<Page>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act File No. 811-06120
-------------------------------------------------
THE FIRST ISRAEL FUND, INC.
------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
466 Lexington Avenue, New York, New York 10017-3140
------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
The First Israel Fund, Inc.
c/o Credit Suisse Asset Management, LLC.
466 Lexington Avenue
New York, New York 10017-3147
------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: (212) 875-3500
------------------
Date of fiscal year end: September 30, 2003
--------------------------
Date of reporting period: September 30, 2002 to September 30, 2003
-----------------------------------------
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
<Page>
THE FIRST ISRAEL FUND, INC.
ANNUAL REPORT
SEPTEMBER 30, 2003
[ISL LISTED NYSE(R) LOGO]
3917-AR-03
<Page>
CONTENTS
<Table>
Letter to Shareholders 1
Portfolio Summary 5
Schedule of Investments 6
Statement of Assets and Liabilities 9
Statement of Operations 10
Statement of Changes in Net Assets 11
Statement of Cash Flows 12
Financial Highlights 14
Notes to Financial Statements 16
Report of Independent Auditors 23
Results of Annual Meeting of Shareholders 24
Tax Information 24
Description of InvestLink(SM) Program 25
Information Concerning Directors and Officers 28
</Table>
<Page>
LETTER TO SHAREHOLDERS
October 29, 2003
DEAR SHAREHOLDER:
We are writing to report on the activities of The First Israel Fund, Inc. (the
"Fund") for the fiscal year ended September 30, 2003.
At September 30, 2003, total net assets of the Fund were approximately $52.6
million. The Fund's investments in securities listed and trading on the Tel Aviv
Stock Exchange ("TASE") were $31.1 million, with another $13.3 million in the
Israeli and Israel-related companies listed and trading in the United States.
Combined, these totaled $44.4 million, as compared to approximately $31.4
million on September 30, 2002. The Fund also held investments valued at
approximately $7.1 million in unlisted securities, as compared to approximately
$8.0 million on September 30, 2002. In percentage terms, at September 30, 2003,
95.4% of the Fund's net assets were invested in Israeli and Israeli-related
companies, of which 84.5% were listed and trading on the TASE and in the United
States and 10.9% were in unlisted securities.
At September 30, 2003, net asset value ("NAV") per share was $12.35, compared
with $9.50 on September 30, 2002. The Fund's common stock closed on the New York
Stock Exchange, Inc. on September 30, 2003 at $10.10 per share, representing a
discount of 18.22% to the Fund's NAV.
According to its charter, the Fund's investment objective is long-term capital
appreciation via investment primarily in equity securities of Israeli companies.
These securities may be listed on the TASE or elsewhere, notably New York and
NASDAQ. Up to 30% of the Fund's total assets may be invested in illiquid
securities, including securities of private equity funds that invest primarily
in emerging markets.
PERFORMANCE
Based on NAV, the Fund had a gain of 34.07% for the 12 months, compared with
increases of 49.01% and 28.31%, respectively, for the Morgan Stanley Capital
International Israel Index* (the "MSCI Index") and the TA100 Index,** a
broad-based local index of Israeli equities.
We attribute the Fund's underperformance with respect to the MSCI Index largely
to its private equity holdings, which were negatively revalued during the fiscal
year. From a sector-allocation perspective, one factor that hindered the Fund
was its underexposure in the pharmaceutical/biotechnology area, which had a
large gain for the 12 months. For diversification reasons, we remained
underweighted in a sector that accounts for almost half of the MSCI Index (one
stock alone accounted for about 40% of the index as of September 30, 2003).
On the positive side, stocks that helped outperform the TA100 Index included its
holdings in the chemical, bank, software and Internet services areas.
THE ECONOMY: TRUE GRIT, AND THEN SOME
The resilience of Israel's economy and its equity market over the past year
seems remarkable, given the serious challenges the country has been facing.
1
<Page>
As this fiscal period got underway, Israel's economy was very weak, the victim
of slow-to-no global economic growth and a steady stream of terrorist attacks
from various Palestinian factions. On the political scene, unrest was growing
about the possible long-term economic impact of rampant deficit spending.
Interest rates were high, with little relief in sight.
Yet, all was not bleak. Investors, sensing that the economy was bottoming and
that the worst might be over, plowed back into what was generally regarded as an
oversold equity marketplace.
As the first quarter of 2003 got underway, Prime Minister Ariel Sharon called
for a special election in March to name a new government, whose charge it was to
develop and enact an emergency economic recovery program. Throughout this
period, positive macroeconomic developments helped to spur investor interest in
Israeli equities. The economy appeared to be stabilizing. The central bank,
citing declining inflation and the government's efforts to rein in spending,
began an unexpected cycle of interest rate cuts. Trade began to pick up. Even
the beginning of armed conflict between Iraq and a U.S.-led coalition of
countries seeking the ouster of Iraqi president Saddam Hussein failed to
dishearten investors, who continued to drive equity prices higher.
More good economic news followed in the second quarter of this year. Interest
rates declined, as did the rate of inflation. The shekel strengthened markedly
against the U.S. dollar. In the political arena, the Knesset approved the
proposed economic recovery plan. Peace talks with the Palestinian Authority were
re-started. And the conclusion of Operation Iraqi Freedom proved to be a
non-event for Israel, and a relief to investors who feared that the country
might be the target of regional violence.
Israel offered a mixed blend of mostly positive news during the third quarter,
leading some to speculate that for the first time in years its economy and
equity market might be poised for a sustained advance. Among the more notable
developments were:
POLITICS. The cease fire between Israel and the Palestinian Authority ended
abruptly during the quarter with new instances of suicide bombings and attacks
on military and civilian targets. Despite the breakdown in security, and other
potentially destabilizing developments, however, the shekel remained essentially
unchanged, an indication that such attacks were having less of an impact than in
the past on global perceptions of Israel's future. Of perhaps more immediate
interest was the shaky, but encouraging, launch of the government's 2004 budget
approval process and questions about whether it would end in favor of fiscal
conservatism or renewed deficit spending.
GROWING FOREIGN DIRECT INVESTMENT (FDI). Foreign direct investment in Israel,
which tends to reflect a strategic, long-term outlook on the Israeli economy,
totaled US$2.7 billion during the first eight months of this year. This was the
highest level of FDI since 2000. In addition, Israeli deposits in overseas banks
declined, a reversal of the significant cash outflows that plagued the country
in recent years and perhaps a signal that Israel's economic fundamentals were
improving.
MONETARY POLICY. On September 22, the Bank of Israel cut its key monetary
interest rate by 40 basis points, to 6.1%, from 9.1% in December 2002. The bank
cited controlled inflation and relative calm in the capital, foreign exchange
and money markets, as among its justifications for the latest cut.
Even so, uncertainty about the economy and renewed violence with the
Palestinians led Israeli stocks generally down for the quarter. Yet, for the
year ended September 30, 2003, Israeli equities advanced smartly, ranking 11th
in U.S. dollar returns out of the 50 individual country investment indices
(ex-U.S.) managed and monitored by Morgan Stanley Capital International Inc.
2
<Page>
Anticipating a new cycle of economic growth, we began this fiscal period fully
invested in a broad array of Israeli equities and private companies. The notable
exceptions during the October 2002 - March 2003 period were a deep underweight
to Israel's technology sector, which we felt needed a good deal more time to
recover, and a gradual increase in certain mid-cap companies that we felt might
take off once the global and domestic economies revived.
In the second and third quarters of 2003, and, indeed, for much of this fiscal
period, we were overweight the banking, insurance, real estate and small cap
sectors, and underweight the pharmaceuticals and technology sectors. This said,
as is usually the case, we focused not on sectors, per se, but on bottom up,
fundamental analysis of companies of any stripe that we felt promised above
average growth potential.
Going forward, we are and intend to remain underweight the major companies in
the MSCI Index, as we feel their valuations and their volatility are excessive.
Among exporters, we are overweight the chemical sector, primarily those
companies that could benefit from cuts in energy and labor costs and the
strengthening of the Euro against the U.S. dollar. With interest rates possibly
heading lower, we are also overweight the banking sector. Finally, we continue
to like certain high quality mid- and small-cap companies that we think have
unrecognized values owing to their lack of institutional coverage.
OUTLOOK
Absent a major increase in politically-inspired domestic or regional violence,
we believe Israeli equities have the potential to build on recent gains.
Supporting this view are relatively low interest rates that could dip below 6%
by year's end. This may be enough to tempt long absent individual investors back
into the market. Beyond this, many Israeli corporations have enhanced their
competitiveness through ongoing rationalization and reorganization programs, and
current valuations appear to us to be very reasonable.
Externally, the health of the U.S. economy, Israel's major export market, will
have a decided impact on the breadth and pace of Israel's economic and equity
market recovery. That the U.S. economy is acting like it may be in the early
stages of a recovery itself bodes well for Israel.
As always, there are many caveats in discussing the performance of a country
entwined in the global war on terrorism. There may also be some repercussions if
investors look unkindly on current budget discussions.
For now, however, we are generally optimistic about the performance of Israel's
economy and equity market, and have invested with this view in mind.
Respectfully,
/s/ Yaroslaw Aranowicz
Yaroslaw Aranowicz
Chief Investment Officer***
3
<Page>
INTERNATIONAL INVESTING ENTAILS SPECIAL RISK CONSIDERATIONS, INCLUDING CURRENCY
FLUCTUATIONS, LOWER LIQUIDITY, ECONOMIC AND POLITICAL RISKS, AND DIFFERENCES IN
ACCOUNTING METHODS. THERE ARE ALSO RISKS ASSOCIATED WITH INVESTING IN ISRAEL,
INCLUDING THE RISK OF INVESTING IN A SINGLE-COUNTRY FUND.
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTIC AND FOREIGN MARKET,
INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND
THEIR POTENTIAL IMPACT ON THE FUND'S INVESTMENT PORTFOLIO. THESE STATEMENTS ARE
SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL TRENDS, DEVELOPMENTS AND
REGULATIONS IN THE FUTURE AND THEIR IMPACT ON THE FUND COULD BE MATERIALLY
DIFFERENT FROM THOSE PROJECTED, ANTICIPATED OR IMPLIED. THE FUND HAS NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS.
* The Morgan Stanley Capital International Israel Index is an unmanaged index
(with no defined investment objective) of Israeli equities that includes
reinvestment of net dividends, and is the exclusive property of Morgan Stanley
Capital International Inc. Investors cannot invest directly in an index.
** The TA100 Index is an index of the 100 largest companies (i.e., in terms of
market capitalization) listed on the Tel Aviv Stock Exchange. Investors cannot
invest directly in an index.
*** Yaroslaw Aranowicz, who is a Vice President of Credit Suisse Asset
Management, LLC ("CSAM"), is primarily responsible for management of the Fund's
assets. Mr. Aranowicz joined CSAM in 1998 from Trans-National Research
Corporation, a proprietary securities research firm, where he was Director of
Research for Europe and the Middle East. Previously, he was an analyst for Latin
American equities and fixed income at John Hancock Financial Services in New
York. He completed a five-year integrated program in international business
relations from Central School of Commerce in Warsaw, and holds an M.B.A. in
finance and international business from New York University's Stern School of
Business. Mr. Aranowicz is Chief Investment Officer of the Fund, The Emerging
Markets Telecommunications Fund, Inc. and The Chile Fund, Inc. He is also an
Investment Officer of The Brazilian Equity Fund, Inc. and The Latin America
Equity Fund, Inc.
4
<Page>
THE FIRST ISRAEL FUND, INC.
PORTFOLIO SUMMARY - AS OF SEPTEMBER 30, 2003 (UNAUDITED)
[CHART]
SECTOR ALLOCATION
<Table>
<Caption>
AS A PERCENT OF NET ASSETS SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
Aerospace/Defense-Equipment 2.06% 2.47%
Banking 9.31% 9.33%
Chemicals 6.71% 5.49%
Computer Data Security 3.76% 3.99%
Conglomerates 4.86% 5.30%
Electronics/Electrical Equipment 2.60% 2.52%
Insurance 6.31% 5.76%
Mortgage Banking 3.87% 3.56%
Pharmaceuticals 23.84% 15.99%
Telecommunications 7.52% 7.84%
Venture Capital 13.02% 18.52%
Other 14.17% 16.68%
Cash & Other Assets 1.97% 2.55%
</Table>
TOP 10 HOLDINGS, BY ISSUER
<Table>
<Caption>
PERCENT OF
HOLDING SECTOR NET ASSETS
- ------------------------------------------------------------------------------------------------------------------
1. Teva Pharmaceutical Industries Ltd. Pharmaceuticals 15.6
- ------------------------------------------------------------------------------------------------------------------
2. Agis Industries (1983) Ltd. Pharmaceuticals 7.8
- ------------------------------------------------------------------------------------------------------------------
3. Harel Insurance Investments Ltd. Insurance 5.5
- ------------------------------------------------------------------------------------------------------------------
4. Bezeq Israeli Telecommunication Corporation Ltd. Telecommunications 5.3
- ------------------------------------------------------------------------------------------------------------------
5. Bank Hapoalim Ltd. Banking 5.1
- ------------------------------------------------------------------------------------------------------------------
6. Check Point Software Technologies Ltd. Computer Data Security 3.8
- ------------------------------------------------------------------------------------------------------------------
7. Israel Chemicals Ltd. Chemicals 3.5
- ------------------------------------------------------------------------------------------------------------------
8. Makhteshim-Agan Industries Ltd. Chemicals 3.2
- ------------------------------------------------------------------------------------------------------------------
9. Bank Leumi Le-Israel Ltd. Banking 3.1
- ------------------------------------------------------------------------------------------------------------------
10. Emerging Markets Ventures I L.P. Venture Capital 2.6
- ------------------------------------------------------------------------------------------------------------------
</Table>
5
<Page>
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES VALUE
- ---------------------------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-98.03%
ISRAEL-95.42%
AEROSPACE/DEFENSE-EQUIPMENT-2.06%
Elbit Systems Ltd. 63,191 $ 1,083,520
--------------
BANKING-9.31%
Bank Hapoalim Ltd.+ 1,360,800 2,679,343
Bank Leumi Le-Israel Ltd.+ 1,134,800 1,613,847
United Mizrahi Bank Ltd.+ 215,000 605,716
--------------
4,898,906
--------------
CHEMICALS-6.71%
Israel Chemicals Ltd. 1,415,000 1,856,312
Makhteshim-Agan
Industries Ltd. 594,591 1,675,130
--------------
3,531,442
--------------
COMPUTER DATA SECURITY-3.76%
Check Point Software
Technologies Ltd.+ 117,600 1,975,680
--------------
COMPUTER SOFTWARE-1.58%
Formula Systems (1985) Ltd.+ 65,000 830,783
--------------
CONGLOMERATES-4.86%
Elco Holdings Ltd. 81,001 900,230
IDB Development
Corporation Ltd. 47,501 837,997
IDB Holding Corporation Ltd. 51,001 815,967
--------------
2,554,194
--------------
CONSTRUCTION-0.21%
Bayside Land Corporation Ltd. 1,174 112,116
--------------
DIVERSIFIED OPERATIONS-0.57%
Elbit Medical Imaging Ltd.+ 37,500 164,885
Macpell Industries Ltd.+ 116,074 37,873
Plasson Ltd. 6,744 95,606
--------------
298,364
--------------
ELECTRONIC COMPONENTS/SEMICONDUCTORS-0.39%
Telsys Ltd. 50,000 205,783
--------------
<Caption>
NO. OF
DESCRIPTION SHARES/UNITS VALUE
- ---------------------------------------------------------------------------------------
ELECTRONICS/ELECTRICAL EQUIPMENT-2.60%
Camtek Ltd.+ 58,800 $ 103,488
Elco Industries Ltd.+ 30,000 139,739
Electra Consumer
Products Ltd.+ 50,000 542,304
Electra (Israel) Ltd. 8,642 496,857
Nisko Industries (1992) Ltd.+ 32,500 87,978
--------------
1,370,366
--------------
FINANCIAL SERVICES-2.60%
F.I.B.I. Holdings Ltd.+ 173,400 1,021,125
Gachelet Investments Co., Ltd.+ 9,819 346,891
--------------
1,368,016
--------------
FOOD & BEVERAGES-1.67%
Elite Industries Ltd. 113,342 811,297
Gan Shmuel Food Industries 16,940 67,051
--------------
878,348
--------------
FOOD-RETAIL-0.52%
Supersol Ltd. 137,094 274,250
--------------
INDUSTRIAL TECHNOLOGY-1.27%
Cubital, Ltd.*+ 329,278 0
Orbotech, Ltd.+ 32,755 669,512
--------------
669,512
--------------
INSURANCE-6.31%
Clal Insurance Enterprise
Holdings Ltd. 32,035 451,258
Harel Insurance
Investments Ltd. 25,657 2,869,341
--------------
3,320,599
--------------
INTERNET SOFTWARE-0.76%
Aladdin Knowledge Systems+ 26,000 163,280
MIND C.T.I. Ltd.+ 72,200 237,538
--------------
400,818
--------------
INVESTMENT & HOLDING COMPANIES-1.22%
Ampal-American Israel Corp.,
Class A+ 206,000 601,520
The Renaissance Fund LDC+++ 60 38,747
--------------
640,267
--------------
</Table>
See accompanying notes to financial statements.
6
<Page>
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES/UNITS VALUE
- ---------------------------------------------------------------------------------------
METAL PRODUCTS-0.15%
Klil Industries Ltd.+ 18,654 $ 78,787
--------------
MORTGAGE BANKING-3.87%
Discount Mortgage Bank Ltd.+ 12,852 1,026,656
Israel Discount Bank Ltd.,
Class A+ 1,297,828 1,007,248
--------------
2,033,904
--------------
PAPER & RELATED PRODUCTS-0.44%
American Israeli Paper
Mills Ltd. 5,201 233,473
--------------
PHARMACEUTICALS-23.84%
Agis Industries (1983) Ltd.+ 191,000 4,104,523
Peptor Ltd.*+ 56,000 217,532
Teva Pharmaceutical Industries
Ltd., ADR 143,800 8,218,170
--------------
12,540,225
--------------
REAL ESTATE INVESTMENT & MANAGEMENT-0.05%
Jerusalem Economic
Corporation Ltd.+ 11,000 25,322
--------------
REAL ESTATE OPERATIONS/DEVELOPMENT-1.31%
Industrial Buildings
Corporation Ltd. 195,279 150,106
Property & Building
Corporation Ltd. 8,525 536,917
--------------
687,023
--------------
TECHNOLOGY-0.05%
Lenslet Ltd., Series E
Preferred*+ 30,838 25,000
Oren Semiconductor, Inc.,
Series K*+ 29,951 0
Oren Semiconductor, Inc.,
Series L*+ 30,843 0
Oren Semiconductor, Inc.,
Series O, Units*+ 46,035 0
--------------
25,000
--------------
TELECOMMUNICATIONS-7.52%
AudioCodes Ltd.+ 38,400 $ 288,000
Bezeq Israeli Telecommunication
Corporation Ltd. 2,791,751 2,774,789
ECI Telecom Ltd.+ 105,164 424,863
NICE Systems Ltd., ADR+ 24,600 467,400
--------------
3,955,052
--------------
TRADING COMPANIES-0.52%
Rapac Electronics Ltd. 116,801 225,770
Rapac Technologies 2000 Ltd.+ 31,801 49,948
--------------
275,718
--------------
TRANSPORTATION SERVICES-0.51%
Dan Vehicle &
Transportation Ltd. 101,500 269,509
--------------
VENTURE CAPITAL-10.41%
ABS GE Capital Giza
Fund, L.P.+++ 1,250,001 564,013
Advent Israel
(Bermuda) L.P.+++ 1,682,293 304,973
BPW Israel Ventures LLC+++# 1,156,470 680,675
Concord Ventures II
Fund L.P.+++# 1,640,000 729,900
Delta Fund I, L.P.+++# 187,500 140,942
Formula Ventures L.P.+++# 978,070 322,568
Giza GE Venture
Fund III L.P.+++# 700,000 368,627
K.T. Concord Venture
Fund L.P.+++ 1,000,000 594,472
Neurone Ventures II, L.P.+++# 337,500 152,270
Pitango Fund II LLC+++ 1,000,000 328,564
SVE Star Ventures Enterprises
GmbH & Co. No. IX KG+++# 1,000,000 593,180
SVE Star Ventures
Enterprises No. II+++ 5 401,546
Walden-Israel Ventures, L.P.+++ 500,000 134,805
Walden-Israel
Ventures III, L.P.+++# 288,750 158,362
--------------
5,474,897
--------------
</Table>
See accompanying notes to financial statements.
7
<Page>
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES/UNITS VALUE
- ---------------------------------------------------------------------------------------
WIRELESS EQUIPMENT-0.35%
Alvarion Ltd.+ 28,700 $ 183,967
--------------
TOTAL ISRAEL
(Cost $49,708,574) 50,195,841
--------------
GLOBAL-2.61%
VENTURE CAPITAL-2.61%
Emerging Markets
Ventures I L.P.+++#
(Cost $1,636,920) 2,183,651 1,371,529
--------------
TOTAL EQUITY OR EQUITY-LINKED
SECURITIES-98.03%
(Cost $51,345,494) 51,567,370
--------------
<Caption>
PRINCIPAL
DESCRIPTION AMOUNT (000'S) VALUE
- ---------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT-2.25%
GRAND CAYMAN-2.25%
Brown Brothers Harriman & Co.,
overnight deposit, 0.30%,
10/01/03** (Cost $1,186,000) $ 1,186 $ 1,186,000
--------------
TOTAL INVESTMENTS-100.28%
(Cost $52,531,494) (Notes A, D, F) 52,753,370
--------------
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS-(0.28)% (149,511)
--------------
NET ASSETS-100.00% $ 52,603,859
==============
</Table>
++ Restricted security, not readily marketable; security is valued at fair
value as determined in good faith by the Board of Directors. (See Notes A
and G.)
+ Security is non-income producing.
# As of September 30, 2003, the Fund has committed to investing additional
capital as follows: Emerging Markets Ventures I L.P. ($316,349), Formula
Ventures L.P. ($21,930), Giza GE Venture Fund III L.P. ($550,000), Concord
Ventures II Fund L.P. ($360,000), Delta Fund I, L.P. ($62,500), BPW Israel
Ventures LLC ($1,143,530), Neurone Ventures II, L.P. ($412,500),
Walden-Israel Ventures III, L.P. ($1,086,250) and SVE Star Ventures
Enterprises GmbH & Co. No. IX KG ($1,000,000). The aggregate amount of open
commitments for the Fund is $4,953,059.
* Not readily marketable security; security is valued at fair value as
determined in good faith by the Board of Directors. (See Note A.)
** Variable rate account. Rate resets on a daily basis; amounts are available
on the same business day.
ADR American Depositary Receipts.
See accompanying notes to financial statements.
8
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - SEPTEMBER 30, 2003
<Table>
ASSETS
Investments, at value (Cost $52,531,494) (Notes A, D, F) $ 52,753,370
Cash 151
Receivables:
Israeli tax refund (Note A) 96,012
Dividends 8,459
Prepaid expenses 7,907
--------------
Total Assets 52,865,899
--------------
LIABILITIES
Payables:
Investment advisory fees (Note B) 125,085
Directors' fees 9,828
Administration fees (Note B) 7,807
Other accrued expenses 119,320
--------------
Total Liabilities 262,040
--------------
NET ASSETS (applicable to 4,259,295 shares of common stock outstanding) (Note C) $ 52,603,859
==============
NET ASSETS CONSIST OF
Capital stock, $0.001 par value; 4,259,295 shares issued and outstanding
(100,000,000 shares authorized) $ 4,259
Paid-in capital 54,788,235
Accumulated net realized loss on investments and foreign currency related transactions (2,410,515)
Net unrealized appreciation in value of investments and translation of other
assets and liabilities denominated in foreign currency 221,880
--------------
Net assets applicable to shares outstanding $ 52,603,859
==============
NET ASSET VALUE PER SHARE ($52,603,859 DIVIDED BY 4,259,295) $ 12.35
==============
MARKET PRICE PER SHARE $ 10.10
==============
</Table>
See accompanying notes to financial statements.
9
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF OPERATIONS - FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2003
<Table>
INVESTMENT LOSS
Income (Note A):
Dividends $ 789,762
Interest 15,887
Net investment loss allocated from partnerships (489,361)
Less: Foreign taxes withheld (176,705)
--------------
Total Investment Income 139,583
--------------
Expenses:
Investment advisory fees (Note B) 529,754
Legal fees 215,133
Custodian fees 101,868
Audit fees 73,168
Administration fees (Note B) 58,874
Printing (Note B) 50,319
Directors' fees 43,800
Transfer agent fees 30,540
Accounting fees 30,000
NYSE listing fees 20,134
Insurance 8,319
Miscellaneous 8,631
--------------
Total Expenses 1,170,540
Less: Fee waivers (Note B) (102,108)
--------------
Net Expenses 1,068,432
--------------
Net Investment Loss (928,849)
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized loss from:
Investments (2,325,528)
Foreign currency related transactions (4,374)
Net change in unrealized depreciation in value of investments and translation
of other assets and liabilities denominated in foreign currency 16,900,584
--------------
Net realized and unrealized gain on investments and foreign currency related transactions 14,570,682
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 13,641,833
==============
</Table>
See accompanying notes to financial statements.
10
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
--------------------------------
2003 2002
------------- -------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment loss $ (928,849) $ (711,670)
Net realized gain/(loss) on investments and foreign currency related
transactions (2,329,902) 1,278,764
Net change in unrealized depreciation in value of investments and
translation of other assets and liabilities denominated
in foreign currency 16,900,584 (8,950,726)
------------- -------------
Net increase/(decrease) in net assets resulting from operations 13,641,833 (8,383,632)
------------- -------------
Distributions to shareholders:
Net realized gain on investments (1,495,013) (724,080)
------------- -------------
Total increase/(decrease) in net assets 12,146,820 (9,107,712)
------------- -------------
NET ASSETS
Beginning of year 40,457,039 49,564,751
------------- -------------
End of year $ 52,603,859 $ 40,457,039
============= =============
</Table>
See accompanying notes to financial statements.
11
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CASH FLOWS - FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2003
<Table>
DECREASE IN CASH FROM
Operating Activities:
Investment income received $ 248,647
Operating expenses paid (1,110,150)
Purchases of long-term portfolio investments (1,332,839)
Proceeds from disposition of long-term portfolio investments 3,747,124
Net purchase of short-term portfolio investments (134,000)
------------
Net increase in cash from operating activities $ 1,418,782
Financing Activities:
Cash distributions paid (1,495,013)
------------
Net decrease in cash from financing activities (1,495,013)
--------------
Net decrease in cash (76,231)
Cash at beginning of year* 76,382
--------------
Cash at end of year $ 151
==============
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET INCREASE IN CASH
FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations $ 13,641,833
Adjustments:
Decrease in receivables $ 109,064
Decrease in accrued expenses (44,647)
Decrease in prepaid expenses 2,929
Net increase in cash from investment transactions 2,280,285
Net realized and unrealized gain on investments and foreign currency
related transactions (14,570,682)
------------
Total adjustments (12,223,051)
--------------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES $ 1,418,782
==============
</Table>
- ----------
* The amount shown is after a reclassification of $1,052,000 from cash at the
beginning of the year to short-term investment.
See accompanying notes to financial statements.
12
<Page>
This page left intentionally blank.
13
<Page>
THE FIRST ISRAEL FUND, INC.
FINANCIAL HIGHLIGHTS
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each year indicated. This information has been
derived from information provided in the financial statements and market price
data for the Fund's shares.
<Table>
<Caption>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
----------------------------------------
2003 2002 2001
---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 9.50 $ 11.64 $ 23.24
---------- ---------- ----------
Net investment income/(loss) (0.22)+ (0.17)+ (0.06)+
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions 3.42 (1.80) (8.39)
---------- ---------- ----------
Net increase/(decrease) in net assets resulting from operations 3.20 (1.97) (8.45)
---------- ---------- ----------
Dividends and distributions to shareholders:
Net investment income -- -- (0.08)
Net realized gain on investments and
foreign currency related transactions (0.35) (0.17) (3.07)
---------- ---------- ----------
Total dividends and distributions to shareholders (0.35) (0.17) (3.15)
---------- ---------- ----------
Anti-dilutive impact due to capital shares repurchased -- -- --
---------- ---------- ----------
Net asset value, end of year $ 12.35 $ 9.50 $ 11.64
========== ========== ==========
Market value, end of year $ 10.10 $ 7.41 $ 9.60
========== ========== ==========
Total investment return (a) 40.57% (21.24)% (38.21)%
========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 52,604 $ 40,457 $ 49,565
Ratio of expenses to average net assets (b) 2.31% 2.08% 1.88%
Ratio of expenses to average net assets, excluding fee waivers 2.54% 2.30% 2.09%
Ratio of net investment income/(loss) to average net assets (b) (2.01)% (1.44)% (0.39)%
Portfolio turnover rate 2.94% 11.26% 21.11%
</Table>
+ Based on average shares outstanding.
(a) Total investment return at market value is based on the changes in market
price of a share during the year and assumes reinvestment of dividends and
distributions, if any, at actual prices pursuant to the Fund's dividend
reinvestment program.
(b) Ratios reflect actual expenses incurred by the Fund. Amounts are net of fee
waivers.
See accompanying notes to financial statements.
14
<Page>
<Table>
<Caption>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
-------------------------------------------------------
2000 1999 1998 1997
---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 17.18 $ 15.04 $ 18.41 $ 13.10
---------- ---------- ---------- ----------
Net investment income/(loss) (0.02)+ (0.02)+ 0.07 0.35
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions 7.80 3.21 (2.97) 6.20
---------- ---------- ---------- ----------
Net increase/(decrease) in net assets resulting from operations 7.78 3.19 (2.90) 6.55
---------- ---------- ---------- ----------
Dividends and distributions to shareholders:
Net investment income (0.41) (0.21) -- --
Net realized gain on investments and
foreign currency related transactions (1.46) (1.20) (0.47) (1.24)
---------- ---------- ---------- ----------
Total dividends and distributions to shareholders (1.87) (1.41) (0.47) (1.24)
---------- ---------- ---------- ----------
Anti-dilutive impact due to capital shares repurchased 0.15 0.36 -- --
---------- ---------- ---------- ----------
Net asset value, end of year $ 23.24 $ 17.18 $ 15.04 $ 18.41
========== ========== ========== ==========
Market value, end of year $ 18.563 $ 14.000 $ 11.813 $ 14.938
========== ========== ========== ==========
Total investment return (a) 47.61% 32.61% (18.05)% 44.36%
========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 98,979 $ 76,683 $ 75,373 $ 92,298
Ratio of expenses to average net assets (b) 2.05% 2.05% 2.06% 2.26%
Ratio of expenses to average net assets, excluding fee waivers 2.28% 2.30% 2.31% 2.30%
Ratio of net investment income/(loss) to average net assets (b) (0.08)% (0.12)% 0.42% 2.20%
Portfolio turnover rate 27.06% 18.65% 29.11% 16.98%
<Caption>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
----------------------------------------
1996 1995 1994
---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 13.20 $ 11.74 $ 15.83
---------- ---------- ----------
Net investment income/(loss) (0.09) (0.10) (0.28)
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions (0.01) 1.56 (3.27)
---------- ---------- ----------
Net increase/(decrease) in net assets resulting from operations (0.10) 1.46 (3.55)
---------- ---------- ----------
Dividends and distributions to shareholders:
Net investment income -- -- --
Net realized gain on investments and
foreign currency related transactions -- -- (0.54)
---------- ---------- ----------
Total dividends and distributions to shareholders -- -- (0.54)
---------- ---------- ----------
Anti-dilutive impact due to capital shares repurchased -- -- --
---------- ---------- ----------
Net asset value, end of year $ 13.10 $ 13.20 $ 11.74
========== ========== ==========
Market value, end of year $ 11.250 $ 12.000 $ 13.250
========== ========== ==========
Total investment return (a) (6.25)% (9.43)% (21.26)%
========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 65,649 $ 66,150 $ 58,855
Ratio of expenses to average net assets (b) 2.23% 2.57% 2.64%
Ratio of expenses to average net assets, excluding fee waivers -- -- --
Ratio of net investment income/(loss) to average net assets (b) (0.68)% (0.91)% (2.08)%
Portfolio turnover rate 21.68% 22.17% 17.07%
</Table>
15
<Page>
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
The First Israel Fund, Inc. (the "Fund") was incorporated in Maryland on March
6, 1990 and commenced investment operations on October 29, 1992. The Fund is
registered under the Investment Company Act of 1940, as amended, as a
closed-end, non-diversified management investment company.
USE OF ESTIMATES: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.
SECURITY VALUATION: The net asset value of the Fund is determined daily as of
the close of regular trading on the New York Stock Exchange, Inc. (the
"Exchange") on each day the Exchange is open for business. The Fund's equity
investments are valued at market value, which is generally determined using the
closing price on the exchange or market on which the security is primarily
traded at the time of valuation (the "Valuation Time"). If no sales are
reported, equity investments are generally valued at the most recent bid
quotation as of the Valuation Time or at the lowest ask quotation in the case of
a short sale of securities. Debt securities with a remaining maturity greater
than 60 days are valued in accordance with the price supplied by a pricing
service, which may use a matrix, formula or other objective method that takes
into consideration market indices, yield curves and other specific adjustments.
Debt obligations that will mature in 60 days or less are valued on the basis of
amortized cost which approximates market value, unless the Board of Directors
determines that using this method would not reflect an investment's value.
Securities and other assets for which market quotations are not readily
available are valued at fair value as determined in good faith by the Board of
Directors under procedures established by the Board of Directors in the absence
of readily ascertainable market values. At September 30, 2003, the Fund held
13.55% of its net assets in securities valued at fair value as determined in
good faith by the Board of Directors with an aggregate cost of $13,266,323 and
fair value of $7,127,705. Although these securities may be resold in privately
negotiated transactions, the prices realized on such sales could differ from the
prices originally paid by the Fund or the current carrying values, and the
difference could be material.
SHORT-TERM INVESTMENT: The Fund sweeps available cash into a short-term deposit
issued by Brown Brothers Harriman & Co., the Fund's custodian. The short-term
time deposit is a variable rate account classified as a short-term investment.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on a trade date basis. The cost of investments sold is determined
by use of the specific identification method for both financial reporting and
U.S. income tax purposes. Interest income is accrued as earned; dividend income
is recorded on the ex-dividend date.
TAXES: No provision is made for U.S. income or excise taxes as it is the Fund's
intention to continue to qualify as a regulated investment company and to make
the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. income and excise taxes.
Pursuant to a ruling the Fund received from the Israeli tax authorities, the
Fund, subject to certain conditions, will not be subject to Israeli tax on
capital gains derived from the sale of securities listed on the Tel Aviv Stock
Exchange ("TASE"). Gains derived from Israeli securities not listed on TASE
(unlisted securities) will
16
<Page>
be subject to a 25% Israeli tax provided the security is an approved investment.
Generally, stock of corporations that produce a product or provide a service
that support the infrastructure of Israel, are considered approved investments.
Any gain sourced to unlisted unapproved securities are subject to a 40% Israeli
tax and an inflationary tax. For the fiscal year ended September 30, 2003, the
Fund did not incur any Israeli capital gains taxes. The Fund accrues any capital
gains tax estimated to be payable as if the security had been sold at the time
unrealized gains are recorded.
Dividends derived from listed or approved Israeli securities are subject to 15%
withholding tax, while dividends from unlisted or unapproved securities are
subject to a 25% withholding tax. Israeli tax refunds represent reclaims of
taxes withheld on dividends. Interest on debt obligations (whether listed or
not) is subject to withholding tax of 25% to 35%. Withholding taxes are accrued
when the related income is earned in an amount management believes is ultimately
payable after any reclaims of taxes withheld.
FOREIGN CURRENCY TRANSLATIONS: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:
(I) market value of investment securities, assets and liabilities at the
valuation date rate of exchange; and
(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.
The Fund does not isolate that portion of gains and losses in investments in
equity securities which is due to changes in the foreign exchange rates from
that which is due to changes in market prices of equity securities. Accordingly,
realized and unrealized foreign currency gains and losses with respect to such
securities are included in the reported net realized and unrealized gains and
losses on investment transaction balances.
The Fund reports certain foreign currency related transactions and foreign taxes
withheld on security transactions as components of realized gains for financial
reporting purposes, whereas such foreign currency related transactions are
treated as ordinary income for U.S. income tax purposes.
Net unrealized currency gains or losses from valuing foreign currency
denominated assets and liabilities at period end exchange rates are reflected as
a component of net unrealized appreciation/(depreciation) in value of
investments and translation of other assets and liabilities denominated in
foreign currencies.
Net realized foreign exchange gains or losses represent foreign exchange gains
and losses from sales and maturities of debt securities, transactions in foreign
currencies and forward foreign currency contracts, exchange gains or losses
realized between the trade date and settlement date on security transactions,
and the difference between the amounts of interest and dividends recorded on the
Fund's books and the U.S. dollar equivalent of the amounts actually received.
DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes at least annually to
shareholders, substantially all of its net investment income and net realized
short-term capital gains, if any. The Fund determines annually whether to
distribute any net realized long-term capital gains in excess of net realized
short-term capital losses, including capital loss carryovers, if any. An
additional distribution may be made to the extent necessary to avoid the payment
of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
17
<Page>
The character of distributions made during the year from net investment income
or net realized gains may differ from their ultimate characterization for U.S.
income tax purposes due to U.S. generally accepted accounting principles/tax
differences in the character of income and expense recognition.
PARTNERSHIP ACCOUNTING POLICY: The Fund records its pro-rata share of the
income/(loss) and capital gains/(losses) allocated from the underlying
partnerships and adjusts the cost of the underlying partnerships accordingly.
These amounts are included in the Fund's Statement of Operations.
OTHER: Securities denominated in currencies other than U.S. dollars are subject
to changes in value due to fluctuations in exchange rates.
Investments in Israel may involve certain considerations and risks not typically
associated with investments in the U.S., including the possibility of future
political and economic developments and the level of Israeli governmental
supervision and regulation of its securities markets. The Israeli securities
markets are substantially smaller, less liquid and more volatile than the major
securities markets in the United States. Consequently, acquisition and
disposition of securities by the Fund may be inhibited.
The Fund, subject to local investment limitations, may invest up to 30% of its
assets (at the time of commitment) in illiquid equity securities, including
securities of private equity funds (whether in corporate or partnership form)
that invest primarily in the emerging markets. When investing through another
investment fund, the Fund will bear its proportionate share of the expenses
incurred by that fund, including management fees. Such securities are expected
to be illiquid which may involve a high degree of business and financial risk
and may result in substantial losses. Because of the current absence of any
liquid trading market for these investments, the Fund may take longer to
liquidate these positions than would be the case for publicly traded securities.
Although these securities may be resold in privately negotiated transactions,
the prices realized on such sales could be substantially less than those
originally paid by the Fund or the current carrying values and this difference
could be material. Further, companies whose securities are not publicly traded
may not be subject to the disclosures and other investor protection requirements
applicable to companies whose securities are publicly traded.
The Board of Directors has removed the limitation set forth in the Fund's
prospectus requiring that the portion of the Fund's investments not invested in
Israeli securities be invested in securities of companies that are substantially
involved in or with Israel ("Israeli-Related Securities").
NOTE B. AGREEMENTS
Credit Suisse Asset Management, LLC ("CSAM") serves as the Fund's investment
adviser with respect to all investments. CSAM receives as compensation for its
advisory services from the Fund, an annual fee, calculated weekly and paid
quarterly, equal to 1.30% of the Fund's average weekly market value or net
assets (whichever is lower) invested in listed securities (including securities
traded over-the-counter in the United States) and 2.00% of the Fund's average
weekly market value or net assets (whichever is lower) invested in unlisted
Israeli securities. The aggregate fee may not exceed an annual rate of 1.40% of
the Fund's average weekly market value or net assets (whichever is lower). CSAM
has agreed to waive the advisory fee previously payable to the Fund's former
investment sub-adviser. For the fiscal year ended September 30, 2003, CSAM
earned $529,754 for advisory services, of which CSAM waived $102,108. CSAM also
provides certain administrative services to the Fund and is reimbursed by the
Fund for costs incurred on behalf of the Fund (up to $20,000 per annum). For the
fiscal year ended September 30, 2003, CSAM was reimbursed $8,082 for
administrative services rendered to the Fund.
18
<Page>
Effective April 24, 2003, Credit Suisse Asset Management Limited ("Sub-Adviser")
serves as the Fund's investment sub-adviser. CSAM currently pays the Sub-Adviser
on a quarterly basis a fee of $250,000 per annum for services rendered with
respect to the Fund and certain other Credit Suisse Funds for which the
Sub-Adviser has been appointed as such. The Fund does not pay the Sub-Adviser.
Analyst Exchange and Trading Services Ltd. ("Analyst I.M.S.") serves as the
Fund's investment sub-adviser. Analyst I.M.S. is paid a fee, out of the advisory
fee payable to CSAM, calculated weekly and paid quarterly at an annual rate of
0.30% of the Fund's average weekly market value or net assets (whichever is
lower). In addition, CSAM paid Analyst I.M.S., out of its advisory fee, a
reimbursement for any Israeli Value Added taxes (currently 18%) and $25,000
annually to cover expenses incurred in the execution of sub-advisory services.
For the fiscal year ended September 30, 2003, Analyst I.M.S. earned $159,046 for
sub-advisory services.
Analyst I.M.S. has certain commercial arrangements with banks and brokers in
Israel from which they receive a portion of the commission on the Fund's trades
executed in Israel. For the fiscal year ended September 30, 2003, such
commissions amounted to approximately $500.
Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund's administrator.
The Fund pays BSFM a monthly fee that is computed weekly at an annual rate of
0.11% of the Fund's average weekly net assets. For the fiscal year ended
September 30, 2003, BSFM earned $50,792 for administrative services.
Merrill Corporation ("Merrill"), an affiliate of CSAM, has been engaged by the
Fund to provide certain financial printing services. For the fiscal year ended
September 30, 2003, Merrill was paid $48,238 for its services to the Fund.
The Independent Directors receive fifty percent (50%) of their annual retainer
in the form of shares purchased by the Fund's transfer agent in the open market.
Directors as a group own less than 1% of the Fund's outstanding shares.
NOTE C. CAPITAL STOCK
The authorized capital stock of the Fund is 100,000,000 shares of common stock,
$0.001, par value. Of the 4,259,295 shares outstanding at September 30, 2003,
CSAM owned 7,169 shares.
NOTE D. INVESTMENT IN SECURITIES
For the fiscal year ended September 30, 2003, purchases and sales of securities,
other than short-term investments, were $1,317,809 and $2,990,983, respectively.
NOTE E. CREDIT FACILITY
The Fund, together with other funds/portfolios advised by CSAM (collectively,
the "Participating Funds"), participates in a $100 million committed, unsecured,
line of credit facility ("Credit Facility") with Deutsche Bank, A.G. as
administrative agent and syndication agent and State Street Bank and Trust
Company as operations agent for temporary or emergency purposes. Under the terms
of the Credit Facility, the Participating Funds pay an aggregate commitment fee
at a rate of 0.10% per annum on the average unused amount of the Credit
Facility, which is allocated among the Participating Funds in such manner as is
determined by the governing Boards of the Participating Funds. In addition, the
Participating Funds pay interest on borrowings at the Federal Funds rate plus
0.50%. During the fiscal year ended September 30, 2003, the Fund had no
borrowings under the Credit Facility.
19
<Page>
NOTE F. FEDERAL INCOME TAXES
Income and capital gains distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP. These differences are
primarily due to differing treatments of foreign currency transactions, losses
deferred due to wash sales and Post-October losses (as later defined), and
excise tax regulations.
The tax characteristics of dividends and distributions paid during the fiscal
years ended September 30, for the Fund were as follows:
<Table>
<Caption>
ORDINARY INCOME LONG-TERM CAPITAL GAINS
- --------------------- ------------------------
2003 2002 2003 2002
- --------- --------- ----------- ----------
- $ 521,155 $ 1,495,013 $ 202,925
</Table>
At September 30, 2003, the components of distributable earnings on a tax basis,
for the Fund were as follows:
<Table>
Undistributed ordinary income -
Accumulated net realized loss $ (2,303,316)
Unrealized appreciation 114,681
------------
Total distributable earnings $ (2,188,635)
============
</Table>
Under current tax law, certain capital losses realized after October 31 within a
taxable year may be deferred and treated as occurring on the first day of the
following tax year ("Post-October losses"). For the tax period ended September
30, 2003, the Fund elected to defer net realized foreign currency losses of
$4,169 and net realized losses from investments of $721,061.
At September 30, 2003, the Fund had a capital loss carryforward for U.S. federal
income tax purposes of $1,578,086 expiring in 2011.
At September 30, 2003, the identified cost for federal income tax purposes, the
gross unrealized appreciation from investments for those securities having an
excess of value over cost, gross unrealized depreciation from investments for
those securities having an excess of cost over value and the net unrealized
appreciation from investments were $52,638,693, $12,956,418, $(12,841,741) and
$114, 677.
At September 30, 2003, the Fund reclassified from accumulated net realized loss
on investments and foreign currency related transactions of $21,551 to
accumulated net investment loss. In addition, the Fund reclassified $950,400
from accumulated net investment loss and $1,017 from accumulated net realized
loss on investments and foreign currency related transactions to paid-in
capital, to adjust for current period permanent book/tax differences. Net assets
were not affected by these reclassifications.
20
<Page>
NOTE G. RESTRICTED SECURITIES
Certain of the Fund's investments are restricted as to resale and are valued at
fair value as determined in good faith by the Board of Directors under
procedures established by the Board of Directors in the absence of readily
ascertainable market values. The table below shows the number of units/shares
held, the acquisition dates, aggregate costs, fair value as of September 30,
2003, value per unit/share of such securities and percent of net assets which
the securities comprise.
<Table>
<Caption>
NUMBER FAIR PERCENT
OF VALUE AT VALUE PER OF NET
SECURITY UNITS/SHARES ACQUISITION DATES COST 09/30/2003 UNIT/SHARE ASSETS
- -------- ------------ ----------------- ------------ ---------- ---------- -------
ABS GE Capital Giza Fund, L.P. 1,250,001 02/03/98 - 02/13/02 $ 1,122,281 $ 564,013 $ 0.45 1.07
--------- ------------ ----------- ----
Advent Israel (Bermuda) L.P. 1,682,293 06/16/93 - 01/16/98 1,902,913 304,973 0.18 0.58
--------- ------------ ----------- ----
BPW Israel Ventures LLC 1,121,970 10/05/00 - 07/01/02 926,114 660,369 0.59 1.25
17,250 01/07/03 15,710 10,153 0.59 0.02
17,250 06/30/03 15,710 10,153 0.59 0.02
--------- ------------ ----------- ----
1,156,470 957,534 680,675 1.29
--------- ------------ ----------- ----
Concord Ventures II Fund L.P. 1,500,000 03/29/00 - 07/29/02 1,198,105 667,591 0.45 1.27
60,000 04/03/03 52,175 26,704 0.45 0.05
80,000 07/15/03 69,567 35,605 0.45 0.07
--------- ------------ ----------- ----
1,640,000 1,319,847 729,900 1.39
--------- ------------ ----------- ----
Delta Fund I, L.P. 137,500 11/15/00 - 04/01/02 113,068 103,358 0.75 0.19
25,000 01/31/03 24,036 18,792 0.75 0.04
25,000 09/19/03 24,036 18,792 0.75 0.04
--------- ------------ ----------- ----
187,500 161,140 140,942 0.27
--------- ------------ ----------- ----
Emerging Markets Ventures I L.P. 1,911,609 01/22/98 - 01/10/01 1,431,225 1,200,662 0.63 2.29
260,901 10/01/02 196,771 163,869 0.63 0.31
11,141 06/30/03 8,924 6,998 0.63 0.01
--------- ------------ ----------- ----
2,183,651 1,636,920 1,371,529 2.61
--------- ------------ ----------- ----
Formula Ventures L.P. 933,172 08/06/99 - 07/03/02 406,116 307,760 0.33 0.58
26,991 04/03/03 15,156 8,902 0.33 0.02
17,907 07/24/03 10,316 5,906 0.33 0.01
--------- ------------ ----------- ----
978,070 431,588 322,568 0.61
--------- ------------ ----------- ----
Giza GE Venture Fund III L.P. 625,000 01/31/00 - 05/28/02 493,885 329,131 0.53 0.62
75,000 04/30/03 66,230 39,496 0.53 0.08
--------- ------------ ----------- ----
700,000 560,115 368,627 0.70
--------- ------------ ----------- ----
</Table>
21
<Page>
<Table>
<Caption>
NUMBER FAIR PERCENT
OF VALUE AT VALUE PER OF NET
SECURITY UNITS/SHARES ACQUISITION DATES COST 09/30/2003 UNIT/SHARE ASSETS
- -------- ------------ ----------------- ------------ ---------- ----------- -------
K.T. Concord Venture Fund L.P. 1,000,000 12/08/97 - 09/29/00 $ 897,683 $ 594,472 $ 0.59 1.13
--------- ------------ ----------- -----
Neurone Ventures II, L.P. 270,000 11/24/00 - 06/17/02 209,414 121,816 0.45 0.23
30,000 01/27/03 27,399 13,535 0.45 0.03
37,500 09/19/03 34,248 16,919 0.45 0.03
--------- ------------ ----------- -----
337,500 271,061 152,270 0.29
--------- ------------ ----------- -----
Pitango Fund II LLC 1,000,000 10/31/96 - 08/01/01 605,908 328,564 0.33 0.63
--------- ------------ ----------- -----
SVE Star Ventures Enterprises
GmbH & Co. No. IX KG 730,000 12/21/00 - 03/04/02 533,442 433,021 0.59 0.83
20,000 01/14/03 - 11,864 0.59 0.02
250,000 08/18/03 235,559 148,295 0.59 0.28
--------- ------------ ----------- -----
1,000,000 769,001 593,180 1.13
--------- ------------ ----------- -----
SVE Star Ventures
Enterprises No. II 5 10/10/94 675,857 401,546 80,309.27 0.76
--------- ------------ ----------- -----
The Renaissance Fund LDC 60 03/30/94 - 03/21/97 213,866 38,747 645.89 0.07
--------- ------------ ----------- -----
Walden-Israel Ventures, L.P. 500,000 09/28/93 - 05/16/97 384,717 134,805 0.27 0.26
--------- ------------ ----------- -----
Walden-Israel Ventures III, L.P. 220,000 02/23/01 - 06/19/02 153,975 120,657 0.55 0.23
68,750 04/01/03 58,136 37,705 0.55 0.07
--------- ------------ ----------- -----
288,750 212,111 158,362 0.30
--------- ------------ ----------- -----
Total $ 12,122,542 $ 6,885,173 13.09
============ =========== =====
</Table>
The Fund may incur certain costs in connection with the disposition of the above
securities.
22
<Page>
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
of The First Israel Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations, of
changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of The First Israel
Fund, Inc. (the "Fund") at September 30, 2003, the results of its operations and
its cash flows 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 ten 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 September 30, 2003 by correspondence with the custodian and
issuers, provide a reasonable basis for our opinion.
As explained in Note A, the financial statements include securities valued at
$7,127,705 (13.55% of net assets), whose fair values have been determined in
good faith under procedures established by the Board of Directors in the absence
of readily ascertainable market values. We have reviewed the procedures
established by the Board of Directors to value such securities and have
inspected underlying documentation, and, in the circumstances, we believe the
procedures are reasonable and the documentation appropriate. However, these
values may differ significantly from the values that would have been used had a
ready market for the securities existed, and the difference could be material.
PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
November 21, 2003
23
<Page>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On April 24, 2003, the Annual Meeting of Shareholders of The First Israel Fund,
Inc. (the "Fund") was held and the following matters were voted upon:
(1) To re-elect two directors to the Board of Directors of the Fund.
<Table>
<Caption>
NAME OF DIRECTOR FOR WITHHELD
- ---------------- --------- ----------
Enrique R. Arzac 3,177,694 48,832
William W. Priest, Jr. 3,127,739 98,787
</Table>
In addition to the directors re-elected at the meeting, George W. Landau,
Jonathan W. Lubell and Steven N. Rappaport continued as directors of the Fund.
Effective January 17, 2003, Richard W. Watt resigned as President, Chief
Investment Officer and Director of the Fund.
Effective May 21, 2003, Joseph D. Gallagher was appointed as Chairman of the
Fund, Chief Executive Officer and President of the Fund. Laurence R. Smith who
previously held these positions has resigned effective May 21, 2003.
(2) To approve a Sub-Advisory Agreement among the Fund, Credit Suisse Asset
Management, LLC and Credit Suisse Asset Management Limited.
<Table>
<Caption>
FOR AGAINST ABSTAIN
--------- ------- -------
2,387,044 816,616 22,866
</Table>
TAX INFORMATION (UNAUDITED)
The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of the Fund's fiscal year end
(September 30, 2003) as to the U.S. federal tax status of dividends and
distributions received by the Fund's shareholders in respect of such fiscal
year. The $0.35 per share distribution paid in respect of such fiscal year is
represented entirely by net realized long-term capital gains. There were no
distributions which would qualify for the dividend received deduction available
to corporate shareholders.
The Fund does not intend to make an election under Section 853 to pass through
foreign taxes paid by the Fund to its shareholders. This information is given to
meet certain requirements of the Internal Revenue Code of 1986, as amended.
Shareholders should refer to their Form 1099-DIV to determine the amount
includable on their respective tax returns for 2003.
Because the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 2003. The notification will reflect the
amount, if any, that calendar year 2003 taxpayers will report on their U.S.
federal income tax returns. Such notification will be mailed with Form 1099-DIV
in January 2004.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their distribution. They will generally not be entitled to a foreign
tax credit or deduction for the withholding taxes paid by the Fund.
In general, distributions received by tax-exempt recipients (e.g., IRAs and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7)
plans) may need this information for their annual information reporting.
Shareholders are advised to consult their own tax advisors with respect to the
tax consequences of their investment in the Fund.
24
<Page>
DESCRIPTION OF INVESTLINK(SM) PROGRAM (UNAUDITED)
The InvestLink(SM) Program is sponsored and administered by EquiServe, L.P., not
by The First Israel Fund, Inc. (the "Fund"). EquiServe, L.P., will act as
program administrator (the "Program Administrator") of the InvestLink(SM)
Program (the "Program"). The purpose of the Program is to provide existing
shareholders with a simple and convenient way to invest additional funds and
reinvest dividends in shares of the Fund's common stock ("Shares") at prevailing
prices, with reduced brokerage commissions and fees.
In order to participate in the Program, you must be a registered holder of at
least one Share of stock of the Fund. Purchases of Shares with funds from a
participant's cash payment or automatic account deduction will begin on the next
day on which funds are invested. All cash payments must be drawn on a U.S. bank
and payable in U.S. dollars. Checks must be made payable to EquiServe. If a
participant selects the dividend reinvestment option, automatic investment of
dividends generally will begin with the next dividend payable after the Program
Administrator receives his enrollment form. Once in the Program, a person will
remain a participant until he terminates his participation or sells all Shares
held in his Program account, or his account is terminated by the Program
Administrator. A participant may change his investment options at any time by
requesting a new enrollment form and returning it to the Program Administrator.
A participant will be assessed certain charges in connection with his
participation in the Program. All optional cash deposit investments will be
subject to a service charge. Sales processed through the Program will have a
service fee deducted from the net proceeds, after brokerage commissions. In
addition to the transaction charges outlined above, participants will be
assessed per share processing fees (which include brokerage commissions.)
Participants will not be charged any fee for reinvesting dividends.
The number of Shares to be purchased for a participant depends on the amount of
his dividends, cash payments or bank account or payroll deductions, less
applicable fees and commissions, and the purchase price of the Shares. The
investment date for cash payments is the 25th day of each month (or the next
trading day if the 25th is not a trading day). The investment date for dividend
reinvestment is the dividend payment date. The Program Administrator uses
dividends and funds of participants to purchase Shares of the Fund in the open
market. Such purchases will be made by participating brokers as agent for the
participants using normal cash settlement practices. All Shares purchased
through the Program will be allocated to participants as of the settlement date,
which is usually three business days from the purchase date. In all cases,
transaction processing will occur within 30 days of the receipt of funds, except
where temporary curtailment or suspension of purchases is necessary to comply
with applicable provisions of the Federal Securities laws or when unusual market
conditions make prudent investment impracticable. In the event the Program
Administrator is unable to purchase Shares within 30 days of the receipt of
funds, such funds will be returned to the participants.
The average price of all Shares purchased by the Program Administrator with all
funds received during the time period from two business days preceding any
investment date up to the second business day preceding the next investment date
shall be the price per share allocable to a participant in connection with the
Shares purchased for his account with his funds or dividends received by the
Program Administrator during such time period. The average price of all Shares
sold by the Program Administrator pursuant to sell orders received during such
time period shall be the price per share allocable to a participant in
connection with the Shares sold for his account pursuant to his sell orders
received by the Program Administrator during such time period. All sale requests
having an anticipated market value of $100,000.00 or more are expected to be
submitted in
25
<Page>
written form. In addition, all sale requests received by the Program
Administrator within thirty (30) days of an address change are expected to be
submitted in written form.
EquiServe L.P., as Program Administrator, administers the Program for
participants, keeps records, sends statements of account to participants and
performs other duties relating to the Program. Each participant in the Program
will receive a statement of his account following each purchase of Shares. The
statements will also show the amount of dividends credited to such participant's
account (if applicable), as well as the fees paid by the participant. In
addition, each participant will receive copies of the Fund's annual and
semi-annual reports to shareholders, proxy statements and, if applicable,
dividend income information for tax reporting purposes.
If the Fund is paying dividends on the Shares, a participant will receive
dividends through the Program for all Shares held on the dividend record date on
the basis of full and fractional Shares held in his account, and for all other
Shares of the Fund registered in his name. The Program Administrator will send
checks to the participants for the amounts of their dividends that are not to be
automatically reinvested at no cost to the participants.
Shares of the Fund purchased under the Program will be registered in the name of
the accounts of the respective participants. Unless requested, the Fund will not
issue to participants certificates for Shares of the Fund purchased under the
Program. The Program Administrator will hold the Shares in book-entry form until
a Program participant chooses to withdraw his Shares or terminate his
participation in the Program. The number of Shares purchased for a participant's
account under the Program will be shown on his statement of account. This
feature protects against loss, theft or destruction of stock certificates.
A participant may withdraw all or a portion of the Shares from his Program
account by notifying the Program Administrator. After receipt of a participant's
request, the Program Administrator will issue to such participant certificates
for the whole Shares of the Fund so withdrawn or, if requested by the
participant, sell the Shares for him and send him the proceeds, less applicable
brokerage commissions, fees, and transfer taxes, if any. If a participant
withdraws all full and fractional Shares in his Program account, his
participation in the Program will be terminated by the Program Administrator. In
no case will certificates for fractional Shares be issued. The Program
Administrator will convert any fractional Shares held by a participant at the
time of his withdrawal to cash.
Participation in any rights offering, dividend distribution or stock split will
be based upon both the Shares of the Fund registered in participants' names and
the Shares (including fractional Shares) credited to participants' Program
accounts. Any stock dividend or Shares resulting from stock splits with respect
to Shares of the Fund, both full and fractional, which participants hold in
their Program accounts and with respect to all Shares registered in their names
will be automatically credited to their accounts.
All Shares of the Fund (including any fractional share) credited to his account
under the Program will be voted as the participant directs. The participants
will be sent the proxy materials for the annual meetings of shareholders. When a
participant returns an executed proxy, all of such Shares will be voted as
indicated. A participant may also elect to vote his Shares in person at the
Shareholders' meeting.
A participant will receive tax information annually for his personal records and
to help him prepare his U.S. federal income tax return. The automatic
reinvestment of dividends does not relieve him of any income tax which may be
payable on dividends. For further information as
26
<Page>
to tax consequences of participation in the Program, participants should consult
with their own tax advisors.
The Program Administrator in administering the Program will not be liable for
any act done in good faith or for any good faith omission to act. However, the
Program Administrator will be liable for loss or damage due to error caused by
its negligence, bad faith or willful misconduct. Shares held in custody by the
Program Administrator are not subject to protection under the Securities
Investors Protection Act of 1970.
The participant should recognize that neither the Fund nor the Program
Administrator can provide any assurance of a profit or protection against loss
on any Shares purchased under the Program. A participant's investment in Shares
held in his Program account is no different than his investment in directly held
Shares in this regard. The participant bears the risk of loss and the benefits
of gain from market price changes with respect to all of his Shares. Neither the
Fund nor the Program Administrator can guarantee that Shares purchased under the
Program will, at any particular time, be worth more or less than their purchase
price. Each participant must make an independent investment decision based on
his own judgment and research.
While the Program Administrator hopes to continue the Program indefinitely, the
Program Administrator reserves the right to suspend or terminate the Program at
any time. It also reserves the right to make modifications to the Program.
Participants will be notified of any such suspension, termination or
modification in accordance with the terms and conditions of the Program. The
Program Administrator also reserves the right to terminate any participant's
participation in the Program at any time. Any question of interpretation arising
under the Program will be determined in good faith by the Program Administrator
and any such good faith determination will be final.
Any interested shareholder may participate in the Program. All other cash
payments or bank account deductions must be at least $100.00, up to a maximum of
$100,000.00 annually. An interested shareholder may join the Program by reading
the Program description, completing and signing the enrollment form and
returning it to the Program Administrator. The enrollment form and information
relating to the Program (including the terms and conditions) may be obtained by
calling the Program Administrator at one of the following telephone numbers:
(800) 730-6001 (U.S. and Canada) or (781) 575-3100 (outside U.S. and Canada).
All correspondence regarding the Program should be directed to: EquiServe Trust
Company N.A., InvestLink(SM) Program, P.O. Box 43010, Providence, RI 02940-3010.
InvestLink is a service mark of EquiServe, L.P.
27
<Page>
INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED)
<Table>
<Caption>
TERM NUMBER OF
OF OFFICE PORTFOLIOS IN
AND FUND
POSITION(S) LENGTH PRINCIPAL COMPLEX OTHER
NAME, ADDRESS AND HELD WITH OF TIME OCCUPATION(S) DURING OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH FUND SERVED PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
- ------------------------ --------------- ------------ ------------------------ -------------- ---------------------
INDEPENDENT DIRECTORS
Enrique R. Arzac Director; Since 1996; Professor of Finance and 8 Director of The Adams
c/o Credit Suisse Asset Nominating and current term Economics, Graduate Express Company (a
Management, LLC Audit Committee ends at the School of Business, closed- end investment
466 Lexington Avenue Member 2006 annual Columbia University company); Director of
New York, New York meeting since 1971 Petroleum and
10017-3140 Resources Corporation
(a closed-end
Date of Birth: 02/10/41 investment company)
George W. Landau Director; Since 1995; Senior Advisor, Latin 5 Director of GAM Funds,
c/o Credit Suisse Asset Nominating and current term America, The Coca-Cola Inc.
Management, LLC Audit Committee ends at the Company since 1988
466 Lexington Avenue Member 2004 annual
New York, New York meeting
10017-3140
Date of Birth: 03/04/20
Jonathan W. Lubell Director; Since 1992; Partner, Van Lierop & 1 None
Van Lierop & Burns Nominating and current term Burns since 2003;
320 Convent Avenue Audit Committee ends at the Partner, Morrison Cohen
New York, New York Member 2005 annual Singer & Weinstein from
10031 meeting 1989 to 2003
Date of Birth: 11/09/29
Steven N. Rappaport Director; Since 1992; Partner of Lehigh Court, 45 None
Lehigh Court, LLC Nominating and current term LLC and RZ Capital
40 East 52nd Street Audit Committee ends at the (private investment
New York, New York Member 2005 annual firms) since July 2002;
10022 meeting Consultant to SunGard
Securities Finance, Inc.
Date of Birth: 07/10/48 from February 2002 to
July 2002; President of
SunGard Securities
Finance, Inc. from 2001
to February 2002;
President of Loanet,
Inc. (on-line accounting
service) from 1997 to
2001
</Table>
28
<Page>
<Table>
<Caption>
TERM NUMBER OF
OF OFFICE PORTFOLIOS IN
AND FUND
POSITION(S) LENGTH PRINCIPAL COMPLEX OTHER
NAME, ADDRESS AND HELD WITH OF TIME OCCUPATION(S) DURING OVERSEEN BY DIRECTORSHIPS
DATE OF BIRTH FUND SERVED PAST FIVE YEARS DIRECTOR HELD BY DIRECTOR
- ------------------------- --------------- ------------ ------------------------ -------------- ---------------------
INTERESTED DIRECTOR
William W. Priest, Jr.* Director Since 1997; Co-Managing Partner, 50 Director of Globe
Steinberg Priest & Sloane current term Steinberg Priest & Wireless, L.L.C.
Capital Management, LLC ends at the Sloane Capital (a maritime
12 East 49th Street 2006 annual Management, LLC since communications
12th Floor meeting March 2001; Chairman company); Director of
New York, New York and Managing Director InfraRed X(a medical
10017 of CSAM from 2000 to device company)
February 2001, Chief
Date of Birth: 09/24/41 Executive Officer and
Managing Director of
CSAM from 1990 to 2000
<Caption>
POSITION(S) LENGTH
NAME, ADDRESS AND HELD WITH OF TIME
DATE OF BIRTH FUND SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ------------------------ --------------- ------------ -------------------------------------------------------------------
OFFICERS
Joseph D. Gallagher** Chairman of the Since 2003 Managing Director and Chief Executive Officer of CSAM since
Credit Suisse Asset Fund, Chief 2003; Global Chief Financial Officer, Credit Suisse Asset
Management, LLC Executive Management since 1999; Chief Executive Officer and Director of
466 Lexington Avenue Officer and Credit Suisse Asset Management Limited, London, England, from
New York, New York President June 2000 to 2003; Director of Credit Suisse Asset Management
10017-3140 Funds (UK) Limited, London, England, from June 2000 to 2003;
Managing Director, Head-Asian Corporate Finance and M&A, Credit
Date of Birth: 12/14/62 Suisse First Boston, Hong Kong, China, from January 1998 to May
1999; Officer of other Credit Suisse Funds
Yaroslaw Aranowicz Chief Investment Since 2003 Vice President of CSAM; Associated with CSAM since 1998; Officer
Credit Suisse Asset Officer of other Credit Suisse Funds
Management, LLC
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 05/08/63
Hal Liebes Senior Vice Since 1997 Managing Director and Global General Counsel of CSAM; Associated
Credit Suisse Asset President with CSAM since 1997; Officer of other Credit Suisse Funds
Management, LLC
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 07/06/64
</Table>
* Designates a director who is an "interested person" of the Fund as defined
under the Investment Company Act of 1940, as amended. Mr. Priest is an
interested person of the Fund because he provided consulting services to
CSAM within the last two years.
** Effective May 21, 2003, Joseph D. Gallagher was appointed as Chairman of
the Fund, Chief Executive Officer and President of the Fund. Laurence R.
Smith who previously held these positions has resigned effective May 21,
2003.
29
<Page>
<Table>
<Caption>
POSITION(S) LENGTH
NAME, ADDRESS AND HELD WITH OF TIME
DATE OF BIRTH FUND SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ---------------------- --------------- ------------ -------------------------------------------------------------------
OFFICERS--(CONCLUDED)
Michael A. Pignataro Chief Financial Since 1993 Director and Director of Fund Administration of CSAM; Associated
Credit Suisse Asset Officer and with CSAM since 1984; Officer of other Credit Suisse Funds
Management, LLC Secretary
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 11/15/59
Rocco A. Del Guercio Vice President Since 1997 Vice President and Administrative Officer of CSAM; Associated with
Credit Suisse Asset CSAM since 1996; Officer of other Credit Suisse Funds
Management, LLC
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 04/28/63
Robert M. Rizza Treasurer Since 1999 Assistant Vice President of CSAM since January 2001; Associated
Credit Suisse Asset with CSAM since 1998; Officer of other Credit Suisse Funds
Management, LLC
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 12/09/65
</Table>
30
<Page>
OTHER FUNDS MANAGED BY CREDIT SUISSE ASSET MANAGEMENT, LLC
Credit Suisse Capital Appreciation Fund
Credit Suisse Cash Reserve Fund
Credit Suisse Emerging Growth Fund
Credit Suisse Emerging Markets Fund
Credit Suisse Fixed Income Fund
Credit Suisse Global Fixed Income Fund
Credit Suisse Global Post-Venture Capital Fund
Credit Suisse High Income Fund
Credit Suisse International Focus Fund
Credit Suisse Japan Equity Fund
Credit Suisse Large Cap Value Fund
Credit Suisse Municipal Money Fund
Credit Suisse New York Municipal Fund
Credit Suisse New York Tax Exempt Fund
Credit Suisse Select Equity Fund
Credit Suisse Short Duration Bond Fund
Credit Suisse Small Cap Growth Fund
Credit Suisse Small Cap Value Fund
Credit Suisse Strategic Small Cap Fund
Credit Suisse Tax Efficient Fund
Credit Suisse U.S. Government Money Fund
Fund shares are not deposits or other obligations of Credit Suisse Asset
Management, LLC or any affiliate, are not FDIC-insured and are not guaranteed by
Credit Suisse Asset Management, LLC or any affiliate. Fund investments are
subject to investment risks, including loss of your investment. There are
special risk considerations associated with international, global,
emerging-market, small-company, high-yield debt, single-industry, single-country
and other special, aggressive or concentrated investment strategies. Past
performance cannot guarantee future results.
More complete information about a fund, including charges and expenses, is
provided in the Prospectus, which should be read carefully before investing. You
may obtain copies by calling Credit Suisse Funds at 800-927-2874. For up-to-date
performance, please look in the mutual fund section of your newspaper under
Credit Suisse.
Credit Suisse Asset Management Securities, Inc., Distributor.
31
<Page>
This page left intentionally blank.
<Page>
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
The Fund--The First Israel Fund, Inc.--is a closed-end, non-diversified
management investment company whose shares trade on the New York Stock Exchange,
Inc. Its investment objective is long-term capital appreciation through
investments primarily in equity securities of Israeli companies. Credit Suisse
Asset Management, LLC (New York), the Fund's investment adviser, is part of
Credit Suisse Asset Management ("CSAM"), the institutional and mutual-fund
asset-management arm of Credit Suisse First Boston. As of September 30, 2003,
CSAM managed over $49 billion in the U.S. and, together with its global
affiliates, managed assets of over $312 billion in 14 countries.
SHAREHOLDER INFORMATION
The market price is published in: THE NEW YORK TIMES (daily) under the
designation "Frst Israel" and THE WALL STREET JOURNAL (daily), and BARRON'S
(each Monday) under the designation "FstIsrael." The Fund's New York Stock
Exchange trading symbol is ISL. Weekly comparative net asset value (NAV) and
market price information about The First Israel Fund, Inc.'s shares are
published each Sunday in THE NEW YORK TIMES and each Monday in THE WALL STREET
JOURNAL and BARRON'S, as well as other newspapers, in a table called "Closed-End
Funds."
THE CSAM GROUP OF FUNDS
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds listed below at 1-800-293-1232 or visit our website on the
Internet: http://www.csam-americas.com.
CLOSED-END FUNDS
SINGLE COUNTRY
The Brazilian Equity Fund, Inc. (BZL)
The Chile Fund, Inc. (CH)
The Indonesia Fund, Inc. (IF)
MULTIPLE COUNTRY
The Emerging Markets Telecommunications Fund, Inc. (ETF)
The Latin America Equity Fund, Inc. (LAQ)
FIXED INCOME
Credit Suisse Asset Management Income Fund, Inc. (CIK)
Credit Suisse High Yield Bond Fund (DHY)
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that The First Israel Fund, Inc. may from time
to time purchase shares of its capital stock in the open market.
<Page>
DIRECTORS AND CORPORATE OFFICERS
Enrique R. Arzac Director
George W. Landau Director
Jonathan W. Lubell Director
William W. Priest, Jr. Director
Steven N. Rappaport Director
Joseph D. Gallagher Chairman of the Fund,
Chief Executive Officer and
President
Yaroslaw Aranowicz Chief Investment Officer
Hal Liebes Senior Vice President
Michael A. Pignataro Chief Financial Officer and
Secretary
Rocco A. Del Guercio Vice President
Robert M. Rizza Treasurer
INVESTMENT ADVISER
Credit Suisse Asset Management, LLC
466 Lexington Avenue
New York, NY 10017
INVESTMENT SUB-ADVISER
Credit Suisse Asset Management Limited
Beaufort House
15 St. Botolph Street
London EC3A 7JJ, England
ADMINISTRATOR
Bear Stearns Funds Management Inc.
383 Madison Avenue
New York, NY 10179
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
SHAREHOLDER SERVICING AGENT
Fleet National Bank
(c/o EquiServe, L.P.)
P.O. Box 43010
Providence, RI 02940
INDEPENDENT AUDITORS
PricewaterhouseCoopers LLP
Two Commerce Square
Philadelphia, PA 19103
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036
This report, including the financial statements herein, is sent to the
shareholders of the Fund for their information. It is not a prospectus, circular
or representation intended for use in the purchase or sale of shares of the Fund
or of any securities mentioned in this report.
[ISL LISTED NYSE(R) LOGO]
3917-AR-03
<Page>
ITEM 2. CODE OF ETHICS.
The registrant has adopted a code of ethics applicable to its Chief Executive
Officer, President, Chief Financial Officer and Chief Accounting Officer, or
persons performing similar functions. A copy of the code is filed as Exhibit
10(a)(1) to this Form. There were no amendments to the code during the fiscal
year ended September 30, 2003. There were no waivers or implicit waivers from
the code granted by the registrant during the fiscal year ended September 30,
2003.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The registrant's governing board has determined that it has two audit
committee financial experts serving on its audit committee: Enrique R. Arzac and
Steven N. Rappaport. Each audit committee financial expert is "independent" for
purposes of this item.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Form N-CSR disclosure requirement is not yet effective with respect to the
Registrant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Form N-CSR disclosure requirement is not yet effective with respect to the
Registrant.
ITEM 6. RESERVED.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
The Registrant has delegated the voting of proxies relating to its voting
securities to its investment adviser, Credit Suisse Asset Management, LLC (the
"Adviser"). The Proxy Voting Policies and Procedures of the Adviser (the
"Proxy Voting Policies") are included as Exhibit 10(c) hereto.
ITEM 8. RESERVED.
ITEM 9. CONTROLS AND PROCEDURES.
(a) As of a date within 90 days from the filing date of this report, the
principal executive officer and principal financial officer concluded that the
registrant's disclosure controls and procedures (as defined in Rule 30a-3(c)
under the Investment Company Act of 1940 (the "Act")) were effective based on
their evaluation of the disclosure controls and procedures required by Rule
30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities
Exchange Act of 1934.
(b) There were no changes in registrant's internal control over financial
reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the
registrant's second fiscal half-year that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Code of Ethics.
(a)(2) Certifications of chief executive officer and chief financial officer
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(b) Certification of principal executive officer and principal financial
officer pursuant to Section 906 of Sarbanes-Oxley Act of 2002.
(c) Proxy Voting Policies.
2
<Page>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the Registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
The First Israel Fund, Inc.
By: /s/ Joseph D. Gallagher
- ------------------------------
Name: Joseph D. Gallagher
Title: Chief Executive Officer
Date: December 4, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed by the following
persons on behalf of the Registrant and in the capacities and on the dates
indicated.
By: /s/ Joseph D. Gallagher
- ------------------------------
Name: Joseph D. Gallagher
Title: Chief Executive Officer
Date: December 4, 2003
By: /s/ Michael A. Pignataro
- -------------------------------
Name: Michael A. Pignataro
Title: Chief Financial Officer
Date: December 4, 2003
3