<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)
J. Kevin Gao, Esq.
The First Israel Fund, Inc.
466 Lexington Avenue
New York, New York 10017-3140
Registrant's telephone number, including area code: (212) 875-3500
Date of fiscal year end: September 30th
Date of reporting period: October 1, 2004 to September 30, 2005
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
<Page>
THE FIRST ISRAEL FUND, INC.
ANNUAL REPORT
SEPTEMBER 30, 2005
[ISL LISTED NYSE(R) LOGO]
ISL-AR-0905
<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 Registered Public Accounting Firm 23
Results of Annual Meeting of Shareholders 24
Description of InvestLink(SM) Program 25
Information Concerning Directors and Officers 28
Annual Certifications 30
Proxy Voting and Portfolio Holdings Information 31
</Table>
<Page>
LETTER TO SHAREHOLDERS
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, 2005.
At September 30, 2005, total net assets of the Fund were approximately $77.9
million. The Fund's investments in securities listed and trading on the Tel Aviv
Stock Exchange ("TASE") were $42.5 million, with another $19.4 million in
Israeli and Israeli-related companies listed and trading in the United States.
Combined, these totaled $61.9 million, as compared with $50.9 million on
September 30, 2004. The Fund also held investments valued at approximately $7.4
million in unlisted securities, as compared to approximately $6.6 million on
September 30, 2004. In percentage terms, at September 30, 2005, 89.0% of the
Fund's net assets were invested in Israeli and Israeli-related companies, of
which 79.5% were listed and trading on the TASE and in the United States and
9.5% were in unlisted securities.
At September 30, 2005, net asset value ("NAV") per share was $18.28, compared
with $14.27 on September 30, 2004. The Fund's common stock closed on the New
York Stock Exchange, Inc. (the "NYSE") on September 30, 2005 at $16.21 per
share, representing a discount of 11.32% 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 the NYSE 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 28.10% for the 2005 fiscal year, compared
with increases of 34.39% and 31.82%, respectively, for the Morgan Stanley
Capital International Israel Index* (the "MSCI Index") and the Tel Aviv 100
Index**.
On an absolute basis the top performing components of the Fund during the period
were in the financial, materials and information technology sectors. Relative to
the MSCI Index, the Fund's performance in the period was buoyed primarily by an
overweight to select stocks within the insurance and banking sectors and an
underweight to the health care sector. Detractors from overall performance
include the Fund's underweight to the information technology sector, and
particularly several firms working in the area of Internet security and flash
memory manufacturing. Finally, relative to the strong returns in the public
markets over the past year, the Fund's holdings in Israeli private equity also
detracted somewhat from performance.
Private equity holdings have historically played and continue to play an
important role in the Fund's overall performance. It should be noted that the
valuation of portfolio holdings of illiquid securities typically lag price
recovery in the public markets because improvements in the valuation of illiquid
holdings generally result from financing rounds at improved valuations, public
offerings or the sale of an investment. Write-downs, on the other hand, reflect
the investment manager's judgment that events have taken place that impact the
future realization of value for an investment. Investments in private equity, we
believe, should be evaluated over the course of time, because the investment
horizon of each individual investment is seldom less than five years and is
frequently in excess of seven years. During such a period of gestation, the
intent is, of course, to seek to realize long term returns that contribute
meaningful value added.
1
<Page>
As we noted previously, the last two years have seen an improvement in the
performance of Israel's technology sector from the 1999 post bubble valuations.
In the period October 2004 through September 2005, the Fund received
distributions from limited partnerships totaling approximately $348,000. During
this period, the Fund also funded capital commitments of approximately $1.1
million, at valuations significantly below the pre-bubble period. Altogether,
the Fund received proceeds from 10 different realizations during this same
period. The unfunded commitments of the Fund totaled $2.6 million at September
30, 2005, compared with $3.7 million a year earlier.
THE MARKET
A number of factors contributed to the strong performance of the Israeli
equities markets in the Fund's fiscal year. But in our view the operative
reasons for the dramatic change in sentiment on the part of investors towards
Israel were the death of Yasir Arafat at the beginning of the fiscal year, and
the policy improvements pursued by Benjamin Netanyahu, who resigned from his
post of finance minister near the end of the fiscal year.
The upward trajectory of the Israeli stock market in the period under review
coincided almost directly with the death of Yasir Arafat and the recognition
that a more stable geopolitical environment and a lower risk premium could drive
Israeli equities to new heights. The January election of Mahmoud Abbas as leader
of the Palestinian Authority validated the sense of optimism and provided a
tailwind for the markets throughout much of the year. The most recent political
milestone, the Gaza disengagement effort, while surrounded by uncertainty and a
source of short-term tension in the financial markets, was the most dramatic and
promising development to date in the region's otherwise slow-moving progress
toward peace.
One beneficiary of these political developments has been Israel's tourism
sector, which collapsed in 2001-2002, largely due to the deteriorating security
situation. It has since staged a comeback. Tourist arrivals, which surged 50% in
2004 to 1.5 million, are expected to increase to about 1.9 million this year and
could help boost GDP growth by approximately 0.3% this year.
But we believe that the most important contributor to Israel's economic recovery
has been the country's improved public finances and a number of structural
reforms pursued by Netanyahu as finance minister. The reforms appear to
acknowledge that the private sector is the key driver of growth in the economy
and that the government's role is to create an environment supportive of private
sector investment. A prime example of this may be the recently enacted tax
reforms, which will lower the maximum tax rates for individuals from 49% to 44%
and reduce the corporate rate from 34% to 25% by 2010. This, along with the
country's low level of interest rates and a rise in employment, has helped drive
substantial growth in consumer spending.
Moreover, thanks to fiscal restraints on spending and faster growing revenues
(due to an accelerated privatization schedule) the budget deficit in the first
part of this year came down to just 0.7% of GDP, well below the government's
3.4% target. Real GDP could grow 3.8% in 2005 and inflation seems mostly benign,
with an annual rate of about 0.3%, well below the central bank's target range of
1-3%. All in all, the country's economy, after a deep recession sparked by the
re-emergence of violence and the burst of the global tech bubble, seems to be on
much firmer footing.
2
<Page>
THE PORTFOLIO
Strong performance in the financial sector, led by increasing domestic growth
and consumer access to credit, was the main driver of the Fund's performance
during the period. Three of our top financial services holdings had gains of
over 50% in the Fund's fiscal year, and one gained 125%, helping to power
significant outperformance of the index in that sector. The Fund's overweight to
the industrials sector, as well as stock selection within the materials sector,
also buoyed performance. Detractors included a modest overweight relative to the
index in the consumer discretionary sector, our underweight to select stocks in
the information technology sector and our holdings in the Israeli private equity
market.
OUTLOOK
We expect no major changes in the Fund's strategy over the short-term. We remain
fundamentally constructive on the Israeli market with the caveat that the
current environment, characterized by above-trend growth and modestly higher
interest rates, should increase the importance of relative valuation and
selective stock-picking in achieving superior performance. Potential volatility
in the value of the Shekel relative to the dollar also creates some short-term
concerns.
As for our sector focus, we maintain an overweight to the banking sector which,
in spite of new reforms in the market, could benefit from increased consumer
spending and credit trends. Likewise, as political risk continues to subside, we
believe the pick-up in global demand for raw materials may help underpin growth
in the Israeli chemicals and industrial sectors generally.
Respectfully,
/s/ Neil Gregson
Neil Gregson
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 AS WELL AS RISKS
ASSOCIATED WITH INVESTING IN PRIVATE EQUITIES.
IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING
STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTIC AND FOREIGN MARKETS,
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 dividends (net of taxes), and is the exclusive property of
Morgan Stanley Capital International Inc. Investors cannot invest directly in an
index.
** The Tel Aviv100 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.
*** Neil Gregson, who is a Managing Director of Credit Suisse Asset Management
Limited ("CSAML"), is head of emerging market equities, based in London. Prior
to assuming this role in 2003, he was chief investment officer for equities in
Emerging Europe, the Middle East and Africa. Mr. Gregson joined CSAML in 1990
after working as an investment analyst in Johannesburg. Previously, he was a
mining engineer with Anglo American Corporation in South Africa. Mr. Gregson
holds a BSc (Hons.) in mining engineering from Nottingham University. Mr.
Gregson is also the Chief Investment Officer of The Emerging Markets
Telecommunications Fund, Inc.
4
<Page>
THE FIRST ISRAEL FUND, INC.
PORTFOLIO SUMMARY - AS OF SEPTEMBER 30, 2005 (UNAUDITED)
[CHART]
SECTOR ALLOCATION
AS A PERCENT OF NET ASSETS
<Table>
<Caption>
SEPTEMBER 30, 2005 SEPTEMBER 30, 2004
Banking 11.57% 11.13%
Chemicals 7.85% 6.66%
Computer Data Security 5.87% 5.25%
Conglomerates 5.16% 5.48%
Electronic Components/Semiconductors 1.62% 2.56%
Financial Services 1.68% 2.96%
Insurance 8.29% 7.11%
Mortgage Banking 4.16% 4.33%
Pharmaceuticals 12.87% 18.13%
Telecommunications 7.34% 6.42%
Venture Capital 9.26% 10.72%
Other 13.24% 13.91%
Cash & Other Assets 11.09% 5.34%
</Table>
TOP 10 HOLDINGS, BY ISSUER
<Table>
<Caption>
PERCENT OF
HOLDINGS SECTOR NET ASSETS
- -----------------------------------------------------------------------------------------------
1. Teva Pharmaceutical Industries Ltd. Pharmaceuticals 10.5
2. Harel Insurance Investments Ltd. Insurance 7.2
3. Bank Hapoalim Ltd. Banking 5.9
4. Check Point Software Technologies Ltd. Computer Data Security 5.9
5. Bezeq Israeli Telecommunication Corporation Ltd. Telecommunications 5.0
6. Israel Chemicals Ltd. Chemicals 5.0
7. Bank Leumi Le-Israel Ltd. Banking 4.6
8. Makhteshim-Agan Industries Ltd. Chemicals 2.9
9. Israel Discount Bank Ltd. Mortgage Banking 2.4
10. Perrigo Co. Pharmaceuticals 2.2
</Table>
5
<Page>
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2005
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES VALUE
- ------------------------------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-88.91%
ISRAEL-86.77%
AEROSPACE/DEFENSE-EQUIPMENT-0.68%
Elbit Systems Ltd. 23,500 $ 525,467
------------
AIRLINES-0.18%
EL AL Israel Airlines+ 174,089 140,760
------------
BANKING-11.57%
Bank Hapoalim Ltd. 1,185,000 4,609,049
Bank Leumi Le-Israel Ltd. 1,075,000 3,613,001
United Mizrahi Bank Ltd.+ 150,000 785,081
------------
9,007,131
------------
BUILDING-HEAVY CONSTRUCTION-0.76%
Housing & Construction
Holdings Ltd.+ 825,000 590,870
------------
CHEMICALS-7.85%
Israel Chemicals Ltd. 985,000 3,872,912
Makhteshim-Agan
Industries Ltd. 392,501 2,237,912
------------
6,110,824
------------
COMPUTER DATA SECURITY-5.87%
Check Point Software
Technologies Ltd.+ 188,100 4,574,592
------------
COMPUTER SOFTWARE-1.01%
Formula Systems (1985) Ltd. 69,622 785,712
------------
CONGLOMERATES-5.16%
Albad Massuot Yitzhak Ltd. 17,141 180,564
Discount Investment
Corporation 36,500 812,368
Elco Holdings Ltd. 92,501 862,717
IDB Development
Corporation Ltd. 44,001 1,212,588
IDB Holding Corporation Ltd. 42,251 953,129
------------
4,021,366
------------
CONSTRUCTION-0.22%
Bayside Land Corporation Ltd. 1,174 171,723
------------
DIVERSIFIED OPERATIONS-0.64%
Elbit Medical Imaging Ltd. 9,501 $ 160,060
Macpell Industries Ltd.+ 116,074 81,557
Plasson Ltd. 17,500 254,291
------------
495,908
------------
ELECTRONIC COMPONENTS/SEMICONDUCTORS-0.31%
Telsys Ltd. 50,000 239,286
------------
ELECTRONICS/ELECTRICAL EQUIPMENT-1.62%
Camtek Ltd.+ 29,400 87,906
Electra Consumer
Products Ltd.+ 52,000 320,305
Electra (Israel) Ltd.+ 9,142 658,464
Nisko Industries (1992) Ltd. 32,500 191,540
------------
1,258,215
------------
FINANCIAL SERVICES-1.68%
F.I.B.I. Holdings Ltd.+ 35,000 411,792
Gachelet Investments Co., Ltd. 9,125 899,543
------------
1,311,335
------------
FOOD & BEVERAGES-0.09%
Blue Square Chain Investments
& Properties Ltd. 871 8,522
Gan Shmuel Food Industries 16,940 64,631
------------
73,153
------------
FOOD-RETAIL-0.33%
Supersol Ltd. 100,000 254,673
------------
INDUSTRIAL TECHNOLOGY-2.14%
Orbotech, Ltd.+ 66,755 1,670,210
------------
INSURANCE-8.29%
Clal Insurance Enterprise
Holdings Ltd. 39,000 836,683
Harel Insurance
Investments Ltd. 120,000 5,621,473
------------
6,458,156
------------
INTERNET SOFTWARE-1.48%
MIND C.T.I. Ltd. 72,200 210,102
RADWARE Ltd.+ 49,300 939,165
------------
1,149,267
------------
</Table>
See accompanying notes to financial statements.
6
<Page>
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES/UNITS VALUE
- ------------------------------------------------------------------------------------------
INVESTMENT & HOLDING COMPANIES-1.07%
Ampal-American Israel Corp.,
Class A+ 206,000 $ 797,220
The Renaissance Fund LDC+^ 60 32,668
------------
829,888
------------
METAL PRODUCTS-0.13%
Klil Industries Ltd.+ 18,654 100,945
------------
MORTGAGE BANKING-4.16%
Discount Mortgage Bank Ltd.+ 11,817 1,361,448
Israel Discount Bank Ltd.,
Class A+ 1,285,000 1,878,135
------------
3,239,583
------------
PAPER & RELATED PRODUCTS-0.28%
American Israeli Paper
Mills Ltd. 5,201 214,086
------------
PHARMACEUTICALS-12.87%
DeveloGen AG+ * 497 105,732
Perrigo Co. 121,767 1,718,830
Teva Pharmaceutical
Industries Ltd., ADR 245,400 8,201,268
------------
10,025,830
------------
REAL ESTATE OPERATIONS/DEVELOPMENT-1.34%
Industrial Buildings
Corporation Ltd.+ 200,001 251,426
Property & Building
Corporation Ltd. 8,525 795,567
------------
1,046,993
------------
SEMICONDUCTOR & RELATED TECHNOLOGY-1.36%
DSP Group Inc.+ 41,300 1,059,758
------------
TECHNOLOGY-0.00%
Lenslet Ltd.,
Series E Preferred+* 30,838 0
------------
TELECOMMUNICATIONS-7.34%
AudioCodes Ltd.+ 35,000 385,350
Bezeq Israeli Telecommunication
Corporation Ltd.+ 2,900,000 3,902,793
ECI Telecom Ltd.+ 105,164 $ 878,119
NICE Systems Ltd., ADR+ 12,100 546,678
------------
5,712,940
------------
TRADING COMPANIES-0.64%
Rapac Electronics Ltd.+ 116,278 310,863
Rapac Technologies (2000) Ltd. 30,000 191,146
------------
502,009
------------
TRANSPORTATION SERVICES-0.58%
Dan Vehicle &
Transportation Ltd. 100,000 453,992
------------
VENTURE CAPITAL-7.12%
ABS GE Capital Giza
Fund, L.P.+^ 1,250,001 235,588
Advent Israel
(Bermuda) L.P.+^ 1,682,293 74,973
BPW Israel Ventures LLC+^# 1,577,294 937,394
Concord Ventures II
Fund L.P.+^# 1,880,000 735,503
Delta Fund I, L.P.+^# 220,440 136,363
Formula Ventures L.P.+^ 1,000,000 81,100
Giza GE Venture
Fund III L.P.+^# 1,125,000 587,081
K.T. Concord Venture
Fund L.P.+^ 1,000,000 513,344
Neurone Ventures II, L.P.+^# 536,184 223,393
Pitango Fund II LLC+^ 1,000,000 225,220
SVE Star Ventures Enterprises
GmbH & Co. No. IX KG+^# 1,500,000 923,775
SVE Star Ventures
Enterprises No. II+^ 5 162,967
Walden-Israel Ventures, L.P.+^ 500,000 83,220
Walden-Israel
Ventures III, L.P.+^# 774,813 627,738
------------
5,547,659
------------
TOTAL ISRAEL
(Cost $50,668,694) 67,572,331
------------
</Table>
See accompanying notes to financial statements.
7
<Page>
<Table>
<Caption>
NO. OF
DESCRIPTION UNITS VALUE
- ------------------------------------------------------------------------------------------
GLOBAL-2.14%
VENTURE CAPITAL-2.14%
Emerging Markets
Ventures I L.P.+^#
(Cost $1,546,799) 2,226,890 $ 1,667,718
------------
TOTAL EQUITY OR EQUITY-LINKED
SECURITIES
(Cost $52,215,493) 69,240,049
------------
<Caption>
PRINCIPAL
DESCRIPTION AMOUNT (000'S) VALUE
- ------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENT-11.51%
GRAND CAYMAN-11.51%
Brown Brothers Harriman & Co.,
overnight deposit, 3.06%,
10/03/05** (Cost $8,964,000) $ 8,964 $ 8,964,000
-------------
TOTAL INVESTMENTS-100.42%
(Cost $61,179,493) (Notes B,E,G) 78,204,049
-------------
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS-(0.42)% (329,162)
-------------
NET ASSETS-100.00% $ 77,874,887
=============
</Table>
- ----------
+ Non-income producing security.
^ Restricted security, not readily marketable; security is valued at fair
value as determined in good faith by, or under the direction of, the Board
of Directors under procedures established by the Board of Directors. (See
notes B and I).
# As of September 30, 2005, the aggregate amount of open commitments for the
Fund is $2,596,004. (See Note I).
* Not readily marketable security; security is valued at fair value as
determined in good faith by, or under the direction of, the Board of
Directors under procedures established by the Board of Directors.
** Variable rate account. Rate resets on a daily basis; amounts are available
on the same business day.
ADR American Depository Receipts.
See accompanying notes to financial statements.
8
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - SEPTEMBER 30, 2005
<Table>
ASSETS
Investments, at value (Cost $61,179,493) (Notes B,E,G) $ 78,204,049
Receivables:
Israeli tax refunds (Note B) 100,529
Dividends 7,164
Prepaid expenses 7,974
--------------
Total Assets 78,319,716
--------------
LIABILITIES
Payables:
Due to Custodian 29,176
Investment advisory fees (Note C) 187,658
Administration fees (Note C) 11,548
Directors' fees 1,951
Other accrued expenses 214,496
--------------
Total Liabilities 444,829
--------------
NET ASSETS (applicable to 4,259,295 shares of common stock outstanding) (Note D) $ 77,874,887
==============
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 54,350,291
Accumulated net realized gain on investments and foreign currency related transactions 6,495,012
Net unrealized appreciation in value of investments and translation of other
assets and liabilities denominated in foreign currency 17,025,325
--------------
Net assets applicable to shares outstanding $ 77,874,887
==============
NET ASSET VALUE PER SHARE ($77,874,887 DIVIDED BY 4,259,295) $ 18.28
==============
MARKET PRICE PER SHARE $ 16.21
==============
</Table>
See accompanying notes to financial statements.
9
<Page>
STATEMENT OF OPERATIONS - FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005
<Table>
INVESTMENT LOSS
Income (Note B):
Dividends $ 1,798,137
Interest 145,344
Less: Investment loss allocated from partnerships (395,540)
Less: Foreign taxes withheld (330,381)
--------------
Total Investment Income 1,217,560
--------------
Expenses:
Investment advisory fees (Note C) 887,288
Legal fees 237,600
Custodian fees 138,498
Audit fees 109,001
Administration fees (Note C) 79,514
Printing (Note C) 74,629
Directors' fees 45,712
Accounting fees 29,999
NYSE listing fees 23,387
Transfer agent fees 19,999
Insurance 5,269
Miscellaneous 10,969
--------------
Total Expenses 1,661,865
Less: Fee waivers (Note C) (164,244)
--------------
Net Expenses 1,497,621
--------------
Net Investment Loss (280,061)
--------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments 7,295,297
Foreign currency related transactions (9,535)
Net change in unrealized appreciation in value of investments and translation
of other assets and liabilities denominated in foreign currency 10,095,852
--------------
Net realized and unrealized gain on investments and foreign currency related
transactions 17,381,614
--------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 17,101,553
==============
</Table>
See accompanying notes to financial statements.
10
<Page>
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30,
----------------------------
2005 2004
------------ ------------
INCREASE IN NET ASSETS
Operations:
Net investment loss $ (280,061) $ (118,846)
Net realized gain on investments and foreign currency related transactions 7,285,762 1,580,728
Net change in unrealized appreciation in value of investments and
translation of other assets and liabilities denominated in foreign currency 10,095,852 6,707,593
------------ ------------
Net increase in net assets resulting from operations 17,101,553 8,169,475
------------ ------------
NET ASSETS
Beginning of year 60,773,334 52,603,859
------------ ------------
End of year $ 77,874,887 $ 60,773,334
============ ============
</Table>
See accompanying notes to financial statements.
11
<Page>
STATEMENT OF CASH FLOWS - FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2005
<Table>
<Caption>
DECREASE IN CASH FROM
Operating Activities:
Investment income received $ 1,923,278
Operating expenses paid (1,504,721)
Purchases of long-term portfolio investments (6,855,374)
Proceeds from disposition of long-term portfolio investments 12,131,559
Net purchase of short-term portfolio investments (5,724,000)
------------
Net decrease in cash from operating activities $ (29,258)
Cash at beginning of year 82
------------
Cash at end of year $ (29,176)
============
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET DECREASE IN CASH
FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations $ 17,101,553
Adjustments:
Decrease in receivables $ 310,178
Decrease in accrued expenses (5,827)
Increase in prepaid expenses (1,273)
Net realized gain from partnership distributions (83,023)
Net increase in cash from investment transactions 30,748
Net realized and unrealized gain on investments and foreign currency
related transactions (17,381,614)
------------
Total adjustments (17,130,811)
------------
NET DECREASE IN CASH FROM OPERATING ACTIVITIES $ (29,258)
============
</Table>
See accompanying notes to financial statements.
12
<Page>
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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,
----------------------------------------------
2005 2004 2003
------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 14.27 $ 12.35 $ 9.50
------------ ------------ ------------
Net investment income/(loss) (0.07) (0.03) (0.22)+
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions 4.08 1.95 3.42
------------ ------------ ------------
Net increase/(decrease) in net assets resulting from operations 4.01 1.92 3.20
------------ ------------ ------------
Dividends and distributions to shareholders:
Net investment income -- -- --
Net realized gain on investments and
foreign currency related transactions -- -- (0.35)
------------ ------------ ------------
Total dividends and distributions to shareholders -- -- (0.35)
------------ ------------ ------------
Anti-dilutive impact due to capital shares repurchased -- -- --
------------ ------------ ------------
Net asset value, end of year $ 18.28 $ 14.27 $ 12.35
============ ============ ============
Market value, end of year $ 16.21 $ 12.09 $ 10.10
============ ============ ============
Total investment return (a) 34.08% 19.70% 40.57%
============ ============ ============
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 77,875 $ 60,773 $ 52,604
Ratio of expenses to average net assets (b) 2.10% 1.92% 2.31%
Ratio of expenses to average net assets, excluding fee waivers 2.33% 2.13% 2.54%
Ratio of net investment income/(loss) to average net assets (b) (0.39)% (0.19)% (2.01)%
Portfolio turnover rate 10.65% 8.53% 2.94%
</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,
----------------------------------------------
2002 2001 2000
------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 11.64 $ 23.24 $ 17.18
------------ ------------ ------------
Net investment income/(loss) (0.17)+ (0.06)+ (0.02)+
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions (1.80) (8.39) 7.80
------------ ------------ ------------
Net increase/(decrease) in net assets resulting from operations (1.97) (8.45) 7.78
------------ ------------ ------------
Dividends and distributions to shareholders:
Net investment income -- (0.08) (0.41)
Net realized gain on investments and
foreign currency related transactions (0.17) (3.07) (1.46)
------------ ------------ ------------
Total dividends and distributions to shareholders (0.17) (3.15) (1.87)
------------ ------------ ------------
Anti-dilutive impact due to capital shares repurchased -- -- 0.15
------------ ------------ ------------
Net asset value, end of year $ 9.50 $ 11.64 $ 23.24
============ ============ ============
Market value, end of year $ 7.41 $ 9.60 $ 18.563
============ ============ ============
Total investment return (a) (21.24)% (38.21)% 47.61%
============ ============ ============
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 40,457 $ 49,565 $ 98,979
Ratio of expenses to average net assets (b) 2.08% 1.88% 2.05%
Ratio of expenses to average net assets, excluding fee waivers 2.30% 2.09% 2.28%
Ratio of net investment income/(loss) to average net assets (b) (1.44)% (0.39)% (0.08)%
Portfolio turnover rate 11.26% 21.11% 27.06%
<Caption>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------
1999 1998 1997 1996
------------ ------------ ------------ ------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $ 15.04 $ 18.41 $ 13.10 $ 13.20
------------ ------------ ------------ ------------
Net investment income/(loss) (0.02)+ 0.07 0.35 (0.09)
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions 3.21 (2.97) 6.20 (0.01)
------------ ------------ ------------ ------------
Net increase/(decrease) in net assets resulting from operations 3.19 (2.90) 6.55 (0.10)
------------ ------------ ------------ ------------
Dividends and distributions to shareholders:
Net investment income (0.21) -- -- --
Net realized gain on investments and
foreign currency related transactions (1.20) (0.47) (1.24) --
------------ ------------ ------------ ------------
Total dividends and distributions to shareholders (1.41) (0.47) (1.24) --
------------ ------------ ------------ ------------
Anti-dilutive impact due to capital shares repurchased 0.36 -- -- --
------------ ------------ ------------ ------------
Net asset value, end of year $ 17.18 $ 15.04 $ 18.41 $ 13.10
============ ============ ============ ============
Market value, end of year $ 14.000 $ 11.813 $ 14.938 $ 11.250
============ ============ ============ ============
Total investment return (a) 32.61% (18.05)% 44.36% (6.25)%
============ ============ ============ ============
RATIOS/SUPPLEMENTAL DATA
Net assets, end of year (000 omitted) $ 76,683 $ 75,373 $ 92,298 $ 65,649
Ratio of expenses to average net assets (b) 2.05% 2.06% 2.26% 2.23%
Ratio of expenses to average net assets, excluding fee waivers 2.30% 2.31% 2.30% --
Ratio of net investment income/(loss) to average net assets (b) (0.12)% 0.42% 2.20% (0.68)%
Portfolio turnover rate 18.65% 29.11% 16.98% 21.68%
</Table>
15
<Page>
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE A. ORGANIZATION
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.
NOTE B. SIGNIFICANT ACCOUNTING POLICIES
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 it is determined that
this method would not represent fair value.
Securities and other assets for which market quotations are not readily
available, or whose values have been materially affected by events occurring
before the Fund's Valuation Time, but after the close of the securities' primary
market, are valued at fair value as determined in good faith by, or under the
direction of, the Board of Directors under procedures established by the Board
of Directors. The Fund may utilize a service provided by an independent third
party which has been approved by the Board of Directors to fair value certain
securities. At September 30, 2005, the Fund held 9.44% of its net assets in not
readily marketable securities valued at fair value as determined in good faith
under procedures established by the Board of Directors with an aggregate cost of
$13,166,159 and fair value of $7,353,777. The Fund's estimate of fair value
assumes a willing buyer and a willing seller neither acting under a compulsion
to buy or sell. 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 swept available U.S. dollar cash into a
short-term deposit available through 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 sufficient to
16
<Page>
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 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 gains sourced to unlisted unapproved
securities are subject to a 40% Israeli tax and an inflationary tax. For the
fiscal year ended September 30, 2005, 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 realized gains are recorded.
Dividends derived from listed or approved Israeli securities are subject to a
15% withholding tax, while dividends from unlisted or unapproved securities are
subject to a 25% withholding tax. The Fund accrues for a refund of a portion of
these amounts withheld. 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 on 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 transactions 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. federal 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 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
17
<Page>
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.
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: The Fund invests in securities of foreign countries and governments which
involve certain risks in addition to those inherent in domestic investments.
Such risks generally include, among others currency risks (fluctuations in
currency exchange rates), information risk (key information may be inaccurate or
unavailable) and political risk (expropriation, nationalization or the
imposition of capital or currency controls or punitive taxes). Other risks of
investing in foreign securities include liquidity and valuation risks.
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 United States, 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.
NOTE C. 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
18
<Page>
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, 2005, CSAM earned $887,288 for advisory
services, of which CSAM waived $164,244. 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, 2005, CSAM was reimbursed $11,001 for administrative
services rendered to the Fund.
Credit Suisse Asset Management Limited ("CSAML"), an affiliate of CSAM, is a
sub-investment adviser to the Fund. CSAML sub-investment advisory fees are paid
by CSAM out of CSAM's net investment advisory fee and are not paid by the Fund.
Analyst Exchange and Trading Services Ltd. ("Analyst I.M.S.") is a
sub-investment adviser to the Fund. 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 pays Analyst I.M.S., out of its advisory fee, a
reimbursement for any Israeli Value Added taxes (currently 16.5%) and $25,000
annually to cover expenses incurred in the execution of sub-advisory services.
For the fiscal year ended September 30, 2005, Analyst I.M.S. earned $252,615 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, 2005, such
commissions amounted to approximately $5,100.
Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund's administrator.
The Fund pays BSFM a monthly fee that is calculated weekly based on the Fund's
average weekly net assets. For the fiscal year ended September 30, 2005, BSFM
earned $68,513 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, 2005, Merrill was paid $40,536 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 D. 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, 2005,
CSAM owned 7,169 shares.
NOTE E. INVESTMENT IN SECURITIES
For the fiscal year ended September 30, 2005, purchases and sales of securities,
other than short-term investments, were $6,855,374 and $12,058,215,
respectively.
NOTE F. CREDIT FACILITY
The Fund, together with other funds/portfolios advised by CSAM (collectively,
the "Participating Funds"), participates in a $75 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
19
<Page>
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, 2005, the Fund had no
borrowings under the Credit Facility.
NOTE G. FEDERAL INCOME TAXES
Income and capital gain 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.
There were no distributions made during the fiscal years ended September 30,
2004 and September 30, 2005.
At September 30, 2005, the components of distributable earnings on a tax basis
for the Fund were as follows:
<Table>
Undistributed ordinary income --
Accumulated net realized gains $ 6,593,872
Unrealized appreciation 16,935,251
------------
Total distributable earnings $ 23,529,123
============
</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, 2005, the Fund elected to defer net realized foreign currency losses of
$8,786.
At September 30, 2005, the Fund did not have a capital loss carryforward for
U.S. federal income tax purposes. For the fiscal year ended September 30, 2005,
the Fund utilized $684,300 of prior year capital loss carryforwards.
At September 30, 2005, the identified cost for federal income tax purposes, as
well as 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 $61,269,567, $27,228,590,
$(10,294,108) and $16,934,482, respectively.
At September 30, 2005, the Fund reclassified from accumulated net realized loss
on investments and foreign currency related transactions of $16,810 to
accumulated net investment loss. In addition, the Fund reclassified $296,871
from net investment loss to paid-in capital, to adjust for current period
permanent book/tax differences. Net assets were not affected by these
reclassifications.
NOTE H. SUBSEQUENT EVENT
The Board of Directors adopted a change in the Fund's fiscal year end to
December 31. This change is effective beginning with the current fiscal period,
which will run for the period from October 1, 2005 to December 31, 2005.
20
<Page>
NOTE I. 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, or under the direction of, the Board
of Directors under procedures established by the Board of Directors in the
absence of readily ascertainable market values.
<Table>
<Caption>
NUMBER FAIR PERCENT
OF VALUE AT VALUE PER OF NET DISTRIBUTIONS OPEN
UNITS/SHARES ACQUISTION DATE(S) COST 09/30/2005 UNIT/SHARE ASSETS RECEIVED COMMITMENTS
------------ ------------------- ------------ ---------- ---------- ------- ------------- -----------
ABS GE Capital
Giza 1,250,001 02/03/98 - 02/13/02 $ 1,009,773 $ 235,588 $ 0.19 0.30 $ 1,605,498 $ --
------------ ------------ ---------- ------- ------------- -----------
Advent Israel
(Bermuda)
L.P. 1,682,293 06/16/93 - 01/16/98 1,835,404 74,973 0.04 0.10 3,851,769 --
------------ ------------ ---------- ------- ------------- -----------
BPW Israel
Ventures
LLC 1,482,848 10/05/00 - 07/1/04 1,078,780 881,264 0.59 1.13
17,250 01/03/05 16,082 10,252 0.59 0.01
17,250 06/29/05 16,082 10,252 0.59 0.01
34,764 08/02/05 32,410 20,660 0.59 0.03
25,182 09/21/05 24,974 14,966 0.59 0.02
------------ ------------ ---------- ------- ------------- -----------
1,577,294 1,168,328 937,394 1.20 -- 722,706
------------ ------------ ---------- ------- ------------- -----------
Concord
Ventures
II Fund
L.P. 1,760,000 03/29/00 - 08/19/04 1,199,721 688,555 0.39 0.88
60,000 03/04/05 53,920 23,474 0.39 0.03
60,000 07/11/05 53,919 23,474 0.39 0.03
------------ ------------ ---------- ------- ------------- -----------
1,880,000 1,307,560 735,503 0.94 75,777 120,000
------------ ------------ ---------- ------- ------------- -----------
Delta Fund I,
L.P. 212,940 11/15/00 - 07/01/04 149,410 131,724 0.62 0.16
7,500 09/09/05 8,061 4,639 0.62 0.01
------------ ------------ ---------- ------- ------------- -----------
220,440 157,471 136,363 0.17 45,794 30,000
------------ ------------ ---------- ------- ------------- -----------
Emerging
Markets
Ventures I
L.P. 2,205,494 01/22/98 - 07/06/04 1,525,572 1,651,694 0.75 2.12
10,881 01/10/05 10,795 8,149 0.75 0.01
10,515 06/30/05 10,432 7,875 0.75 0.01
------------ ------------ ---------- ------- ------------- -----------
2,226,890 1,546,799 1,667,718 2.14 603,504 273,110
------------ ------------ ---------- ------- ------------- -----------
Formula
Ventures
L.P. 1,000,000 08/06/99 - 06/14/04 228,948 81,100 0.08 0.10 275,968 --
------------ ------------ ---------- ------- ------------- -----------
Giza GE
Venture
Fund III
L.P. 850,000 1/31/00 - 03/15/04 537,991 443,572 0.52 0.56
112,500 10/11/04 103,304 58,708 0.52 0.08
62,500 02/14/05 57,391 32,616 0.52 0.04
100,000 08/10/05 91,826 52,185 0.52 0.07
------------ ------------ ---------- ------- ------------- -----------
1,125,000 790,512 587,081 0.75 89,781 125,000
------------ ------------ ---------- ------- ------------- -----------
K.T. Concord
Venture
Fund L.P. 1,000,000 12/08/97 - 09/29/00 788,287 513,344 0.51 0.66 329,701 --
------------ ------------ ---------- ------- ------------- -----------
</Table>
21
<Page>
<Table>
<Caption>
NUMBER FAIR PERCENT
OF VALUE AT VALUE PER OF NET DISTRIBUTIONS OPEN
UNITS/SHARES ACQUISTION DATE(S) COST 09/30/2005 UNIT/SHARE ASSETS RECEIVED COMMITMENTS
------------ ------------------- ------------ ---------- ---------- ------- ------------- -----------
Neurone
Ventures
II, L.P. 438,684 11/24/00 - 09/24/04 $ 208,373 $ 182,771 $ 0.42 0.24
45,000 03/24/05 38,393 18,749 0.42 0.02
22,500 07/28/05 19,196 9,374 0.42 0.01
30,000 08/15/05 25,595 12,499 0.42 0.02
------------ ------------ ---------- ------- ------------- -----------
536,184 291,557 223,393 0.29 $ 39,421 $ 225,000
------------ ------------ ---------- ------- ------------- -----------
Pitango Fund
II LLC 1,000,000 10/31/96-08/01/01 536,638 225,220 0.23 0.29 1,115,588 --
------------ ------------ ---------- ------- ------------- -----------
SVE Star
Ventures
Enterprises
GmbH & Co.
No. IX KG 1,250,000 12/21/00 - 08/09/04 933,905 769,812 0.62 0.99
250,000 03/30/05 243,284 153,963 0.62 0.20
------------ ------------ ---------- ------- ------------- -----------
1,500,000 1,177,189 923,775 1.19 -- 500,000
------------ ------------ ---------- ------- ------------- -----------
SVE Star
Ventures
Enterprises
No. II 5 10/10/94 568,794 162,967 32,593.40 0.21 4,255,723 --
------------ ------------ ---------- ------- ------------- -----------
The Renaissance
Fund 60 03/30/94 - 03/21/97 213,193 32,668 544.56 0.04 567,308 --
------------ ------------ ---------- ------- ------------- -----------
Walden-Israel
Ventures,
L.P. 500,000 09/28/93 - 05/16/97 282,752 83,220 0.17 0.11 442,280 --
------------ ------------ ---------- ------- ------------- -----------
Walden-Israel
Ventures III,
L.P. 492,938 02/23/01 - 05/27/04 353,005 399,368 0.81 0.52
75,625 11/10/04 71,889 61,270 0.81 0.08
96,250 03/02/05 91,495 77,980 0.81 0.10
110,000 06/09/05 104,566 89,120 0.81 0.11
------------ ------------ ---------- ------- ------------- -----------
774,813 620,955 627,738 0.81 -- 600,188
------------ ------------ ---------- ------- ------------- -----------
Total $ 12,524,160 $7,248,045 9.30 $ 13,298,112 $ 2,596,004
============ ========== ======= ============= ===========
</Table>
The Fund may incur certain costs in connection with the disposition of the above
securities.
NOTE J. CONTINGENCIES
In the normal course of business, the Fund may provide general indemnifications
pursuant to certain contracts and organizational documents. The Fund's maximum
exposure under these arrangements is dependent on future claims that may be made
against the Fund and, therefore, cannot be estimated; however, based on
experience, the risk of loss from such claims is considered remote.
22
<Page>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2005, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
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, 2005 by correspondence with the
custodian and private equity issuers, provide a reasonable basis for our
opinion.
As explained in Note B, the financial statements include securities valued at
$7,353,777 (9.44% 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 23, 2005
23
<Page>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On March 29, 2005, the Annual Meeting of Shareholders of The First Israel Fund,
Inc. (the "Fund") was held and the following matter was voted upon:
(1) To elect two directors to the Board of Directors of the Fund.
<Table>
<Caption>
NAME OF DIRECTOR FOR WITHHELD
- ---------------- ----------- ----------
James J. Cattano 3,411,468 97,161
Steven N. Rappaport 3,406,077 102,552
</Table>
In addition to the directors elected at the meeting, Enrique R. Arzac and George
W. Landau continued as directors of the Fund.
Effective April 15, 2005, William W. Priest, Jr. resigned as a director of the
Fund.
Effective March 29, 2005 and May 18, 2005, Phillip Goldstein and Michael E.
Kenneally, respectively were appointed as Directors of the Fund by the Board of
Directors.
24
<Page>
DESCRIPTION OF INVESTLINK(SM) PROGRAM (UNAUDITED)
The InvestLink(SM) Program is sponsored and administered by Computershare
Shareholder Services, Inc., ("Computershare"), not by The First Israel Fund,
Inc. (the "Fund"). Computershare 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 Computershare. 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
25
<Page>
anticipated market value of $100,000.00 or more are expected to be submitted in
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.
Computershare, 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.
26
<Page>
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 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., c/o Computershare, InvestLink(SM) Program, P.O. Box 43010,
Providence, RI 02940-3010.
InvestLink is a service mark of Computershare
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 Lead Director; Since 1996; Professor of Finance and 47 Director of The Adams Express
c/o Credit Suisse Asset Nominating current term Economics, Graduate School Company (a closed-end
Management, LLC Committee Chairman ends at the of Business, Columbia investment company); Director
Attn: General Counsel and Audit Committee 2006 annual University since 1971 of Petroleum and Resources
466 Lexington Avenue Member meeting Corporation (a closed-end
New York, New York Investment company)
10017-3140
Date of Birth: 10/02/41
James J. Cattano Director; Since 2005 President, Primary 4 None
c/o Primary Resources, Inc. Nominating and Resources, Inc. (an
55 Old Field Point Road Audit Committee international trading and
Greenwich, Connecticut Member manufacturing company
06830 specializing in the sale
of agricultural
Date of Birth: 06/24/43 commodities throughout
Latin American markets)
since October 1996
Phillip Goldstein Director; Since 2005 Investment Adviser, 2 Director, Brantley Capital
Opportunity Partners L.P. Nominating and Opportunity Partners L.P. Corporation; Director, The
60 Heritage Drive Audit Committee Since 1992 Mexico Equity and Income Fund
Pleasantville, NY 10570 Member
Date of Birth: 01/28/45
George W. Landau Director; Since 1995; Senior Advisor, Latin 4 Director of GAM Funds, Inc.
c/o Credit Suisse Asset Nominating current term America, The Coca-Cola
Management, LLC Committee Member ends at the Company since 1988;
Attn: General Counsel and Audit Committee 2007 annual Advisor of Guardian
466 Lexington Avenue Chairman meeting Industries (a glass
New York, New York manufacturer) since 1992
10017-3140
Date of Birth: 03/04/20
Steven N. Rappaport Director; Since 1992; Partner of Lehigh Court, 46 Director of Presstek, Inc.
Lehigh Court, LLC Nominating and current term LLC and RZ Capital (digital imaging technologies
40 East 52nd Street Audit Committee ends at the (private investment firms) company); Director of Wood
New York, New York Member 2008 annual since July 2002; Resources, LLC (plywood
10022 meeting Transition Advisor to manufacturing company)
SunGard Securities
Date of Birth: 07/10/48 Finance, Inc. 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
Michael E. Kenneally*/** Director; Chairman Since 2004; Chairman and Global Chief 47 None
c/o Credit Suisse Asset of the Board of current term Executive Officer of CSAM
Management, LLC Directors ends at the (2003-July 2005); Chairman
466 Lexington Avenue 2006 annual and Chief Investment
New York, New York meeting Officer of Banc of America
10017-3140 Capital Management from
1998 to March 2003;
Officer of other Credit
Date of Birth: 03/30/54 Suisse Funds
<Caption>
POSITION(S) LENGTH
NAME, ADDRESS AND HELD WITH OF TIME
DATE OF BIRTH FUND SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- --------------------------- ---------------------- -------------- ----------------------------------------------------------
OFFICERS
Steven B. Plump** Chief Executive Since 2005 Managing Director and Co-Head of Third-Party Sales and
c/o Credit Suisse Asset Officer and President Distribution; Associated with CSAM or its predecessor
Management, LLC since 1995; Officer of other Credit Suisse Funds
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 02/08/59
Neil Gregson Chief Investment Since 2004 Managing Director of Credit Suisse Asset Management
c/o Credit Suisse Asset Officer Limited ("CSAML"); Associated with CSAML since 1990
Management, LLC
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 05/10/62
Michael A. Pignataro Chief Financial Since 1993 Director and Director of Fund Administration of CSAM;
c/o Credit Suisse Asset Officer and Secretary Associated with CSAM since 1984; Officer of other Credit
Management, LLC Suisse Funds
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 11/15/59
</Table>
- ----------
* Designates a director who is an "interested person" of the Fund as defined
under the Investment Company Act of 1940, as amended. Mr. Kenneally is an
interested person of the Fund by virtue of his former position as an
officer of CSAM.
** Effective July 31, 2005, Steven B. Plump was appointed as Chief Executive
Officer and President of the Fund. Michael E. Kenneally who previously held
these positions has resigned effective July 31, 2005.
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
- --------------------------- ---------------------- -------------- ----------------------------------------------------------
Emidio Morizio Chief Compliance Since 2004 Director and Global Head of Compliance of CSAM; Associated
c/o Credit Suisse Asset Officer with CSAM since July 2000; Vice President and Director of
Management, LLC Compliance of Director of Compliance of Forstmann-Leff
466 Lexington Avenue Associates from 1998 to June 2000; Officer of other Credit
New York, New York Suisse Funds
10017-3140
Date of Birth: 09/21/66
Ajay Mehra Chief Legal Officer Since 2004 Director and Deputy General Counsel of CSAM since
c/o Credit Suisse Asset September 2004; Senior Associate of Shearman & Sterling
Management, LLC LLP from September 2000 to September 2004; Senior Counsel
466 Lexington Avenue of the SEC Division of Investment Management from June
New York, New York 1997 to September 2000; Officer of other Credit Suisse
10017-3140 Funds
Date of Birth: 08/14/70
J. Kevin Gao Senior Vice President Since 2004 Vice President and Legal Counsel of CSAM; Associated with
c/o Credit Suisse Asset CSAM since July 2003; Associated with the law firm of
Management, LLC Willkie Farr & Gallagher LLP from 1998 to 2003; Officer of
466 Lexington Avenue other Credit Suisse Funds
New York, New York
10017-3140
Date of Birth: 10/13/67
Robert Rizza Treasurer Since 1999 Assistant Vice President of CSAM since January 2001;
c/o Credit Suisse Asset Associated with CSAM since 1998; Officer of other Credit
Management, LLC Suisse Funds
466 Lexington Avenue
New York, New York
10017-3140
Date of Birth: 12/09/65
</Table>
ANNUAL CERTIFICATIONS (UNAUDITED)
The Fund's Chief Executive Officer has filed an annual certification with the
NYSE that, as of the date of the certification, he was unaware of any violation
by the Fund of the NYSE's corporate governance listing standards. The Fund's
Chief Executive Officer and Chief Financial Officer have also filed
certifications with the SEC as part of the Fund's Form N-CSR filings that cover
certain public disclosure documents of the Fund, including its annual and
semi-annual reports to stockholders.
30
<Page>
PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Information regarding how The First Israel Fund, Inc. (the "Fund") voted proxies
related to its portfolio securities during the 12-month period ended June 30 of
each year, as well as the policies and procedures that the Fund uses to
determine how to vote proxies relating to its portfolio securities are
available:
- By calling 1-800-293-1232;
- On the Fund's website, www.csam.com/us
- On the website of the Securities and Exchange Commission,
http://www.sec.gov.
The Fund files a complete schedule of its portfolio holdings for the first and
third quarters of its fiscal year with the SEC on Form N-Q. The Fund's Forms N-Q
are available on the SEC's website at http://www.sec.gov and may be reviewed and
copied at the SEC's Public Reference Room in Washington, DC. Information on the
operation of the SEC's Public Reference Room may be obtained by calling
1-800-SEC-0330.
31
<Page>
OTHER FUNDS MANAGED BY CREDIT SUISSE ASSET MANAGEMENT, LLC
Credit Suisse Capital Appreciation Fund
Credit Suisse Cash Reserve Fund
Credit Suisse Commodity Return Strategy Fund
Credit Suisse Emerging Markets Fund
Credit Suisse Fixed Income Fund
Credit Suisse Global Fixed Income Fund
Credit Suisse Global Small Cap Fund
Credit Suisse High Income Fund
Credit Suisse International Focus Fund
Credit Suisse Japan Equity Fund
Credit Suisse Large Cap Blend Fund
Credit Suisse Large Cap Value Fund
Credit Suisse Mid-Cap Growth Fund
Credit Suisse New York Municipal Fund
Credit Suisse Short Duration Bond Fund
Credit Suisse Small Cap Growth Fund
Credit Suisse Small Cap Value Fund
Credit Suisse Strategic Allocation 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, private equity, 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.
32
<Page>
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
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, 2005,
CSAM managed over $23 billion in the U.S. and, together with its global
affiliates, managed assets of over $337 billion in 17 countries.
SHAREHOLDER INFORMATION
The market price is published in: THE NEW YORK TIMES (daily) under the
designation "FtIsrl" and THE WALL STREET JOURNAL (daily), and BARRON'S (each
Monday) under the designation "FstIsrael." The Fund's New York Stock Exchange,
Inc. 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.com/us.
CLOSED-END FUNDS
SINGLE COUNTRY
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 Lead Director
James J. Cattano Director
Phillip Goldstein Director
George W. Landau Director
Steven N. Rappaport Director
Michael E. Kenneally Chairman of the Board of
Directors
Steven B. Plump Chief Executive
Officer and President
Neil Gregson Chief Investment Officer
J. Kevin Gao Senior Vice President
Ajay Mehra Chief Legal Officer
Emidio Morizio Chief Compliance Officer
Michael A. Pignataro Chief Financial Officer and
Secretary
Robert Rizza Treasurer
John E. Smith Jr. Assistant Treasurer
Karen Regan Assistant Secretary
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
INVESTMENT SUB-ADVISER
Analyst Exchange and Trading Services Ltd.
46 Rothschild Boulevard
Tel Aviv, 66883 Israel
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
EquiServe Trust Company, N.A.
c/o Computershare
P.O. Box 43010
Providence, RI 02940
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP
Two Commerce Square
Philadelphia, PA 19103
LEGAL COUNSEL
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
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]
ISL-AR-0905
<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
12(a)(1) to this Form. There were no amendments to the code during the fiscal
year ended September 30, 2005. There were no waivers or implicit waivers from
the code granted by the registrant during the fiscal year ended September 30,
2005.
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.
(a) through (d). The information in the table below is provided for services
rendered to the registrant by its independent registered public accounting firm,
PricewaterhouseCoopers LLP ("PwC"), for its fiscal years ended September 30,
2004 and September 30, 2005.
<Table>
<Caption>
2004 2005
Audit Fees $ 51,000 $ 53,550
Audit-Related Fees(1) $ 13,000 $ 12,050
Tax Fees(2) $ 7,482 $ 7,860
All Other Fees -- --
Total $ 71,482 $ 73,460
</Table>
(1) Services include agreed-upon procedures in connection with the registrant's
semi-annual financial statements ($3,000 in 2004 and $3,150 in 2005),
the registrant's third quarter 2004 Form N-Q filing ($1,500) in 2004
and an attestation on the Fund's compliance with an Israeli Tax Ruling
($8,500 in 2004 and $8,900 in 2005).
(2) Tax services in connection with the registrant's excise tax calculations
and review of the registrant's applicable tax returns.
The information in the table below is provided with respect to non-audit
services that directly relate to the registrant's operations and financial
reporting and that were rendered by PwC to the registrant's investment adviser,
Credit Suisse Asset Management, LLC ("CSAM"), and any service provider to the
registrant controlling, controlled by or under common control with CSAM that
provided ongoing services to the registrant ("Covered Services Provider"), for
the registrant's fiscal years ended September 30, 2004 and September 30, 2005.
<Page>
<Table>
<Caption>
2004 2005
Audit-Related Fees N/A N/A
Tax Fees N/A N/A
All Other Fees N/A 394,000
Total N/A 394,000
</Table>
(e)(1) Pre-Approval Policies and Procedures. The Audit Committee ("Committee")
of the registrant is responsible for pre-approving (i) all audit and permissible
non-audit services to be provided by the independent registered public
accounting firm to the registrant and (ii) all permissible non-audit services to
be provided by the independent registered public accounting firm to CSAM and any
Covered Services Provider if the engagement relates directly to the operations
and financial reporting of the registrant. The Committee may delegate its
responsibility to pre-approve any such audit and permissible non-audit services
to the Chairperson of the Committee, and the Chairperson shall report to the
Committee, at its next regularly scheduled meeting after the Chairperson's
pre-approval of such services, his or her decision(s). The Committee may also
establish detailed pre-approval policies and procedures for pre-approval of such
services in accordance with applicable laws, including the delegation of some or
all of the Committee's pre-approval responsibilities to other persons (other
than CSAM or the registrant's officers). Pre-approval by the Committee of any
permissible non-audit services shall not be required so long as: (i) the
aggregate amount of all such permissible non-audit services provided to the
registrant, CSAM and any Covered Services Provider constitutes not more than 5%
of the total amount of revenues paid by the registrant to its independent
registered public accounting firm during the fiscal year in which the
permissible non-audit services are provided; (ii) the permissible non-audit
services were not recognized by the registrant at the time of the engagement to
be non-audit services; and (iii) such services are promptly brought to the
attention of the Committee and approved by the Committee (or its delegate(s))
prior to the completion of the audit.
(e)(2) The information in the table below sets forth the percentages of fees for
services (other than audit, review or attest services) rendered by PwC to the
registrant for which the pre-approval requirement was waived pursuant to Rule
2-01(c)(7)(i)(C) of Regulation S-X:
<Table>
<Caption>
2004 2005
Audit-Related Fees N/A N/A
Tax Fees N/A N/A
All Other Fees N/A N/A
</Table>
<Page>
<Table>
Total N/A N/A
</Table>
The information in the table below sets forth the percentages of fees for
services (other than audit, review or attest services) rendered by PwC to CSAM
and any Covered Services Provider required to be approved pursuant to Rule
2-01(c)(7)(ii)of Regulation S-X, for the registrant's fiscal years ended
September 30, 2004 and September 30, 2005:
<Table>
<Caption>
2004 2005
Audit-Related Fees N/A N/A
Tax Fees N/A N/A
All Other Fees N/A N/A
Total N/A N/A
</Table>
(f) Not Applicable.
(g) The aggregate fees billed by PwC for non-audit services rendered to the
registrant, CSAM and Covered Service Providers for the fiscal years ended
September 30, 2004 and September 30, 2005 were $18,982 and $19,910,
respectively.
(h) Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
The registrant has a separately designated standing audit committee established
in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934,
as amended. The members of the committee are Enrique R. Arzac, James Cattano,
Phillip Goldstein, George Landau and Steven N. Rappaport.
ITEM 6. SCHEDULE OF INVESTMENTS.
Included as part of the report to shareholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
<Page>
CREDIT SUISSE ASSET MANAGEMENT, LLC
CREDIT SUISSE FUNDS
CREDIT SUISSE INSTITUTIONAL FUNDS
CSAM CLOSED-END FUNDS
PROXY VOTING POLICY AND PROCEDURES
Introduction
Credit Suisse Asset Management, LLC ("CSAM") is a fiduciary that owes each
of its clients duties of care and loyalty with respect to proxy voting. The
duty of care requires CSAM to monitor corporate events and to vote proxies.
To satisfy its duty of loyalty, CSAM must cast proxy votes in the best
interests of each of its clients.
The Credit Suisse Funds, Credit Suisse Institutional Funds, and CSAM
Closed-End Funds (the "Funds"), which have engaged Credit Suisse Asset
Management, LLC as their investment adviser, are of the belief that the
proxy voting process is a means of addressing corporate governance issues
and encouraging corporate actions both of which can enhance shareholder
value.
Policy
The Proxy Voting Policy (the "Policy") set forth below is designed to
ensure that proxies are voted in the best interests of CSAM's clients. The
Policy addresses particular issues and gives a general indication of how
CSAM will vote proxies. The Policy is not exhaustive and does not include
all potential issues.
Proxy Voting Committee
The Proxy Voting Committee will consist of a member of the Portfolio
Management Department, a member of the Legal and Compliance Department, and
a member of the Operations Department (or their designees). The purpose of
the Proxy Voting Committee is to administer the voting of all clients'
proxies in accordance with the Policy. The Proxy Voting Committee will
review the Policy annually to ensure that it is designed to promote the
best interests of CSAM's clients.
For the reasons disclosed below under "Conflicts," the Proxy Voting
Committee has engaged the services of an independent third party
(initially, Institutional Shareholder Services ("ISS")) to assist in issue
analysis and vote recommendation for proxy proposals. Proxy proposals
addressed by the Policy will be voted in accordance with the Policy. Proxy
proposals addressed by the Policy that require a case-by-case analysis will
be voted in accordance with the vote
<Page>
recommendation of ISS. Proxy proposals not addressed by the Policy will
also be voted in accordance with the vote recommendation of ISS. To the
extent that the Proxy Voting Committee proposes to deviate from the Policy
or the ISS vote recommendation, the Committee shall obtain client consent
as described below.
CSAM investment professionals may submit a written recommendation to the
Proxy Voting Committee to vote in a manner inconsistent with the Policy
and/or the recommendation of ISS. Such recommendation will set forth its
basis and rationale. In addition, the investment professional must confirm
in writing that he/she is not aware of any conflicts of interest concerning
the proxy matter or provide a full and complete description of the
conflict.
Conflicts
CSAM is the institutional and mutual fund asset management arm of Credit
Suisse First Boston, which is part of Credit Suisse Group, one of the
world's largest financial organizations. As part of a global, full service
investment-bank, broker-dealer, and asset-management organization, CSAM and
its affiliates and personnel may have multiple advisory, transactional,
financial, and other interests in securities, instruments, and companies
that may be purchased or sold by CSAM for its clients' accounts. The
interests of CSAM and/or its affiliates and personnel may conflict with the
interests of CSAM's clients in connection with any proxy issue. In
addition, CSAM may not be able to identify all of the conflicts of interest
relating to any proxy matter.
Consent
In each and every instance in which the Proxy Voting Committee favors
voting in a manner that is inconsistent with the Policy or the vote
recommendation of ISS (including proxy proposals addressed and not
addressed by the Policy), it shall disclose to the client conflicts of
interest information and obtain client consent to vote. Where the client is
a Fund, disclosure shall be made to any one director who is not an
"interested person," as that term is defined under the Investment Company
Act of 1940, as amended, of the Fund.
Recordkeeping
CSAM is required to maintain in an easily accessible place for five years all
records relating to proxy voting.
These records include the following:
- a copy of the Policy;
- a copy of each proxy statement received on behalf of CSAM clients;
<Page>
- a record of each vote cast on behalf of CSAM clients;
- a copy of all documents created by CSAM personnel that were material to
making a decision on a vote or that memorializes the basis for the
decision; and
- a copy of each written request by a client for information on how CSAM
voted proxies, as well as a copy of any written response.
CSAM reserves the right to maintain certain required proxy records with ISS
in accordance with all applicable regulations.
Disclosure
CSAM will describe the Policy to each client. Upon request, CSAM will
provide any client with a copy of the Policy. CSAM will also disclose to
its clients how they can obtain information on their proxy votes.
ISS will capture data necessary for Funds to file Form N-PX on an annual
basis concerning their proxy voting record in accordance with applicable
law.
Procedures
The Proxy Voting Committee will administer the voting of all client
proxies. CSAM has engaged ISS as an independent third party proxy voting
service to assist in the voting of client proxies. ISS will coordinate with
each client's custodian to ensure that proxy materials reviewed by the
custodians are processed in a timely fashion. ISS will provide CSAM with an
analysis of proxy issues and a vote recommendation for proxy proposals. ISS
will refer proxies to the Proxy Voting Committee for instructions when the
application of the Policy is not clear. The Proxy Voting Committee will
notify ISS of any changes to the Policy or deviating thereof.
PROXY VOTING POLICY
Operational Items
Adjourn Meeting
Proposals to provide management with the authority to adjourn an
annual or special meeting will be determined on a case-by-case basis.
Amend Quorum Requirements
Proposals to reduce quorum requirements for shareholder meetings below
a majority of the shares outstanding will be determined on a
case-by-case basis.
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Amend Minor Bylaws
Generally vote for bylaw or charter changes that are of a housekeeping
nature.
Change Date, Time, or Location of Annual Meeting
Generally vote for management proposals to change the
date/time/location of the annual meeting unless the proposed change is
unreasonable. Generally vote against shareholder proposals to change
the date/time/location of the annual meeting unless the current
scheduling or location is unreasonable.
Ratify Auditors
Generally vote for proposals to ratify auditors unless: (1) an auditor
has a financial interest in or association with the company, and is
therefore not independent; (2) fees for non-audit services are
excessive, or (3) there is reason to believe that the independent
auditor has rendered an opinion, which is neither accurate nor
indicative of the company's financial position. Generally vote on a
case-by-case basis on shareholder proposals asking companies to
prohibit their auditors from engaging in non-audit services (or
capping the level of non-audit services). Generally vote on a
case-by-case basis on auditor rotation proposals taking into
consideration: (1) tenure of audit firm; (2) establishment and
disclosure of a renewal process whereby the auditor is regularly
evaluated for both audit quality and competitive price; (3) length of
the rotation period advocated in the proposal, and (4) significant
audit related issues.
Board of Directors
Voting on Director Nominees in Uncontested Elections
Generally votes on director nominees on a case-by-case basis. Votes
may be withheld: (1) from directors who attended less than 75% of the
board and committee meetings without a valid reason for the absences;
(2) implemented or renewed a dead-hand poison pill; (3) ignored a
shareholder proposal that was approved by a majority of the votes cast
for two consecutive years; (4) ignored a shareholder proposal approved
by a majority of the shares outstanding; (5) have failed to act on
takeover offers where the majority of the shareholders have tendered
their shares; (6) are inside directors or affiliated outside directors
and sit on the audit, compensation, or nominating committee; (7) are
inside directors or affiliated outside directors and the full board
serves as the audit, compensation, or nominating committee or the
company does not have one of these committees; or (8) are audit
committee members and the non-audit fees paid to the auditor are
excessive
Cumulative Voting
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Proposals to eliminate cumulative voting will be determined on a
case-by-case basis. Proposals to restore or provide for cumulative
voting in the absence of sufficient good governance provisions and/or
poor relative shareholder returns will be determined on a case-by-case
basis.
Director and Officer Indemnification and Liability Protection
Proposals on director and officer indemnification and liability
protection generally evaluated on a case-by-case basis. Generally vote
against proposals that would: (1) eliminate entirely directors' and
officers' liability for monetary damages for violating the duty of
care; or (2) expand coverage beyond just legal expenses to acts, such
as negligence, that are more serious violations of fiduciary
obligation than mere carelessness. Generally vote for only those
proposals providing such expanded coverage in cases when a director's
or officer's legal defense was unsuccessful if: (1) the director was
found to have acted in good faith and in a manner that he reasonably
believed was in the best interests of the company, and (2) only if the
director's legal expenses would be covered.
Filling Vacancies/Removal of Directors
Generally vote against proposals that provide that directors may be
removed only for cause. Generally vote for proposals to restore
shareholder ability to remove directors with or without cause.
Proposals that provide that only continuing directors may elect
replacements to fill board vacancies will be determined on a
case-by-case basis. Generally vote for proposals that permit
shareholders to elect directors to fill board vacancies.
Independent Chairman (Separate Chairman/CEO)
Generally vote for shareholder proposals requiring the position of
chairman be filled by an independent director unless there are
compelling reasons to recommend against the proposal, including: (1)
designated lead director, elected by and from the independent board
members with clearly delineated duties; (2) 2/3 independent board; (3)
all independent key committees; or (4) established governance
guidelines.
Majority of Independent Directors
Generally vote for shareholder proposals requiring that the board
consist of a majority or substantial majority (two-thirds) of
independent directors unless the board composition already meets the
adequate threshold. Generally vote for shareholder proposals requiring
the board audit, compensation, and/or nominating committees be
composed exclusively of independent directors if they currently do not
meet that standard. Generally withhold votes from insiders and
affiliated outsiders sitting on the audit, compensation, or nominating
committees. Generally withhold votes from insiders and affiliated
outsiders on boards that are
<Page>
lacking any of these three panels. Generally withhold votes from
insiders and affiliated outsiders on boards that are not at least
majority independent.
Term Limits
Generally vote against shareholder proposals to limit the tenure of
outside directors.
Proxy Contests
Voting on Director Nominees in Contested Elections
Votes in a contested election of directors should be decided on a
case-by-case basis, with shareholders determining which directors are
best suited to add value for shareholders. The major decision factors
are: (1) company performance relative to its peers; (2) strategy of
the incumbents versus the dissidents; (3) independence of
directors/nominees; (4) experience and skills of board candidates; (5)
governance profile of the company; (6) evidence of management
entrenchment; (7) responsiveness to shareholders; or (8) whether
takeover offer has been rebuffed.
Amend Bylaws without Shareholder Consent
Proposals giving the board exclusive authority to amend the bylaws
will be determined on a case-by-case basis. Proposals giving the board
the ability to amend the bylaws in addition to shareholders will be
determined on a case-by-case basis.
Confidential Voting
Generally vote for shareholder proposals requesting that corporations
adopt confidential voting, use independent vote tabulators and use
independent inspectors of election, as long as the proposal includes a
provision for proxy contests as follows: In the case of a contested
election, management should be permitted to request that the dissident
group honor its confidential voting policy. If the dissidents agree,
the policy may remain in place. If the dissidents will not agree, the
confidential voting policy may be waived. Generally vote for
management proposals to adopt confidential voting.
Cumulative Voting
Proposals to eliminate cumulative voting will be determined on a
case-by-case basis. Proposals to restore or provide for cumulative
voting in the absence of sufficient good governance provisions and/or
poor relative shareholder returns will be determined on a case-by-case
basis.
<Page>
Antitakeover Defenses and Voting Related Issues
Advance Notice Requirements for Shareholder Proposals/Nominations
Votes on advance notice proposals are determined on a case-by-case
basis.
Amend Bylaws without Shareholder Consent
Proposals giving the board exclusive authority to amend the bylaws
will be determined on a case-by-case basis. Generally vote for
proposals giving the board the ability to amend the bylaws in addition
to shareholders.
Poison Pills (Shareholder Rights Plans)
Generally vote for shareholder proposals requesting that the company
submit its poison pill to a shareholder vote or redeem it. Votes
regarding management proposals to ratify a poison pill should be
determined on a case-by-case basis. Plans should embody the following
attributes: (1) 20% or higher flip-in or flip-over; (2) two to three
year sunset provision; (3) no dead-hand or no-hand features; or (4)
shareholder redemption feature
Shareholders' Ability to Act by Written Consent
Generally vote against proposals to restrict or prohibit shareholders'
ability to take action by written consent. Generally vote for
proposals to allow or make easier shareholder action by written
consent.
Shareholders' Ability to Call Special Meetings
Proposals to restrict or prohibit shareholders' ability to call
special meetings or that remove restrictions on the right of
shareholders to act independently of management will be determined on
a case-by-case basis.
Supermajority Vote Requirements
Proposals to require a supermajority shareholder vote will be
determined on a case-by-case basis Proposals to lower supermajority
vote requirements will be determined on a case-by-case basis.
Merger and Corporate Restructuring
Appraisal Rights
Generally vote for proposals to restore, or provide shareholders with,
rights of appraisal.
<Page>
Asset Purchases
Generally vote case-by-case on asset purchase proposals, taking into
account: (1) purchase price, including earnout and contingent
payments; (2) fairness opinion; (3) financial and strategic benefits;
(4) how the deal was negotiated; (5) conflicts of interest; (6) other
alternatives for the business; or (7) noncompletion risk (company's
going concern prospects, possible bankruptcy).
Asset Sales
Votes on asset sales should be determined on a case-by-case basis
after considering: (1) impact on the balance sheet/working capital;
(2) potential elimination of diseconomies; (3) anticipated financial
and operating benefits; (4) anticipated use of funds; (5) value
received for the asset; fairness opinion (if any); (6) how the deal
was negotiated; or (6) Conflicts of interest
Conversion of Securities
Votes on proposals regarding conversion of securities are determined
on a case-by-case basis. When evaluating these proposals, should
review (1) dilution to existing shareholders' position; (2) conversion
price relative to market value; (3) financial issues: company's
financial situation and degree of need for capital; effect of the
transaction on the company's cost of capital; (4) control issues:
change in management; change in control; standstill provisions and
voting agreements; guaranteed contractual board and committee seats
for investor; veto power over certain corporate actions; (5)
termination penalties; (6) conflict of interest: arm's length
transactions, managerial incentives. Generally vote for the conversion
if it is expected that the company will be subject to onerous
penalties or will be forced to file for bankruptcy if the transaction
is not approved.
Corporate Reorganization
Votes on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan are determined on a
case-by-case basis, after evaluating: (1) dilution to existing
shareholders' position; (2) terms of the offer; (3) financial issues;
(4) management's efforts to pursue other alternatives; (5) control
issues; (6) conflict of interest. Generally vote for the debt
restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
Reverse Leveraged Buyouts
Votes on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan are determined on a
case-by-case basis, after evaluating: (1) dilution to existing
shareholders' position; (2) terms of the offer; (3) financial issues;
(4) management's efforts to pursue other alternatives; (5) control
issues; (6) conflict of interest. Generally vote
<Page>
for the debt restructuring if it is expected that the company will
file for bankruptcy if the transaction is not approved.
Formation of Holding Company
Votes on proposals regarding the formation of a holding company should
be determined on a case-by-case basis taking into consideration: (1)
the reasons for the change; (2) any financial or tax benefits; (3)
regulatory benefits; (4) increases in capital structure; (5) changes
to the articles of incorporation or bylaws of the company. Absent
compelling financial reasons to recommend the transaction, generally
vote against the formation of a holding company if the transaction
would include either of the following: (1) increases in common or
preferred stock in excess of the allowable maximum as calculated a
model capital structure; (2) adverse changes in shareholder rights;
(3) going private transactions; (4) votes going private transactions
on a case-by-case basis, taking into account: (a) offer price/premium;
(b) fairness opinion; (c) how the deal was negotiated; (d) conflicts
of interest; (e) other alternatives/offers considered; (f)
noncompletion risk.
Joint Ventures
Vote on a case-by-case basis on proposals to form joint ventures,
taking into account: (1) percentage of assets/business contributed;
(2) percentage ownership; (3) financial and strategic benefits; (4)
governance structure; (5) conflicts of interest; (6) other
alternatives; (7) noncompletion risk; (8) liquidations. Votes on
liquidations should be determined on a case-by-case basis after
reviewing: (1) management's efforts to pursue other alternatives such
as mergers; (2) appraisal value of the assets (including any fairness
opinions); (3) compensation plan for executives managing the
liquidation. Generally vote for the liquidation if the company will
file for bankruptcy if the proposal is not approved.
Mergers and Acquisitions
Votes on mergers and acquisitions should be considered on a
case-by-case basis, determining whether the transaction enhances
shareholder value by giving consideration to: (1) prospects of the
combined companies; (2) anticipated financial and operating benefits;
(3) offer price; (4) fairness opinion; (5) how the deal was
negotiated; (6) changes in corporate governance and their impact on
shareholder rights; (7) change in the capital structure; (8) conflicts
of interest.
Private Placements
Votes on proposals regarding private placements should be determined
on a case-by-case basis. When evaluating these proposals, should
review: (1) dilution to existing shareholders' position; (2) terms of
the offer; (3) financial issues; (4) management's efforts to pursue
alternatives such as mergers; (5) control issues; (6) conflict of
interest. Generally vote for the
<Page>
private placement if it is expected that the company will file for
bankruptcy if the transaction is not approved.
Prepackaged Bankruptcy Plans
Votes on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan are determined on a
case-by-case basis, after evaluating: (1) dilution to existing
shareholders' position; (2) terms of the offer; (3) financial issues;
(4) management's efforts to pursue other alternatives; (5) control
issues; (6) conflict of interest. Generally vote for the debt
restructuring if it is expected that the company will file for
bankruptcy if the transaction is not approved.
Recapitalization
Votes case-by-case on recapitalizations (reclassifications of
securities), taking into account: (1) more simplified capital
structure; (2) enhanced liquidity; (3) fairness of conversion terms,
including fairness opinion; (4) impact on voting power and dividends;
(5) reasons for the reclassification; (6) conflicts of interest; (7)
other alternatives considered.
Reverse Stock Splits
Generally vote for management proposals to implement a reverse stock
split when the number of authorized shares will be proportionately
reduced. Generally vote for management proposals to implement a
reverse stock split to avoid delisting. Votes on proposals to
implement a reverse stock split that do not proportionately reduce the
number of shares authorized for issue should be determined on a
case-by-case basis.
Spinoffs
Votes on spinoffs should be considered on a case-by-case basis
depending on: (1) tax and regulatory advantages; (2) planned use of
the sale proceeds; (3) valuation of spinoff; fairness opinion; (3)
benefits that the spinoff may have on the parent company including
improved market focus; (4) conflicts of interest; managerial
incentives; (5) any changes in corporate governance and their impact
on shareholder rights; (6) change in the capital structure
Value Maximization Proposals
Vote case-by-case on shareholder proposals seeking to maximize
shareholder value.
Capital Structure
Adjustments to Par Value of Common Stock
<Page>
Generally vote for management proposals to reduce the par value of
common stock unless the action is being taken to facilitate an
antitakeover device or some other negative corporate governance
action. Generally vote for management proposals to eliminate par
value.
Common Stock Authorization
Votes on proposals to increase the number of shares of common stock
authorized for issuance are determined on a case-by-case basis.
Generally vote against proposals at companies with dual-class capital
structures to increase the number of authorized shares of the class of
stock that has superior voting rights. Generally vote for proposals to
approve increases beyond the allowable increase when a company's
shares are in danger of being delisted or if a company's ability to
continue to operate as a going concern is uncertain.
Dual-class Stock
Generally vote against proposals to create a new class of common stock
with superior voting rights. Generally vote for proposals to create a
new class of nonvoting or subvoting common stock if: (1) it is
intended for financing purposes with minimal or no dilution to current
shareholders; (2) it is not designed to preserve the voting power of
an insider or significant shareholder.
Issue Stock for Use with Rights Plan
Generally vote against proposals that increase authorized common stock
for the explicit purpose of implementing a shareholder rights plan.
Preemptive Rights
Votes regarding shareholder proposals seeking preemptive rights should
be determined on a case-by-case basis after evaluating: (1) the size
of the company; (2) the shareholder base; (3) the liquidity of the
stock
Preferred Stock
Generally vote against proposals authorizing the creation of new
classes of preferred stock with unspecified voting, conversion,
dividend distribution, and other rights ("blank check" preferred
stock). Generally vote for proposals to create "declawed" blank check
preferred stock (stock that cannot be used as a takeover defense).
Generally vote for proposals to authorize preferred stock in cases
where the company specifies the voting, dividend, conversion, and
other rights of such stock and the terms of the preferred stock appear
reasonable. Generally vote against proposals to increase the number of
blank check preferred stock authorized for issuance when no shares
have been issued or reserved for a specific purpose. Generally vote
case-by-case on proposals to increase the number of blank check
<Page>
preferred shares after analyzing the number of preferred shares
available for issue given a company's industry and performance in
terms of shareholder returns.
Recapitalization
Vote case-by-case on recapitalizations (reclassifications of
securities), taking into account: (1) more simplified capital
structure; (2) enhanced liquidity; (3) fairness of conversion terms,
including fairness opinion; (4) impact on voting power and dividends;
(5) reasons for the reclassification; (6) conflicts of interest; (7)
other alternatives considered.
Reverse Stock Splits
Generally vote for management proposals to implement a reverse stock
split when the number of authorized shares will be proportionately
reduced. Generally vote for management proposals to implement a
reverse stock split to avoid delisting. Votes on proposals to
implement a reverse stock split that do not proportionately reduce the
number of shares authorized for issue should be determined on a
case-by-case basis.
Share Repurchase Programs
Generally vote for management proposals to institute open-market share
repurchase plans in which all shareholders may participate on equal
terms.
Stock Distributions: Splits and Dividends
Generally vote for management proposals to increase the common share
authorization for a stock split or share dividend, provided that the
increase in authorized shares would not result in an excessive number
of shares available for issuance.
Tracking Stock
Votes on the creation of tracking stock are determined on a
case-by-case basis, weighing the strategic value of the transaction
against such factors as: (1) adverse governance changes; (2) excessive
increases in authorized capital stock; (3) unfair method of
distribution; (4) diminution of voting rights; (5) adverse conversion
features; (6) negative impact on stock option plans; (7) other
alternatives such as a spinoff.
Executive and Director Compensation
Executive and Director Compensation
Votes on compensation plans for directors are determined on a
case-by-case basis.
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Stock Plans in Lieu of Cash
Votes for plans which provide participants with the option of taking
all or a portion of their cash compensation in the form of stock are
determined on a case-by-case basis. Generally vote for plans which
provide a dollar-for-dollar cash for stock exchange. Votes for plans
which do not provide a dollar-for-dollar cash for stock exchange
should be determined on a case-by-case basis.
Director Retirement Plans
Generally vote against retirement plans for nonemployee directors.
Generally vote for shareholder proposals to eliminate retirement plans
for nonemployee directors.
Management Proposals Seeking Approval to Reprice Options
Votes on management proposals seeking approval to reprice options are
evaluated on a case-by-case basis giving consideration to the
following: (1) historic trading patterns; (2) rationale for the
repricing; (3) value-for-value exchange; (4) option vesting; (5) term
of the option; (6) exercise price; (7) participants; (8) employee
stock purchase plans. Votes on employee stock purchase plans should be
determined on a case-by-case basis. Generally vote for employee stock
purchase plans where: (1) purchase price is at least 85 percent of
fair market value; (2) offering period is 27 months or less, and (3)
potential voting power dilution (VPD) is ten percent or less.
Generally vote against employee stock purchase plans where either: (1)
purchase price is less than 85 percent of fair market value; (2)
Offering period is greater than 27 months, or (3) VPD is greater than
ten percent
Incentive Bonus Plans and Tax Deductibility Proposals
Generally vote for proposals that simply amend shareholder-approved
compensation plans to include administrative features or place a cap
on the annual grants any one participant may receive. Generally vote
for proposals to add performance goals to existing compensation plans.
Votes to amend existing plans to increase shares reserved and to
qualify for favorable tax treatment considered on a case-by-case
basis. Generally vote for cash or cash and stock bonus plans that are
submitted to shareholders for the purpose of exempting compensation
from taxes if no increase in shares is requested.
Employee Stock Ownership Plans (ESOPs)
Generally vote for proposals to implement an ESOP or increase
authorized shares for existing ESOPs, unless the number of shares
allocated to the ESOP is excessive (more than five percent of
outstanding shares.)
401(k) Employee Benefit Plans
<Page>
Generally vote for proposals to implement a 401(k) savings plan for
employees.
Shareholder Proposals Regarding Executive and Director Pay
Generally vote for shareholder proposals seeking additional disclosure
of executive and director pay information, provided the information
requested is relevant to shareholders' needs, would not put the
company at a competitive disadvantage relative to its industry, and is
not unduly burdensome to the company. Generally vote against
shareholder proposals seeking to set absolute levels on compensation
or otherwise dictate the amount or form of compensation. Generally
vote against shareholder proposals requiring director fees be paid in
stock only. Generally vote for shareholder proposals to put option
repricings to a shareholder vote. Vote for shareholders proposals to
exclude pension fund income in the calculation of earnings used in
determining executive bonuses/compensation. Vote on a case-by-case
basis for all other shareholder proposals regarding executive and
director pay, taking into account company performance, pay level
versus peers, pay level versus industry, and long term corporate
outlook.
Performance-Based Option Proposals
Generally vote for shareholder proposals advocating the use of
performance-based equity awards (indexed, premium-priced, and
performance-vested options), unless: (1) the proposal is overly
restrictive; or (2) the company demonstrates that it is using a
substantial portion of performance-based awards for its top
executives.
Stock Option Expensing
Generally vote for shareholder proposals asking the company to expense
stock options unless the company has already publicly committed to
start expensing by a specific date.
Golden and Tin Parachutes
Generally vote for shareholder proposals to require golden and tin
parachutes to be submitted for shareholder ratification, unless the
proposal requires shareholder approval prior to entering into
employment contracts. Vote on a case-by-case basis on proposals to
ratify or cancel golden or tin parachutes.
May 17, 2005
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Form N-CSR disclosure requirement is not yet effective with respect to the
registrant.
<Page>
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which shareholders may
recommend nominees to the registrant's board of directors since the registrant
last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(g)
of Schedule 14A in its definitive proxy statement dated February 9, 2005.
ITEM 11. 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
second fiscal quarter of the period covered by this report that have materially
affected, or are reasonably likely to materially affect, the registrant's
internal control over financial reporting.
ITEM 12. EXHIBITS.
(a)(1) Registrant's Code of Ethics is an exhibit to this report.
(a)(2) The certifications of the registrant as required by Rule 30a-2(a) under
the Act are exhibits to this report.
(a)(3) Not applicable.
(b) The certifications of the registrant as required by Rule 30a-2(b) under
the Act are an exhibit to this report.
<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.
/s/Steven B. Plump
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Name: Steven B. Plump
Title: Chief Executive Officer
Date: December 5, 2005
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
/s/Steven B. Plump
------------------
Name: Steven B. Plump
Title: Chief Executive Officer
Date: December 5, 2005
/s/Michael A. Pignataro
-----------------------
Name: Michael A. Pignataro
Title: Chief Financial Officer
Date: December 5, 2005