---

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Letter from the Adviser  September 30, 2006

Dear Stockholders:

The First Financial Fund (the "Fund") returned 2.2% on NAV for the semi-annual period ending September 30, 2006. Despite the impact of an inverted interest rate yield curve on bank net interest margins and increasing concern about future default rates in the sub-prime mortgage market, the Fund's defensive posture was not rewarded over the past six months. The U.S. economy had stronger than expected job growth while liquidity in the capital markets remains robust. While we are not pleased with our performance in the short-term, we continue to position the Fund for shareholder value over the long-term, and retain our defensive positioning in the face of a plethora of economic headwinds.

TOTAL RETURNS

As of September 30, 2006

				6 Mos				1 Yr				3 Yrs				5 Yrs				10 Yrs
First Financial Fund's NAV					2.2	%			11.0	%			18.0	%			23.3	%			17.6	%
S&P 500 Index					4.1				10.8				12.3				7.0				8.6
NASDAQ Composite*					-3.1				5.8				8.8				9.0				6.5
NASDAQ Banks*					1.1				8.2				8.1				9.7				11.0
SNL Thrifts*					4.0				13.1				9.1				12.6				14.9
SNL Finance REIT*					10.6				15.6				10.5				20.3				10.4

 

Sources: Lipper Analytical Services, Inc. and Wellington Management Company, LLP
* Principal Only

Periods greater than one year are annualized

The strongest contributor to absolute performance during the period was MortgageIT (+36.0%). In July, the company announced it would be acquired by Deutsche Bank. Less credit-sensitive intermediary First Republic Bank (+13.3%) also contributed strongly to the Fund's performance. Another significant positive contributor was CCF Holding (+28.4%). Detractors from performance over the period included Aames Investment (-30.1%), Centennial Bank (-16.8%), and White Mountains (-15.3%). Looking across the sub-sectors, our Insurance names were the largest detractors to performance.

The Fund remains positioned primarily in Regional Banks (45%) as well as Thrift & Mortgage Finance names (18%). Among our largest additions to the Fund during the period were Aberdeen Asset Management and National Financial Partners. We eliminated First Community Bancorp and RAIT Investment Trust. Our top holdings include First Republic Bank, UBS, BankUnited Financial, First Regional Bancorp, and Downey Financial.

1

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The predicted housing downturn is well on its way; some leading house price measures indicate zero home price appreciation compared to double-digit increases only a year ago. Consumption growth will slow with a lag. The recent drop in energy prices has been a welcome offsetting relief. However, looking out into next year, slowing employment and salary income will support real consumption spending growth of only 2%. Since household credit growth is decelerating as well, debt accumulation is unlikely to support spending growth beyond the gains in income.

The risk of a US recession is still present. Still, several factors make us believe that a hard landing can be prevented. A more benign energy price environment will push inflation lower in 2007, and modestly lower bond yields should help stabilize the housing market at one point. Lastly, the Fed will stand ready to cut policy rates if there is an unexpected deterioration in the labor market.

Looking ahead, we continue to be concerned with the slowing US economy, interest margins, vulnerable credit spreads, and the impact of the unfolding housing slump on consumer spending. Across several sub-sectors of Financials, we continue to invest primarily with an eye on the credit cycle.

We remain cautiously pessimistic and focused on well-managed companies, priced reasonably, that can navigate varied and difficult macro environments. Where appropriate we will diversify our risks both geographically, including investments outside of the U.S., and functionally, looking for financial companies outside of the bank and thrift industry. We want to invest where returns in financial services are the most promising.

We appreciate your support of the Fund.

Nicholas C. Adams

2

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Portfolio of Investments as of September 30, 2006 (Unaudited)

FIRST FINANCIAL FUND, INC.

Shares				Description				Value (Note 1)
LONG TERM INVESTMENTS-91.2%
DOMESTIC COMMON STOCKS-78.1%
Banks & Thrifts-45.8%
	41,000			1st United Bancorp, Inc.†(a)(b)				$	553,500
	83,490			Alliance Bankshares Corporation†					1,402,632
	468,000			AmeriServ Financial, Inc.†(a)					2,073,240
	73,900			AmeriServ Financial, Inc. (a)					327,377
	56,200			Bancorp Rhode Island, Inc.					2,486,850
	251,735			Bancorp, Inc.†					6,416,725
	87,500			Bancshares of Florida, Inc.†					1,844,500
	88,600			Bank of America Corporation					4,746,302
	10,200			Bank of Commerce Holdings					110,160
	34,000			Bank of Marin					1,072,700
	40,500			Bank of Oak Ridge†					510,300
	83,300			Bank of Virginia†					649,740
	369,500			BankAtlantic Bancorp, Inc. Class A					5,254,290
	443,100			BankFinancial Corporation					7,749,819
	57,000			BCB Bancorp, Inc.					854,430
	114,000			Benjamin Franklin Bancorp, Inc.					1,589,160
	32,700			Beverly National Corporation					768,450
	142,100			Capital Corporation of the West					4,407,942
	180,100			Cardinal Financial Corporation					1,973,896
	85,000			Cardinal State Bank†					1,041,250
	42,350			Carolina Trust Bank†					787,710
	340,815			CCF Holding Company (c)					6,799,259
	600,000			Centennial C Corporation (a)					5,808,000
	15,600			City National Corporation					1,046,136
	8,820			Coastal Banking Company, Inc.†					186,543
	58,300			Commerce Bancorp, Inc.					2,140,193
	60,000			Community Bank (a)(b)					3,467,400
	66,000			Community Bank of Orange, N.A. (a)					313,500
	26,000			Community Capital Bancshares, Inc.					318,500
	75,800			Connecticut Bank & Trust†					601,094
	9,100			Crescent Banking Company					409,500
	86,913			Dearborn Bancorp, Inc.†					2,066,791
	97,200			FC Holdings, Inc. (a)(b)					972,000
	79,300			FCB Bancorp, Inc. (a)(b)					1,568,713
	100,000			Federal City National Bank (a)(b)					618,000
	16,900			Fidelity Southern Corporation					305,890
	39,700			First American International (a)(b)					1,052,050
	33,599			First Citizens BancShares, Inc., Class A					6,420,769
	5,830			First Financial Service Corporation					170,761
	256,734			First Regional Bancorp†(a)					8,746,927
	375,775			First Republic Bank					15,992,984
	234,400			First Security Group, Inc.					2,700,288
	66,726			First Southern Bancorp (a)(d)					1,718,195
	12,000			First Trust Bank†					318,000
	193,261			Florida Capital Group (a)(b)					2,203,175
	71,468			FNB United Corporation					1,331,449
	225,236			Gateway Financial Holdings					3,216,370
	137,700			Great Florida Bank Class A†(b)					2,203,200
	15,300			Great Florida Bank Class B†(a)(b)					244,800
	95,600			Greene County Bancshares, Inc.					3,495,136
	92,369			Greenville First Bancshares, Inc.†					1,710,674
	18,600			Heartland Financial USA, Inc.					477,648
	33,527			Heritage Oaks Bancorp					546,490

 

Shares				Description				Value (Note 1)
Banks & Thrifts - continued
	27,800			Home Bancshares, Inc.				$	613,824
	39,700			IBERIABANK Corporation					2,421,700
	12,300			ICB Financial (a)(b)					309,960
	138,600			LSB Bancshares, Inc.					2,363,130
	222,800			MetroCorp Bancshares, Inc.					5,055,332
	905,600			National Bancshares, Inc. (a)(b)					2,128,160
	39,900			New England Bancshares, Inc. (a)					510,720
	13,640			North Bay Bancorp					367,734
	56,000			North Valley Bancorp					985,600
	59,850			Northrim Bancorp, Inc.					1,580,040
	54,208			Parkway Bank†					669,469
	28,200			Peapack-Gladstone Financial Corporation					690,054
	130,500			Pennsylvania Commerce Bancorp†					3,425,625
	159,600			Pilot Bancshares, Inc. (a)					2,872,800
	112,300			Republic Bancorp, Inc.					1,496,959
	173,219			Republic First Bancorp, Inc.†					2,296,884
	20,630			SCBT Financial Corporation					771,562
	195,700			Signature Bank†					6,053,001
	111,615			Southern Connecticut Bancorp, Inc.†					792,467
	302,900			Square 1 Financial, Inc. (a)(b)					2,695,810
	80,151			Sterling Bank					897,691
	29,500			SuffolkFirst Bank†					324,500
	16,819			Summit Bank Corporation					393,060
	256,642			Sun Bancorp, Inc.†					4,832,569
	21,100			Team Financial, Inc.					316,711
	101,100			Texas United Bancshares, Inc.					3,335,289
	23,184			The Bank Holdings, Inc.†					431,918
	39,900			TIB Financial Corporation					1,274,007
	71,900			Tidelands Bancshares, Inc. (a)					1,319,365
	130,000			Transatlantic Bank (a)(b)					2,132,000
	453,400			UCBH Holdings, Inc.					7,916,364
	231,000			UMB Financial Corporation					8,447,670
	72,900			UnionBanCal Corporation					4,439,610
	30,700			UnionBancorp, Inc.					583,300
	49,665			Valley Commerce Bancorp†					993,300
	169,299			Wainwright Bank & Trust Company					1,784,411
	38,587			Westbank Corporation					880,169
	36,700			Yardville National Bancorp					1,308,722
									205,502,895
Diversified Financial Services-5.9%
	56,200			Capital One Financial Corporation					4,420,692
	25,000			CMET Financial Holdings, Inc. (a)(b)(d)					710,000
	131,400			Delta Financial Corporation (a)					1,203,624
	76,600			Delta Financial Corporation (a)					701,656
	42,400			E*Trade Financial Corporation†					1,014,208
	60,000			Independence Financial Group, Inc. (a)(b)					600,000
	93,615			Mackinac Financial Corporation (a)					988,574
	116,000			Nasdaq Stock Market, Inc.†					3,507,840
	146,300			National Financial Partners Corporation					6,002,689
	74,631			Peppercoin, Inc. (a)(b)					400,000

 

See accompanying notes to financial statements. 3

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Portfolio of Investments as of September 30, 2006 (Unaudited)

FIRST FINANCIAL FUND, INC.

Shares				Description				Value (Note 1)
Diversified Financial Services - continued
	265,000			Resource Capital Corporation†(a)(d)				$	4,094,250
	700			Rush Financial Technologies (a)(b)					1,213,212
	117,200			Technology Investment Capital Corporation					1,714,636
									26,571,381
Insurance-3.7%
	350,000			AmTrust Financial Services, Inc.†(a)(b)(d)					2,625,000
	48,700			Assurant, Inc.					2,601,067
	90,700			Conseco, Inc.†					1,903,793
	70,300			HCC Insurance Holdings, Inc.					2,311,464
	141,100			Ohio Casualty Corporation					3,650,257
	50,000			ProAssurance Corporation†					2,464,000
	28,500			Zenith National Insurance Corporation					1,136,865
									16,692,446
Mortgages & REITS-2.7%
	1,061,100			Aames Investment Corporation; REIT					3,735,072
	55,000			Embarcadero Bank (a)(b)					550,000
	483,600			MortgageIT Holdings, Inc.; REIT					6,809,088
	155,504			Newcastle Investment Holdings Corporation; REIT†(b)					982,785
									12,076,945
Savings & Loans-20.0%
	116,000			Abington Community Bancorp, Inc.					1,742,320
	104,400			American Bancorp of NJ					1,237,140
	94,500			Americredit†					2,361,555
	40,200			Appalachian Bancshares, Inc.†					980,478
	13,000			Atlantic Coast Federal					233,740
	339,600			Bankunited Financial Corporation, Class A					8,853,372
	124,326			Berkshire Hills Bancorp, Inc.					4,424,762
	129,280			Broadway Financial Corporation (c)					1,370,368
	60,100			Carver Bancorp, Inc.					997,660
	81,700			Central Federal Corporation					660,953
	324,800			CFS Bancorp, Inc.					4,803,792
	24,400			Charter Financial Corporation					975,756
	34,500			Citizens Community Bank†					552,000
	150,400			Citizens First Bancorp, Inc.					3,829,184
	40,559			Commercial Capital Bancorp					646,510
	127,400			Downey Financial Corporation					8,477,196
	19,500			ECB Bancorp, Inc.					629,850
	32,500			Fidelity Federal Bancorp†					715,000
	25,560			First Community Bank Corporation of America†					499,698
	57,538			First Federal Bancshares, Inc.					1,136,376
	43,400			Georgetown Bancorp, Inc.†					410,130
	63,245			Great Lakes Bancorp, Inc.†					1,016,347
	3,630			HF Financial Corporation					58,988

 

Shares				Description				Value (Note 1)
Savings & Loans - continued
	41,700			HMN Financial, Inc.				$	1,449,492
	128,000			Home Federal Bancorp, Inc.					1,990,400
	93,100			Jefferson Bancshares, Inc.					1,239,161
	81,700			Legacy Bancorp, Inc.					1,270,435
	37,500			Liberty Bancorp, Inc.					383,250
	54,612			LSB Corporation					928,404
	310,300			MidCountry Financial Corporation (a)(b)					4,654,500
	40,000			Newport Bancorp, Inc.†					560,000
	70,623			Northwest Bancorp, Inc.					1,800,887
	67,100			Old Line Bancshares, Inc.					748,165
	163,300			Pacific Premier Bancorp, Inc.†					1,959,600
	417,200			People's Choice Financial Corporation (a)(b)(d)					1,251,600
	165,930			Perpetual Federal Savings Bank (c)					4,231,215
	17,500			Privee LLC (a)(b)					2,362,500
	100,000			Provident Financial Holdings, Inc.					3,014,000
	40,650			Redwood Financial, Inc.†(c)					792,675
	90,000			River Valley Bancorp (c)					1,588,500
	48,174			Riverview Bancorp, Inc.					650,349
	203,000			Rome Bancorp, Inc.					2,608,550
	6,300			Royal Financial, Inc.†					95,130
	289,600			SI Financial Group, Inc.					3,417,280
	81,400			Southcoast Financial Corporation†					1,729,750
	100,000			Sterling Eagle (a)(b)					656,000
	110,500			Third Century Bancorp (c)					1,165,775
	212,500			United Financial Bancorp, Inc.					2,747,625
									89,908,418
				Total Domestic Common Stocks (cost $283,335,903)					350,752,085
FOREIGN COMMON STOCKS-13.1%
Bermuda-3.7%
	72,400			Arch Capital Group Ltd.†					4,596,676
	112,000			CRM Holdings, Ltd.†					845,600
	37,300			Everest Re Group, Ltd.					3,637,869
	98,000			Max Re Capital, Ltd.					2,250,080
	110,300			Platinum Underwriters Holdings, Ltd.					3,400,549
	3,700			White Mountains Insurance Group, Ltd.					1,838,752
									16,569,526
Brazil-1.2%
	439,500			Abyara Planejamento Imobilia†					5,263,473
Canada-1.8%
	22,800			Canadian Satellite Radio Holdings, Inc. Class A†(a)(d)					143,056
	173,074			Canadian Western Bank					6,571,429
	47,200			Laurentian Bank of Canada					1,216,331
									7,930,816

 

See accompanying notes to financial statements. 4

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Portfolio of Investments as of September 30, 2006 (Unaudited)

FIRST FINANCIAL FUND, INC.

Shares				Description				Value (Note 1)
Cayman Islands-1.0%
	22,200			Ace Ltd.				$	1,215,006
	323,100			Scottish Re Group Ltd.					3,512,097
									4,727,103
Germany-1.0%
	531,000			European Capital Beteiligung (a)(b)					4,470,865
Switzerland-2.9%
	22,390			Augsburg Re AG (a)(b)(d)					3,584
	44,125			Augsburg Re AG Convertible Debt (a)(b)(d)					41,211
	219,600			UBS AG					13,024,476
									13,069,271
United Kingdom-1.5%
	2,155,359			Aberdeen Asset Management, PLC					6,592,743
				Total Foreign Common Stocks (cost $49,733,015)					58,623,797
Warrants-0.0%*
	195,000			Dime Bancorp, Inc., Warrant, Expires 12/26/50†					21,840
	26,500			Resource Capital Corporation, Warrant, Expires 12/31/09 (b)(d)					29,548
	2,333,333			Rush Financial Technologies, Warrant, Expires 3/20/11 (b)					260,867
				Total Warrants (cost $0)					312,255
				Total Long Term Investments (cost $333,068,918)					409,688,137
Par Value
SHORT TERM INVESTMENTS-9.0%
Repurchase Agreement-9.0%
$	40,600,000			Goldman Sachs Triparty Mortgage Repo, 5.370% dated 9/29/2006, to be repurchased at $40,618,169 on 10/02/2006, collateralized by U.S. Government Agency Securities with an aggregate market value plus accrued interest of $41,412,001, rate of 4.50% and maturity of 08/01/2035 (Cost $40,600,000)				$	40,600,000
Total Investments-100.2%
				(cost $373,668,918)					450,288,137
				Other Assets and Liabilities-(0.2%)					(985,480	)
				Net Assets — 100%				$	449,302,657

 

†  Non-income producing security.

(a)  Private Placement restricted as to resale and does not have a readily available market.

(b)  Indicates a fair valued security. Total market value for fair valued securities is $40,960,440 representing 9.12% of the total net assets.

(c)  Affiliated Company. See Note 8 to Financial Statements

(d)  Security exempt from registration pursuant to Rule 144A under the Securiites Act of 1933, as amended.

*  Amount represents less than 0.1% of net assets.

REIT  -Real Estate Investment Trust

Investments as a % of Net Assets (Unaudited)

See accompanying notes to financial statements. 5

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Statement of Assets and Liabilities  FIRST FINANCIAL FUND, INC.

Assets:				September 30, 2006
Investments:
Investments, at value of Unaffiliated Securities (Cost $369,458,348) (Note 1)				$	434,340,345
Investments, at value of Affiliated Securities (Cost $4,210,570) (Note 1 and Note 9)					15,947,792
Total Investments, at value					450,288,137
Cash					28,839
Receivable for investments sold					445,024
Dividends and interest receivable					554,630
Prepaid expenses and other assets					194,341
Total Assets					451,510,971
Liabilities:
Payable for investments purchased					924,933
Investment advisory fees payable (Note 2)					983,259
Administration, co-administration and custodian fees payable (Note 2)					140,829
Legal and Audit fees payable					46,538
Accrued expenses and other payables					112,755
Total Liabilities					2,208,314
Net assets				$	449,302,657
Net assets consist of:
Undistributed net investment income				$	5,008,800
Accumulated net realized gain on investments sold					38,759,724
Unrealized appreciation of investments					76,619,285
Par value of Common Stock (Note 4)					28,062
Paid-in Capital in excess of par value of Common Stock					328,886,786
Total Net Assets				$	449,302,657
Net Asset Value, $449,302,657/28,061,897 shares outstanding				$	16.01

 

See accompanying notes to financial statements. 6

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FIRST FINANCIAL FUND, INC.

Statement of Operations

Net Investment Income				For the Six Months Ended September 30, 2006 (unaudited)
Investment Income:
Dividends from Unaffiliated Securities (net of foreign withholding taxes of $46,940)				$	3,559,584
Dividends from Affiliated Securities					374,818
Interest					774,113
Total Investment Income:					4,708,515
Expenses:
Investment advisory fee (Note 2)					1,713,264
Administration, co-administration and custodian fees (Note 2)					547,909
Directors fees and expenses (Note 2)					72,699
Legal and Audit fees					56,395
Insurance expenses					43,356
Printing fees					26,891
Other					36,923
Total Expenses					2,497,437
Net Investment Income					2,211,078
Realized and Unrealized Gain/(Loss) on Investments:
Net realized gain/(loss) on:
Securities					21,152,847
Foreign currency related transactions					(88,958	)
Net change in unrealized appreciation/ (depreciation) of:
Securities					(13,661,616	)
Foreign currency related transactions					14,694
Net Realized and Unrealized Gain On Investments					7,416,967
Net Increase in Net Assets Resulting From Operations				$	9,628,045

 

FIRST FINANCIAL FUND, INC.

Statement of Changes in Net Assets

Increase/(Decrease) in Net Assets				Six Months Ended September 30, 2006 (unaudited)				Year Ended March 31, 2006
Operations:
Net investment income				$	2,211,078			$	6,384,537
Net realized gain on investments sold during the period					21,063,889				58,998,494
Net change in unrealized appreciation of investments during the period					(13,646,922	)			(3,459,059	)
Net increase in net assets resulting from operations					9,628,045				61,923,972
Distributions:
Dividends paid from net investment income					—				(4,612,377	)
Distributions paid from net realized capital gains to shareholders					—				(90,402,586	)
Net asset value of shares issued in connection with the reinvestment of dividends from net investment income and distributions from net realized gains (0 and 4,998,925 shares issued, respectively)					—				74,134,047
Net increase in net assets for the period					9,628,045				41,043,056
Net Assets:
Beginning of period					439,674,612				398,631,556
End of period (including undistributed net investment income of $5,008,800 and $2,797,722, respectively)				$	449,302,657			$	439,674,612

 

See accompanying notes to financial statements. 7

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Financial Highlights  FIRST FINANCIAL FUND, INC.

Contained below 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.

				Six Months Ended September 30, 2006				Year Ended March 31,
				(Unaudited)				2006				2005				2004				2003				2002
OPERATING PERFORMANCE:
Net asset value, beginning of period				$	15.67			$	17.28			$	19.24			$	14.40			$	15.46			$	12.86
Net investment income					0.10				0.15				0.38				0.15				0.16				0.19
Net realized and unrealized gain on investments					0.24				2.36				2.74				7.36				1.72				3.99
Total from investment operations					0.34				2.51				3.12				7.51				1.88				4.18
DISTRIBUTIONS:
Dividends paid from net investment income to shareholders					—				(0.20	)			(0.38	)			(0.16	)			(0.17	)			(0.20	)
Distributions paid from net realized capital gains					—				(3.92	)			(4.72	)			(2.59	)			(2.80	)			(1.46	)
Total distributions					—				(4.12	)			(5.10	)			(2.75	)			(2.97	)			(1.66	)
Accretive Impact of Capital Share Transactions					—				—				0.02				—				—				—
Net Increase resulting from Fund Share repurchase					—				—				—				0.08				0.03				0.08
Net asset value, end of the period (a)				$	16.01			$	15.67			$	17.28			$	19.24			$	14.40			$	15.46
Market price per share, end of period (a)				$	17.27			$	16.51			$	18.02			$	18.30			$	13.97			$	15.75
TOTAL INVESTMENT RETURN BASED ON MARKET VALUE (b)					4.60	%			17.07	%			24.41	%			51.96	%			8.24	%			35.20	%
RATIOS AND SUPPLEMENTAL DATA:
Ratio of operating expense to average net assets (c)					1.00	%			1.01	%			1.03	%			1.09	%			1.27	%			0.97	%
Ratio of operating expenses including interest expense to average net assets (c)					1.00	%			1.02	%			1.06	%			1.10	%			1.29	%			1.00	%
Ratio of net investment income to average net assets (c)					1.13	%			1.54	%			1.94	%			0.86	%			0.99	%			1.32	%
Portfolio turnover rate					24	%			70	%			79	%			87	%			74	%			114	%
Net assets, end of the period (in 000's)				$	449,303			$	439,675			$	398,632			$	438,573			$	339,389			$	365,207
Number of shares outstanding at the end of period (in 000's)					28,062				28,062				23,063				22,791				23,576				23,622

 

(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 period reported. Dividends and distributions are assumed for purposes of calculation to be reinvested at prices obtained under the dividend reinvestment plan. The calculation does not reflect brokerage commissions.

(c) Annualized.

See accompanying notes to financial statements. 8

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Notes to Financial Statements (Unaudited)  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, under normal conditions, at least 65% of its assets in financial services companies, except for temporary or defensive purposes. In addition, pursuant to a non-fundamental investment policy adopted by the Fund, under normal conditions it invests at least 80% of its assets in securities issued by financial service companies. The 80% non-fundamental policy may be changed upon 60-days advance notice to stockholders. "Financial service companies" include savings and banking institutions, mortgage banking institutions, real estate investment trusts, consumer finance companies, credit collection and related service companies, insurance companies, security and commodity brokerage companies, investment advisory firms and financial conglomerates, and holding companies of any of these companies.

Note 1. Significant Accounting Policies

The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America, which requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates.

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 traded on NASDAQ are valued at the NASDAQ Official Closing Price ("NOCP"). Where market quotations are not readily available or where the pricing agent or market maker does not provide a valuation or methodology, or provides a valuation or methodology that, in the judgment of the adviser, does not represent fair value ("Fair Value Securities"), securities are valued at fair value by a Pricing Committee appointed by the Board of Directors, in consultation with the adviser. In such circumstances, the adviser makes an initial written recommendation to the Pricing Committee regarding valuation methodology for each Fair Value Security. Thereafter, the adviser conducts periodic reviews of each Fair Value Security to consider whether the respective methodology and its application is appropriate and recommends methodology changes when appropriate. Prior to implementation, the Pricing Committee reviews and makes a determination regarding each initial methodology recommendation and any subsequent methodology changes. All methodology recommendations and any changes are reviewed by the entire Board of Directors on a quarterly basis.

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, which approximates fair value.

Repurchase Agreements: The Fund may enter into repurchase agreement transactions with United States 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 maintain the adequacy of the collateral. The value of the collateral at the time of the execution must be at least equal to 102% of the total amount of the repurchase obligations, including 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.

Foreign Currency: The books and records of the Fund are maintained in US dollars. Foreign currencies, investments and other assets and liabilities denominated in foreign currencies are translated into US dollars at the exchange rate prevailing at the end of the period, and purchases and sales of investment securities, income and expenses transacted in foreign currencies are translated at the exchange rate on the dates of such transactions. Foreign currency gains and losses result from fluctuations in exchange rates between trade date and settlement date on securities transactions, foreign currency transactions and the difference between the amounts of interest and dividends recorded on the books of the Fund and the amounts actually received. The portion of foreign currency gains and losses related to fluctuation in the exchange rates between the

9

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Notes to Financial Statements (Unaudited)  FIRST FINANCIAL FUND, INC.

initial purchase trade date and subsequent sale trade date is included in gains and losses on investment securities sold.

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, or for certain foreign securities, when the information becomes available to the portfolios. Interest income including amortization of premium and accretion of discount on debt securities, as required, is recorded on the accrual basis, using the effective interest method.

Dividend income from investments in real estate investment trusts ("REITs") is recorded at management's estimate of the income included in distributions received. Distributions received in excess of this amount are recorded as a reduction of the cost of investments. The actual amounts of income and return of capital are determined by each REIT only after its fiscal year-end, and may differ from the estimated amounts.

Federal Income Taxes: The Fund intends to qualify as a registered investment company ("RIC") by complying with the requirements under subchapter M of the Internal Revenue Code of 1986, as amended, applicable to RICs and intends to distribute substantially all of its taxable net investment income to its stockholders. Therefore, no Federal income tax provision is required.

Income and capital gain distributions are determined and characterized in accordance with income tax regulations, which may differ from generally accepted accounting principles. These differences are primarily due to (1) differing treatments of income and gains on various investment securities held by the Fund, including timing differences and (2) the attribution of expenses against certain components of taxable investment income. The Internal Revenue Code of 1986, as amended, imposes a 4% nondeductible excise tax on the Fund to the extent the Fund does not distribute by the end of any calendar year at least (1) 98% of the sum of its net investment income for that year and its capital gains (both long-term and short-term) for its fiscal year and (2) certain undistributed amounts from previous years.

Dividends and Distributions to Stockholders: The Fund expects to declare and pay dividends from net investment income and distributions of net realized capital gains, if any, annually. Dividends and distributions to stockholders, which are determined in accordance with federal income tax regulations and which may differ from generally accepted accounting principles, are recorded on the ex-dividend date. Permanent book/tax differences related to income and gains are reclassified to paid-in-capital when they arise.

Note 2. Agreements

Wellington Management Company, LLP serves as the investment adviser (the "Investment Adviser") and makes investment decisions on behalf of the Fund. As of July 24, 2006, the Fund pays the Investment Adviser a quarterly fee at the following annualized rates: 1.125% of the Fund's average month-end net assets ("Net Assets") up to and including $150 million; 1.000% on Net Assets on the next $150 million; and 0.875% on Net Assets in excess of $300 million. Prior to July 24, 2006, the Fund paid the Investment Adviser a quarterly fee at the following annualized rates: 0.75% of the Fund's average month-end net assets up to and including $50 million, and 0.625% of such assets in excess of $50 million.

Fund Administrative Services, LLC ("FAS"), serves as the Fund's Co-Administrator. Under the Administration Agreement, FAS provides certain administrative and executive management services to the Fund which include: providing the Fund's principal offices and executive officers, overseeing and administering all contracted service providers, making recommendations to the Board regarding policies of the Fund, conducting stockholder relations, authorizing expenses, and other administrative tasks. The Fund pays FAS a monthly fee, calculated at an annual rate of 0.20% of the value of the Fund's average monthly net assets up to $250 million; 0.18% of the Fund's average monthly net assets on the next $150 million; and 0.15% of the value of the Fund's average monthly net assets over $400 million. The equity owners of FAS are Evergreen Atlantic, LLC, a Colorado limited liability company ("EALLC") and the Lola Brown Trust No. 1B (the "Lola Trust"). The Lola Trust is a stockholder of the Fund, and the Lola Trust and EALLC are considered to be "affiliated persons" of the Fund as that term is defined in the Investment Company Act of 1940, as amended, (the "1940 Act").

The Fund pays each Director who is not a director, officer or employee of the Investment Adviser or FAS a fee of $8,000 per annum, plus $4,000 for each in-person meeting of the Board of Directors and $500 for each telephone meeting. In addition, the Chairman of the Board and the

10

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Notes to Financial Statements (Unaudited)  FIRST FINANCIAL FUND, INC.

Chairman of the Audit Committee receive $1,000 per meeting and each member of the Audit Committee receives $500 per meeting. The Fund will also reimburse all non-interested Directors for travel and out-of-pocket expenses incurred in connection with such meetings.

Investors Bank & Trust Company ("Investors Bank") serves as the Fund's Co-Administrator and Custodian. As compensation for its services, Investors Bank receives certain out-of-pocket expenses, transaction fees and asset-based fees, which are accrued daily and paid monthly. The Fund pays Investors Bank an annualized fee of 0.058% of the Fund's average monthly net assets for the first $300 million and 0.04% for average monthly net assets over $300 million, in addition to any out-of-pocket and transaction fees.

EquiServe Trust Company, N.A. ("EquiServe"), a wholly owned subsidiary of Computershare, serves as the Fund's Common Stock servicing agent ("Transfer Agent"), dividend-paying agent and registrar, and as compensation for EquiServe's services as such, the Fund pays EquiServe a monthly fee plus certain out-of-pocket expenses.

Note 3. Purchases and Sales of Securities

Cost of purchases and proceeds from sales of securities for the six months ended September 30, 2006 excluding short-term investments, aggregated $99,906,770 and $119,656,836 respectively.

On September 30, 2006, based on cost of $373,768,435 for federal income tax purposes, aggregate gross unrealized appreciation for all securities in which there is an excess of value over tax cost was $92,218,751 and aggregate gross unrealized depreciation for all securities in which there is an excess of tax cost over value was $15,699,049.

Note 4. Capital

At September 30, 2006, 50,000,000 of $0.001 par value Common Stock were authorized and 28,061,897 shares were issued and outstanding.

Note 5. Share Repurchase Program

In accordance with Section 23 (c) of the 1940 Act, the Fund may, from time to time, repurchase shares of the Fund in the open market at the option of the Board of Directors and upon such terms as the Directors shall determine.

For the six months ended September 30, 2006, the Fund did not repurchase any of its own shares. For the year ended March 31, 2006, the Fund did not repurchase any of its own shares.

Note 6. Significant Stockholders

On September 30, 2006, the Lola Trust and other entities affiliated with Stewart R. Horejsi and the Horejsi family owned 10,406,049 shares of Common Stock of the Fund, representing 37.08% of the total Fund shares outstanding.

Note 7. Borrowings

An agreement (the "Agreement") between the Fund and the Custodial Trust Company of Bear Stearns was reached, in which the Fund may borrow from the Custodial Trust Company an aggregate amount of up to the lesser of $50,000,000 or the maximum the Fund is permitted to borrow under the 1940 Act. For the six months ended September 30, 2006, the Fund had no outstanding loan. For the year ended March 31, 2006, the Fund had an outstanding loan for 73 days, with an average balance of $5,000,000, at an average rate of 4.53% and incurred $45,934 of interest expense. The Fund does not have any borrowings outstanding pursuant to the Agreement as of September 30, 2006.

11

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Notes to Financial Statements (Unaudited)  FIRST FINANCIAL FUND, INC.

Note 8. Transactions With Affiliated Companies

Transactions during the period with companies in which the Fund owned at least 5% of the voting securities were as follows:

Name of Affiliate				Beginning Share Balance				Ending Share Balance				Dividend Income				Market Value
Broadway Financial Corporation					129,280				129,280				6,464				1,370,368
CCF Holding Company					227,210				340,815				20,449				6,799,259
Perpetual Federal Savings Bank					165,930				165,930				82,965				4,231,215
Redwood Financial, Inc.					40,650				40,650				—				792,675
River Valley Bancorp					90,000				90,000				35,100				1,588,500
Third Century Bancorp					110,500				110,500				229,840				1,165,775

 

Note 9. Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB Interpretation No. 48, ("FIN 48") "Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109". FIN 48 clarifies the accounting for uncertainty in income taxes recognized in accordance with FASB Statement No. 109, "Accounting for Income Taxes." This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. It also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Fund is currently evaluating the impact of applying the various provisions of FIN 48.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS No. 157). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. Management is currently evaluating the impact the adoption of SFAS No. 157 will have on the Fund's financial statement disclosures.

Note 10. Significant Events

At a board meeting held on July 24, 2006, the Audit Committee selected and the Board ratified Deloitte & Touche LLP as the Fund's independent registered public accounting firm to replace KPMG LLP (KPMG).

The reports of the financial statements audited by KPMG for the Fund for the past 3 years did not contain an adverse opinion or disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles. There were no disagreements between the Fund and KPMG on any matters of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to the satisfaction of KPMG would have caused it to make reference to the subject matter of the disagreements in connection with its reports on the financial statements of such years.

Resignation of Director. On October 13, 2006, Dennis Causier of Mallorca Spain submitted his resignation as a director of the Fund. The remaining directors of the Fund accepted Mr. Causier's resignation and, at the subsequent regularly scheduled Board meeting held on October 23, 2006, nominated John R. Horejsi as Mr. Causier's replacement. Mr. Horejsi is the son of Stewart Horejsi, an agent and beneficiary of a substantial stockholder in the Fund, and will be an interested director of the Fund.

12

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Additional Information (Unaudited)  FIRST FINANCIAL FUND, INC.

Portfolio Information. The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Fund's Form N-Q is available (1) on the Fund's website located at http://www.firstfinancialfund.com; (2) on the SEC's website at http://www.sec.gov; or (3) for review and copying at the SEC's Public Reference Room ("PRR") in Washington, DC. Information regarding the operation of the PRR may be obtained by calling 1-800-SEC-0330.

Proxy Information. The policies and procedures used to determine how to vote proxies relating to securities held by the Fund are available on the Fund's website located at http://www.firstfinancialfund.com. Information regarding how the Portfolio voted proxies relating to portfolio securities during the most recent twelve-month period ended June 30 is available at http://www.sec.gov.

Senior Officer Code of Ethics. The Fund files a copy of its code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions (the "Senior Officer Code of Ethics"), with the SEC as an exhibit to its annual report on Form N-CSR. The Fund's Senior Officer Code of Ethics is available on the Fund's website located at http://www.firstfinancialfund.com.

Privacy Statement. Pursuant to SEC Regulation S-P (Privacy of Consumer Financial Information) the Directors of the First Financial Fund, Inc. (the "Fund") have established the following policy regarding information about the Fund's stockholders. We consider all stockholder data to be private and confidential, and we hold ourselves to the highest standards in its safekeeping and use.

General Statement. The Fund may collect nonpublic information (e.g., your name, address, email address, Social Security Number, Fund holdings (collectively, "Personal Information")) about stockholders from transactions in Fund shares. The Fund will not release Personal Information about current or former stockholders (except as permitted by law) unless one of the following conditions is met: (i) we receive your prior written consent; (ii) we believe the recipient to be you or your authorized representative; (iii) to service or support the business functions of the Fund (as explained in more detail below), or (iv) we are required by law to release Personal Information to the recipient. The Fund has not and will not in the future give or sell Personal Information about its current or former stockholders to any company, individual, or group (except as permitted by law) and as otherwise provided in this policy.

In the future, the Fund may make certain electronic services available to its stockholders and may solicit your email address and contact you by email, telephone or US mail regarding the availability of such services. The Fund may also contact stockholders by email, telephone or US mail in connection with these services, such as to confirm enrollment in electronic stockholder communications or to update your Personal Information. In no event will the Fund transmit your Personal Information via email without your consent.

Use of Personal Information. The Fund will only use Personal Information (i) as necessary to service or maintain stockholder accounts in the ordinary course of business and (ii) to support business functions of the Fund and its affiliated businesses. This means that the Fund may share certain Personal Information, only as permitted by law, with affiliated businesses of the Fund, and that such information may be used for non-Fund-related solicitation. When Personal Information is shared with the Fund's business affiliates, the Fund may do so without providing you the option of preventing these types of disclosures as permitted by law.

Safeguards regarding Personal Information. Internally, we also restrict access to Personal Information to those who have a specific need for the records. We maintain physical, electronic, and procedural safeguards that comply with Federal standards to guard Personal Information. Any doubts about the confidentiality of Personal Information, as required by law, are resolved in favor of confidentiality.

13

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Board of Directors' Approval (Unaudited)  FIRST FINANCIAL FUND, INC.

Discussion Regarding the Board of Directors' Approval of the Investment Advisory Contract

The Fund has entered into an Investment Advisory Agreement (the "Advisory Agreement") with Wellington Management Company, LLP (the "Adviser") pursuant to which the Adviser is responsible for managing the Fund's assets in accordance with its investment objectives, policies and limitations. The 1940 Act requires that the Board, including a majority of the Independent Directors, annually approve the terms of the Advisory Agreement. At a regularly scheduled meeting held on April 24, 2006, the Adviser presented a proposal to the Board in support of renewing the Advisory Agreement and amending the Advisory Agreement to increase the advisory fee. The proposed amendment to the Advisory Agreement (the "Amendment") provided that the Adviser receive investment advisory fees, payable on a quarterly basis, at the annualized rate of 1.125% of the Fund's net assets up to and including $150 million; 1.00% of the net assets between $150 million and $300 million; and, 0.875% of the net assets in excess of $300 million (the "Proposed Fee"). At the April 24, 2006 Board meeting, the Directors, by a unanimous vote (including a separate vote of the Independent Directors), approved the renewal of the Advisory Agreement and the Proposed Fee. The Fund's stockholders subsequently approved the Amendment at the Fund's annual stockholder meeting held on July 24, 2006.

Factors Considered

Generally, the Board considered a number of factors in renewing the Advisory Agreement including, among other things, (i) the nature, extent and quality of services to be furnished by the Adviser to the Fund; (ii) the investment performance of the Fund compared to relevant market indices and the performance of comparable closed-end funds; (iii) the advisory fees and other expenses paid by the Fund; (iv) the profitability to the Adviser of its investment advisory relationship with the Fund; (v) the extent to which economies of scale are realized and whether fee levels reflect any economies of scale; (vi) support of the Adviser by the Fund's principal stockholders; and (vii) the historical relationship between the Fund and the Adviser. The Board also reviewed the ability of the Adviser to provide investment management and supervision services to the Fund, including the background, education and experience of the key portfolio management and operational personnel, the investment philosophy and decision-making process of those professionals, and the ethical standards maintained by the Adviser.

Deliberative Process

To assist the Board in its evaluation of the quality of the Adviser's services and the reasonableness of the Proposed Fee under the Advisory Agreement, the Board received a memorandum from independent legal counsel to the Independent Directors discussing the factors generally regarded as appropriate to consider in evaluating investment advisory arrangements and the duties of directors in approving such arrangements. In connection with its evaluation, the Board also requested and received various materials relating to the Adviser's investment services under the Advisory Agreement. These materials included a report prepared by an independent consultant, Lipper Analytical Services, Inc. ("Lipper"), comparing the Fund's performance, advisory fees and expenses to a group of six non-leveraged, closed-end sector equity funds determined to be similar (although the investment strategies of the funds are not similar) to the Fund (called the "Peer Group") and a broader universe of thirty-eight closed-end sector equity funds (called the "Universe"), in each case as determined by Lipper. In addition, the Board received reports and presentations from the Adviser that described, among other things, the Adviser's organizational structure, financial condition, internal controls, policies and procedures on brokerage practices, soft-dollar commissions and trade allocation, comparative investment performance results, comparative sub-advisory fees, and compliance policies and procedures. The Board also considered information received from the Adviser throughout the year, including investment performance and returns as well as stock price and net asset value.

In advance of the April 24, 2006 meeting, the Independent Directors held two special telephonic meetings with counsel to the Fund and the Independent Directors. The purpose of these meetings was to discuss the renewal of the Advisory Agreement and the Proposed Fee, and to review the materials provided to the Board by the Adviser in connection

14

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Board of Directors' Approval (Unaudited)  FIRST FINANCIAL FUND, INC.

with the annual review process. The Board held additional discussions at the April 24, 2006 Board meeting, which included a private session among the Independent Directors and their independent legal counsel at which no employees or representatives of the Adviser were present. These meetings were preceded by discussions which occurred over several months between the Adviser and the Board's independent Chairman, as well as multiple informal discussions among the Independent Directors, regarding the terms of the Proposed Fee.

The information below summarizes the Board's considerations in connection with its approval of the Advisory Agreement and the Amendment. In deciding to approve the Advisory Agreement and the Amendment, the Board did not identify a single factor as controlling and this summary does not describe all of the matters considered. However, the Board concluded that each of the various factors referred to below favored such approval.

Nature, Extent and Quality of the Services Provided; Ability to Provide Services

The Board received and considered various data and information regarding the nature, extent and quality of services provided to the Fund by the Adviser under the Advisory Agreement. The Adviser's most recent investment adviser registration form on the Securities and Exchange Commission's Form ADV was provided to the Board, as were the responses of the Adviser to information requests submitted to the Adviser by the Independent Directors through their independent legal counsel. The Board reviewed and analyzed the materials, which included information about the background, education and experience of the Adviser's key portfolio management and operational personnel and the amount of attention devoted to the Fund by the Adviser's portfolio management personnel. The Board also reviewed the Adviser's policies and procedures on side-by-side management of hedge funds and other accounts and any impact these have on the success of the Fund. The Board was satisfied that the Adviser's investment personnel, including Nicholas C. Adams, the Fund's principal portfolio manager, devote an adequate portion of their time and attention to the success of the Fund and its investment strategy. Based on the above factors, the Board concluded that it was generally satisfied with the nature, extent and quality of the investment advisory services provided to the Fund by the Adviser, and that the Adviser possessed the ability to continue to provide these services to the Fund in the future.

Investment Performance

The Board considered the investment performance of the Fund since inception, as compared to both relevant indices and the performance of two comparable closed-end financial services funds. The Board noted favorably that for the one-, three-, five-, ten-year, and since inception periods ended December 31, 2005, the Fund's performance based upon total return outperformed the Standard & Poor's 500 Index, the Fund's primary relevant benchmark, as well as the NASDAQ Composite, the NASDAQ Banks Index, the SNL Thrift Index, and the SNL Finance REIT Index, the Fund's secondary benchmarks. The Board acknowledged that the Fund also outperformed the two most comparable closed-end financial services funds over the three-, five- and ten-year periods. The Board also noted that the Fund received a Lipper 2005 Performance Achievement Certificate based on its number one ranking in the Lipper Closed-End Equity Fund Performance Analysis for Sector Equity Funds for the ten-year period ending December 31, 2005.

The Board also considered the investment performance of the Fund as compared to the performance of the Fund's Universe. The Board noted that the Fund ranked number one in performance based upon total return of the net asset value versus the returns of the comparable funds in the Universe for the four- and five-year periods ended February 28, 2006. The Board also noted that the Fund's performance had ranked in the last quintile (i.e., the bottom 20% of the funds in the Universe) for the one-year period ended February 28, 2006 despite its total return of 10.77% during the period. The Board attributed the relatively low comparative performance during the one-year period to the large number of energy and commodities funds included in the Universe, noting that these funds had both different investment strategies than the

15

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Board of Directors' Approval (Unaudited)  FIRST FINANCIAL FUND, INC.

Fund and experienced extraordinary returns during the period. The Board ascribed greater weight to the long-term performance of the Fund against its benchmarks and other financial services funds.

Costs of Services Provided and Profits Realized by the Adviser

In light of the fee increase proposed by the Adviser, the Board carefully considered the costs of the services provided to the Fund by the Adviser and the profits realized by the Adviser. During its deliberative process, the Board held several discussions with members of senior management of the Adviser regarding the factors driving the proposed fee increase. The Board was informed that fee increase was principally attributable to (i) the high market demand for Mr. Adams' portfolio management services, and (ii) increases in the Adviser's costs of attracting and retaining talented individuals to work on Mr. Adams' investment team.

The Adviser indicated that Mr. Adams had been "closed" to new accounts for some time, and that historically he had limited the size of the other portfolios he managed to accommodate his investment style, which has limited capacity. The Adviser informed the Board that Mr. Adams was reducing the number of portfolios he managed, and that certain portfolios for other clients were being liquidated as a result. After such liquidation, Mr. Adams will manage only five portfolios, which, in addition to the Fund, will consist of onshore and offshore portfolios for two "hedge" fund approaches sponsored by the Adviser or its affiliates (one of which was also currently closed to new investors in the portfolios managed by Mr. Adams). The Adviser indicated that the fee increase would be used, in part, to compensate Mr. Adams and his portfolio management team at a market rate for their services. The Adviser noted that the costs of attracting and retaining talented investment personnel had increased over the last several years, and that certain other costs of the Adviser (particularly in the area of compliance) had also increased significantly.

In evaluating the Proposed Fee, the Board obtained a comparison of the current and proposed advisory fees to the Peer Group and to other closed-end and open-end financial services funds. The Board noted that the current advisory fee rate was the lowest in the Peer Group (at common asset levels), and that the Proposed Fee would be at the median fee rate in the Peer Group. The Board also noted that the Proposed Fee was lower than the fees earned by the Adviser on the hedge fund portfolios managed by Mr. Adams, which include performance-based fees. The Board acknowledged that the increased advisory fees would result in the Fund's overall expense ratio rising above the median expense ratio for the Peer Group. The Board concluded that the Proposed Fee seemed reasonable as compared to similarly situated non-leveraged, closed-end sector equity funds as well as the fees earned by the Adviser on other portfolios managed by Mr. Adams.

The Board also obtained information regarding the overall profitability of the Adviser. The profitability information was obtained to assist the Board in determining the overall benefits to the Adviser from its relationship to the Fund. The Board compared the overall profitability of the Adviser to the profitability of certain publicly traded investment management firms. Based on its analysis of this information, the Board determined that the overall level of profits earned by the Adviser did not appear to be unreasonable based on the profitability of other investment management firms and the quality of the services rendered by the Adviser.

Based on these factors, the Board concluded that the Proposed Fee under the Advisory Agreement was reasonable and fair in light of the nature and quality of the services provided by the Advisers.

Economies of Scale

The Board considered whether there have been economies of scale with respect to the management of the Fund, whether the Fund has appropriately benefited from any economies of scale, and whether the Proposed Fee is reasonable in relation to the Fund's assets and any economies of scale that may exist. The Board noted that the stock dividend paid by the Fund in December 2005 did not significantly decrease the Fund's net assets as it had in recent years, as the Fund

16

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Board of Directors' Approval (Unaudited)  FIRST FINANCIAL FUND, INC.

was not required to pay out significant amounts cash to its stockholders in the form of a cash dividend. While the Fund does not currently intend to raise net assets through the offer and sale of additional securities, the Board recognized that stock dividends may be declared in the future, which would keep assets in the Fund and have little effect on the level of net assets. In negotiating the Proposed Fee, the Board required that the fee schedule include breakpoints. The Board concluded that the breakpoints in the Proposed Fee are acceptable and appropriately reflect any economies of scale expected to be realized by the Adviser in managing the Fund's assets if the Fund's net assets increase due to the issuance of stock dividends or otherwise.

Stockholder Support and Historical Relationship with the Fund

The Board also weighed in on the views of the Fund's largest stockholders, which are affiliated with the family of Mr. Stewart R. Horejsi. As of March 31, 2006, the Lola Brown Trust No. 1B and other entities affiliated with the Horejsi family held approximately 38.36% of the Fund's outstanding common shares. The Board understood from Mr. Horejsi that these stockholders were supportive of the Adviser, the Proposed Fee and the renewal of the Advisory Agreement, and that these stockholders intended to vote their shares in favor of the Amendment. The Board recognized that the Fund's stock price as of March 31, 2006 was $16.51, which represented a 5% premium over the Fund's net asset value of $15.67 on that date, which the Board believed reflected the confidence of the Fund's stockholders in the Adviser.

Approval

The Board based its decision to approve the renewal of the Advisory Agreement on a careful analysis, in consultation with independent counsel, of the above factors as well as other factors. In approving the Advisory Agreement, the Board concluded that the terms of the Advisory Agreement are reasonable and fair and that renewal of the Advisory Agreement, as amended by the Amendment, is in the best interests of the Fund and its stockholders.

17

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Meeting of Stockholders - Voting Results (Unaudited)  FIRST FINANCIAL FUND, INC.

On July 24, 2006, the Fund held its Annual Meeting of Stockholders to consider the election of Directors of the Fund and approval of an amendment to the investment advisory agreement. The following votes were recorded:

PROPOSAL 1: (Voting by all Stockholders): Election of Directors of the Fund
Election of Joel W. Looney as Director of the Fund				# of Votes Cast				% of Votes Cast
Affirmative					26,055,753.4598				98.32
Withheld					445,530.0608				1.68
TOTAL					26,501,283.5206				100.0
Election of Richard I. Barr as Director of the Fund				# of Votes Cast				% of Votes Cast
Affirmative					26,052,151.2879				98.31
Withheld					449,132.2327				1.69
TOTAL					26,501,283.5206				100.0
Election of Dr. Dean Jacobson as Director of the Fund				# of Votes Cast				% of Votes Cast
Affirmative					26,058,492.3604				98.33
Withheld					442,791.1602				1.67
TOTAL					26,501,283.5206				100.0
Election of Dennis R. Causier as Director of the Fund				# of Votes Cast				% of Votes Cast
Affirmative					26,057,560.8082				98.33
Withheld					443,722.7124				1.67
TOTAL					26,501,283.5206				100.0
Election of Susan L. Ciciora as Director of the Fund				# of Votes Cast				% of Votes Cast
Affirmative					26,038,785.4571				98.25
Withheld					462,498.0635				1.75
TOTAL					26,501,283.5206				100.0
PROPOSAL 2: Approval of the continuance of, and a proposed amendment to, the investment advisory agreement with Wellington Management Company, LLP
				# of Votes Cast				% of Votes Cast
For					17,051,331.7195				64.4
Against					1,596,248.9791				6.0
Abstain					136,112.8220				0.5
Non Votes					7,717,590.0000				29.1
TOTAL					26,501,283.5206				100.0

 

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Directors

Richard I. Barr

Susan L. Ciciora

John S. Horejsi

Dean L. Jacobson

Joel W. Looney

Investment Adviser

Wellington Management Company, LLP

75 State Street

Boston, MA 02109

Administrator

Fund Administrative Services, LLC

2344 Spruce Street, Suite A

Boulder, CO 80302

Custodian

Investors Bank &Trust

200 Clarendon Street

Boston, MA 02116

Transfer Agent

EquiServe Trust Company, N.A.

P.O. Box 43011

Providence, RI 02940-3011

Independent Registered Public Accounting Firm

Deloitte & Touche LLP

555 17^th Street, Suite 3600

Denver, CO 80202

Legal Counsel

Paul, Hastings, Janofsky & Walker LLP

515 South Flower Street, 25^th Floor

Los Angeles, CA 90071-2228

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.
2344 Spruce Street, Suite A
Boulder, CO 80302

If you have questions regarding shares held in a brokerage account contact your broker, or, if you have physical possession of your shares in certificate form, contact the Fund's Transfer Agent and Shareholder Servicing Agent - EquiServe Trust Company, N.A. at

P.O. Box 43011
Providence, RI 02940-3011
(800) 451-6788

www.firstfinancialfund.com

The Fund's CUSIP number is:

320228109

www.firstfinancialfund.com

S E M I -
A N N U A L
R E P O R T

September 30, 2006

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