vice-Chairman of Continental Telecom, Inc. (1979-1981); formerly General Partner at Salomon Brothers (1969-1979); Director of Salient 3 Communications, Inc. (telecommunications). Storage Technology Corp. (computer equipment), Titan Corp. (electronics), and Chartered Semiconductor Manufacturing, Ltd. (semiconductors); and Trustee of Manhattan College. Thomas T. Mooney (60)*** President of the Greater Rochester Metro 55 St. Paul Street Chamber of Commerce (since 1976); Rochester, NY 14604 Director or Trustee 95 portfolios within the Prudential Fund Complex; President, Director and Treasurer of The High Yield Plus Fund, Inc.; former Rochester City Manager (during 1973); Trustee of Center for Governmental Research, Inc. (volunteer consulting); and Director of Blue Cross of Rochester, Executive Service Corps of Rochester, Monroe County Water Authority and Rural/Metro Medical Services, Inc. (ambulance service). Clay T. Whitehead (63) President of Clay Whitehead Associates P.O. Box 8090 (telecommunications) (since 1987) and McLean, VA 22106 National Exchange Inc. (new business development firm) (since May 1983); Director or Trustee of 91 portfolios within the Prudential Fund Complex; Director of The High Yield Plus Fund, Inc., GTC Telecom, Inc. (telecommunications), and Crosswalk.com (website). ------------------------------------------------------------------------------- 13 Management of the Fund (Unaudited) FIRST FINANCIAL FUND, INC. ------------------------------------------------------------------------------- Information pertaining to the officers of the Fund, other than Mr. Mooney (who is listed above), is set forth below. Officers Term of Office Position and Length Name, Address and Age With Fund of Time Served* ---------------------------------------------------------------------- Arthur J. Brown (53) Secretary Since 1986 1800 Massachusetts Avenue, NW Washington, D.C. 20036 R. Charles Miller (44) Assistant Since 1999 1800 Massachusetts Avenue, NW Secretary Washington, D.C. 20036 Principal Occupations Name, Address and Age During Past 5 Years ----------------------------------------------------------------------------- Arthur J. Brown (53) Partner, Kirkpatrick & Lockhart LLP (law 1800 Massachusetts Avenue, NW firm and counsel to the Fund) Washington, D.C. 20036 R. Charles Miller (44) Partner, Kirkpatrick & Lockhart LLP 1800 Massachusetts Avenue, NW Washington, D.C. 20036 ------------------ * The Board of Directors is divided into three classes, each of which has three terms. Class I's term expires this year. Officers are generally elected by the Board to one year terms. ** This column includes only directorships of companies required to report to the Securities and Exchange Commission under the Securities Exchange Act of 1934 (that is, 'public companies') or other investment companies registered under the Investment Company Act of 1940 ('1940 Act'). Each Director of the Fund, except Mr. Barr, oversees three other portfolios within the Fund's 'Fund Complex'. The Fund's Fund Complex consists of a group of investment companies and series of investment companies that are advised by the Investment Adviser. *** Indicates an 'interested person' of the Fund, as defined in the 1940 Act. Mr. Mooney is deemed to be an 'interested person' solely by reason of his service as an officer of the Fund. Revised Investment Policy (Unaudited) FIRST FINANCIAL FUND, INC. ------------------------------------------------------------------------------- On May 21, 2002, the Board of Directors unanimously approved a new investment policy for the Fund in order to comply with new Rule 35d-1 under the 1940 Act (commonly known as the 'names rule'). The names rule requires many funds that have names that signify certain investments to have an investment policy requiring that 80% of their assets be invested in such investments. The Fund's name includes the term 'financial,' which may suggest a particular type of investment. Accordingly, the Board adopted a new fundamental investment policy for the Fund as follows: 'Under normal circumstances, the Fund will invest at least 80% of its assets (net assets, plus the amount of any borrowings for investment purposes) in securities issued by finance and financial service-related companies, including savings and banking institutions, the deposits of which are insured by the Federal Deposit Insurance Corporation, securities issued by mortgage banking institutions, REITs, and consumer and industrial finance, insurance, brokerage, investment banking, asset management, and other financial service companies, as well as in the holding companies of such companies.' The Investment Adviser expects the Fund to be in compliance with this revised policy by the July 31, 2002 effective date of this new rule. The Fund will retain its existing industry concentration policy to invest at least 65% of its total assets in certain savings, banking and mortgage banking institutions and their holding companies. -------------------------------------------------------------------------------- 14 Directors Richard I. Barr Eugene C. Dorsey Robert E. La Blanc Thomas T. Mooney Clay T. Whitehead Investment Adviser Wellington Management Company, LLP 75 State Street Boston, MA 02109 Administrator Prudential Investments LLC Gateway Center Three 100 Mulberry Street Newark, NJ 07102-4077 Custodian 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