<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: December 31st
Date of reporting period: October 1, 2005 to December 31, 2005
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
<Page>
THE FIRST ISRAEL FUND, INC.
ANNUAL REPORT
DECEMBER 31, 2005
[ISL LISTED NYSE(R) LOGO]
ISL-AR-1205
<Page>
CONTENTS
<Table>
Letter to Shareholders 1
Portfolio Summary 4
Schedule of Investments 5
Statement of Assets and Liabilities 8
Statement of Operations 9
Statement of Changes in Net Assets 10
Statement of Cash Flows 11
Financial Highlights 12
Notes to Financial Statements 14
Report of Independent Registered Public Accounting Firm 21
Results of Annual Meeting of Shareholders 22
Tax Information 23
Description of InvestLink(SM) Program 24
Information Concerning Directors and Officers 27
Annual Certifications 29
Advisory Agreement Approval Disclosure 30
Proxy Voting and Portfolio Holdings Information 35
</Table>
<Page>
LETTER TO SHAREHOLDERS
February 1, 2006
DEAR SHAREHOLDER:
We are writing to report on the activities of The First Israel Fund, Inc. (the
"Fund") for the three-month period ended December 31, 2005. The Fund recently
altered its fiscal year to end on December 31, and therefore this letter
provides a review only of the final three months of 2005. The Fund had
previously reported to shareholders on the year ended September 30, 2005. Next
year's annual letter will cover the full year, from January 1, 2006 through
December 31, 2006.
At December 31, 2005, total net assets of the Fund were approximately $74.3
million. The Fund's investments in securities listed and trading on the Tel Aviv
Stock Exchange ("TASE") were $43.4 million, with another $20.5 million in
Israeli and Israeli-related companies listed and trading in the United States.
Combined, these totaled $63.9 million, as compared with $61.9 million on
September 30, 2005. The Fund also held investments valued at approximately $7.2
million in unlisted securities, as compared to approximately $7.4 million on
September 30, 2005. In percentage terms, at December 31, 2005, 95.7% of the
Fund's net assets were invested in Israeli and Israeli-related companies, of
which 85.9% were listed and trading on the TASE and in the United States and
9.8% were in unlisted securities.
The Fund declared a distribution of U.S. $1.60 per share on December 9, 2005,
equivalent to 8.4% of the NAV at the time of the announcement, and went
ex-dividend on December 19, 2005. The entirety of the distribution was comprised
of long-term capital gains. On December 31, 2005, the net asset value ("NAV")
per share was $17.44 (net of dividends), compared with $18.28 on September 30,
2005. The Fund's common stock closed on the New York Stock Exchange, Inc. (the
"NYSE") on December 31, 2005 at $15.67 per share, representing a discount of
10.20% to the Fund's NAV.
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, and including the dividend, the Fund had a gain of 4.76% for the
three months ended December 31, 2005, compared with increases of 13.98% and
9.05%, respectively, for the Morgan Stanley Capital International Israel Index*
(the "MSCI Index") and the Tel Aviv 100 Index**.
The diversification requirements imposed on the Fund by the United States
Internal Revenue Code limit the Fund's overall exposure to the companies with
the largest market capitalization, obliging us to underweight those companies
with the largest representation in the benchmark indices. This hurt us in the
fourth quarter of 2005. The Fund's performance lagged in the quarter relative to
its MSCI Israel benchmark primarily due to the Index's outsize 46% weighting to
a single company, Teva Pharmaceuticals, a world-leading generics firm. In the
quarter, Teva shares rose 28.7% and were largely responsible for the strong
gains registered by the MSCI Index.
But in addition to being a simple IRS constraint, we think the avoidance of too
high a concentration in any single stock is a rather wise investment policy
generally. In our Fund, we seek to provide exposure to a broad range of
investments in Israeli companies, including a number of smaller companies that
are not included in the major indices. The Fund also
1
<Page>
offers individual investors access to potential gains from innovations in
Israel's venture-based biotech and technology sectors through our private equity
holdings. However, in the fourth quarter, the Fund's longstanding
under-weighting to Teva Pharmaceutical Industries Ltd. (14.2% of the Fund's net
assets as of December 31, 2005) relative to the MSCI Index, our exposure to the
private equity market and cash held to pay the dividend were among the key
detractors to performance.
Relative to the Tel Aviv 100, the Fund underperformed mainly due to our large
overweight position in Check Point Software Technologies Ltd. (5.1% of the
Fund's net assets as of December 31, 2005), which was down 17.5% in the quarter,
and stock selection in the banking and insurance sectors.
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.
The last two years have seen an improvement in the performance of Israel's
technology sector from the 1999 post bubble valuations. During the period, the
Fund received distributions from limited partnerships totaling approximately
$155,000, from two different realizations. During this period, the Fund also
funded capital commitments of approximately $187,000, at valuations
significantly below the pre-bubble period. The unfunded commitments of the Fund
total $2.4 million at December 31, 2005, compared with $3.5 million a year
earlier.
THE MARKET
The final three months of 2005 helped push the MSCI Israel Index to a 27% gain
for the year as the country's economic recovery continued. Exports from Israel's
high-tech sectors constituted the main growth engine, accounting for more than
60% of output expansion in the private sector. A weaker shekel during this
period provided some tailwind for the increased export growth but, with energy
prices on the rise and above-trend GDP growth over the last year, the shekel's
depreciation also generated inflation fears.
The Bank of Israel responded with a new cycle of monetary tightening, raising
rates from 3.50% to 4.25%. After a sharp rise to 2.7% in October, the consumer
price index of inflation posted a cumulative increase of 1.9% for the year,
comfortably in the middle of the central bank's target range of 1%-3%. Thanks to
fiscal restraints on spending and faster growing revenues, the budget deficit
came down to approximately 2.2% of GDP, well below the government's 3.4% target.
Real GDP grew 5.2% in 2005 and long term inflation, though of concern in recent
months, seems mostly benign. 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 us to be on much firmer footing.
OUTLOOK
We remain fundamentally optimistic about the Israeli market, but Prime Minister
Sharon's deteriorating health and likely absence from the political scene does
increase our perception of the risk premium in the country. Additionally, the
emergence of Hamas as the majority party in the most recent Palestinian
elections could have profound implications for the character of the Arab-Israeli
conflict as well as efforts to resolve it.
2
<Page>
Nevertheless, global economic fundamentals lead us to believe that 2006 will be
another strong year for emerging markets generally, and Israel should be a
beneficiary of this trend. Israel specifically will be characterized, in our
view, by above-trend growth and modestly higher interest rates, which could
increase the importance of close analysis and stock selection in achieving
superior performance.
Respectfully,
/s/ Neil Gregson /s/ Steven B. Plump
Neil Gregson Steven B. Plump
Chief Investment Officer*** Chief Executive Officer and President****
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 Aviv 100 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 ("Credit Suisse U.K."), 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
Credit Suisse U.K. 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. He is also the Chief Investment Officer
of The Emerging Markets Telecommunications Fund, Inc.
****Steven B. Plump is a Managing Director of Credit Suisse Asset Management,
LLC ("Credit Suisse") and CEO/President of the Fund. He joined Warburg Pincus
Asset Management ("WPAM") in 1995 and came to Credit Suisse in 1999 when it
acquired WPAM.
3
<Page>
THE FIRST ISRAEL FUND, INC.
PORTFOLIO SUMMARY - AS OF DECEMBER 31, 2005 (UNAUDITED)
[CHART]
SECTOR ALLOCATION
<Table>
<Caption>
AS OF PERCENT OF NET ASSETS
31-DEC-05 30-SEP-05
--------- ---------
Banking 12.54% 11.57%
Chemicals 8.11% 7.85%
Computer Data Security 5.09% 5.87%
Conglomerates 5.77% 5.16%
Electronics/Electrical Equipment 1.78% 1.62%
Financial Services 1.97% 1.68%
Insurance 8.06% 8.29%
Mortgage Banking 4.67% 4.16%
Pharmaceuticals 16.89% 12.87%
Telecommunications 7.33% 7.34%
Venture Capital 7.26% 9.26%
Other 16.21% 13.24%
Cash & Other Assets 4.32% 11.09%
</Table>
TOP 10 HOLDINGS, BY ISSUER
<Table>
<Caption>
PERCENT OF
HOLDING SECTOR NET ASSETS
- ---------------------------------------------------------------------------------------
1. Teva Pharmaceutical Industries Ltd. Pharmaceuticals 14.2
2. Harel Insurance Investments Ltd. Insurance 7.0
3. Bank Hapoalim Ltd. Banking 6.3
4. Bank Leumi Le-Israel Ltd. Banking 5.3
5. Israel Chemicals Ltd. Chemicals 5.1
6. Check Point Software Technologies Ltd. Computer Data Security 5.1
7. Bezeq Israeli Telecommunication
Corporation Ltd. Telecommunications 5.0
8. Makhteshim-Agan Industries Ltd. Chemicals 3.0
9. Israel Discount Bank Ltd. Mortgage Banking 2.9
10. Perrigo Co. Pharmaceuticals 2.6
</Table>
4
<Page>
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2005
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES VALUE
- -------------------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-95.74%
ISRAEL-93.44%
AEROSPACE/DEFENSE-EQUIPMENT-0.77%
Elbit Systems Ltd. 23,500 $ 574,613
--------------
AIRLINES-0.19%
EL AL Israel Airlines+ 174,089 142,440
--------------
BANKING-12.54%
Bank Hapoalim Ltd. 1,010,000 4,660,710
Bank Leumi Le-Israel Ltd. 1,035,000 3,951,649
United Mizrahi Bank Ltd.+ 122,500 703,333
--------------
9,315,692
--------------
BUILDING-HEAVY CONSTRUCTION-0.96%
Housing & Construction
Holdings Ltd.+ 925,000 715,889
--------------
CHEMICALS-8.12%
Israel Chemicals Ltd. 965,000 3,788,124
Makhteshim-Agan
Industries Ltd. 390,001 2,238,891
--------------
6,027,015
--------------
COMPUTER DATA SECURITY-5.09%
Check Point Software
Technologies Ltd.+ 188,100 3,780,810
--------------
COMPUTER SOFTWARE-1.02%
Formula Systems (1985) Ltd. 72,500 753,750
--------------
CONGLOMERATES-5.77%
Albad Massuot Yitzhak Ltd. 37,500 339,353
Discount Investment
Corporation 33,500 805,845
Elco Holdings Ltd. 97,392 939,440
IDB Development
Corporation Ltd. 44,001 1,263,488
IDB Holding Corporation Ltd. 42,251 940,909
--------------
4,289,035
--------------
CONSTRUCTION-0.16%
Bayside Land Corporation Ltd. 700 117,976
--------------
DIVERSIFIED OPERATIONS-0.70%
Elbit Medical Imaging Ltd. 9,001 $ 139,659
Macpell Industries Ltd.+ 116,074 113,458
Plasson Ltd. 17,500 263,504
--------------
516,621
--------------
ELECTRONIC COMPONENTS/SEMICONDUCTORS-0.34%
Telsys Ltd. 50,000 249,253
--------------
ELECTRONICS/ELECTRICAL EQUIPMENT-1.78%
Camtek Ltd.+ 29,400 129,360
Electra Consumer
Products Ltd.+ 52,000 282,757
Electra (Israel) Ltd.+ 9,142 740,949
Nisko Industries (1992) Ltd. 32,500 166,652
--------------
1,319,718
--------------
FINANCIAL SERVICES-1.97%
F.I.B.I. Holdings Ltd.+ 35,000 489,601
Gachelet Investments Co., Ltd. 82,000 971,441
--------------
1,461,042
--------------
FOOD & BEVERAGES-0.18%
Blue Square Chain Investments
& Properties Ltd. 7,500 66,835
Gan Shmuel Food Industries 16,940 64,048
--------------
130,883
--------------
FOOD-RETAIL-0.34%
Supersol Ltd. 100,000 250,896
--------------
INDUSTRIAL TECHNOLOGY-2.15%
Orbotech, Ltd.+ 66,755 1,600,117
--------------
INSURANCE-8.06%
Clal Insurance Enterprise
Holdings Ltd. 39,000 795,556
Harel Insurance
Investments Ltd. 115,971 5,194,268
--------------
5,989,824
--------------
INTERNET SOFTWARE-1.90%
Aladdin Knowledge Systems+ 18,800 323,736
MIND C.T.I. Ltd. 72,200 189,164
RADWARE Ltd.+ 49,300 895,288
--------------
1,408,188
--------------
</Table>
See accompanying notes to financial statements.
5
<Page>
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES/UNITS VALUE
- -------------------------------------------------------------------------------
INVESTMENT & HOLDING COMPANIES-0.76%
Ampal-American Israel Corp.,
Class A+ 135,000 $ 531,900
The Renaissance Fund LDC+++ 60 31,781
--------------
563,681
--------------
METAL PRODUCTS-0.11%
Klil Industries Ltd.+ 18,654 81,158
--------------
MORTGAGE BANKING-4.67%
Discount Mortgage Bank Ltd.+ 10,750 1,324,702
Israel Discount Bank Ltd.,
Class A+ 1,160,000 2,143,471
--------------
3,468,173
--------------
PAPER & RELATED PRODUCTS-0.35%
American Israeli Paper
Mills Ltd. 6,089 258,736
--------------
PHARMACEUTICALS-16.90%
DeveloGen AG+* 497 102,024
Perrigo Co. 126,000 1,893,934
Teva Pharmaceutical
Industries Ltd., ADR 245,400 10,554,654
--------------
12,550,612
--------------
REAL ESTATE OPERATIONS/DEVELOPMENT-1.39%
Industrial Buildings
Corporation Ltd. 200,001 264,637
Property & Building
Corporation Ltd. 8,525 770,205
--------------
1,034,842
--------------
SEMICONDUCTOR & RELATED TECHNOLOGY-1.39%
DSP Group Inc.+ 41,300 1,034,978
--------------
TECHNOLOGY-0.00%
Lenslet Ltd.,
Series E Preferred+* 30,838 0
--------------
TELECOMMUNICATIONS-7.33%
AudioCodes Ltd.+ 35,000 388,500
Bezeq Israeli Telecommunication
Corporation Ltd.+ 2,900,000 3,688,189
ECI Telecom Ltd.+ 105,164 $ 787,678
NICE Systems Ltd., ADR+ 12,100 582,736
--------------
5,447,103
--------------
TRADING COMPANIES-0.68%
Rapac Electronics Ltd.+ 116,278 331,881
Rapac Technologies (2000) Ltd. 30,000 174,966
--------------
506,847
--------------
TRANSPORTATION SERVICES-0.55%
Dan Vehicle &
Transportation 100,000 408,017
--------------
VENTURE CAPITAL-7.27%
ABS GE Capital Giza
Fund, L.P.+++ 1,250,001 224,025
Advent Israel
(Bermuda) L.P.+++ 1,682,293 75,015
BPW Israel Ventures LLC+++# 1,674,588 952,692
Concord Ventures II
Fund L.P.+++# 1,880,000 684,549
Delta Fund I, L.P.+++# 220,440 140,979
Formula Ventures L.P.+++ 1,000,000 81,300
Giza GE Venture
Fund III L.P.+++# 1,125,000 648,990
K.T. Concord Venture
Fund L.P.+++ 1,000,000 499,818
Neurone Ventures II, L.P.+++# 536,184 217,979
Pitango Fund II LLC+++ 1,000,000 222,406
SVE Star Ventures Enterprises
GmbH & Co. No. IX KG+++# 1,500,000 885,120
Walden-Israel Ventures, L.P.+++ 500,000 65,715
Walden-Israel
Ventures III, L.P.+++# 864,188 698,592
--------------
5,397,180
--------------
TOTAL ISRAEL
(Cost $49,252,263) 69,395,089
--------------
</Table>
See accompanying notes to financial statements.
6
<Page>
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES/UNITS VALUE
- -------------------------------------------------------------------------------
GLOBAL-2.30%
VENTURE CAPITAL-2.30%
Emerging Markets
Ventures I L.P.+ ++ #
(Cost $1,546,799) 2,226,890 $ 1,710,986
--------------
TOTAL EQUITY OR EQUITY-LINKED
SECURITIES
(Cost $50,799,062) 71,106,075
--------------
<Caption>
PRINCIPAL
DESCRIPTION AMOUNTS (000's) VALUE
- -------------------------------------------- --------------- --------------
SHORT-TERM INVESTMENT-13.80%
GRAND CAYMAN-13.80%
Wells Fargo,
overnight deposit, 3.05%,
01/03/06 ** (Cost $10,249,000) $ 10,249 $ 10,249,000
--------------
TOTAL INVESTMENTS-109.54%
(Cost $61,048,062) (Notes B,E,G) 81,355,075
--------------
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS-9.54% (7,081,807)
--------------
NET ASSETS-100.00% $ 74,273,268
==============
</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 H).
# As of December 31, 2005, the aggregate amount of open commitments for the
Fund is $2,409,335. (See Note H).
* 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.
7
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - DECEMBER 31, 2005
<Table>
ASSETS
Investments, at value (Cost $61,048,062) (Notes B,E,G) $ 81,355,075
Cash 29
Receivables:
Israeli tax refunds (Note B) 71,396
Dividends 23,981
Investments sold 8,792
Prepaid expenses 2,462
--------------
Total Assets 81,461,735
--------------
LIABILITIES
Payables:
Dividend (Note B) 6,814,872
Investment advisory fees (Note C) 192,970
Investments purchased 8,797
Administration fees (Note C) 7,869
Directors' fees 2,500
Other accrued expenses 161,459
--------------
Total Liabilities 7,188,467
--------------
NET ASSETS (applicable to 4,259,295 shares of common stock
outstanding) (Note D) $ 74,273,268
==============
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
Undistributed net investment income 22,574
Accumulated net realized loss on investments and foreign
currency related transactions (410,538)
Net unrealized appreciation in value of investments and
translation of other assets and liabilities denominated
in foreign currency 20,306,682
--------------
Net assets applicable to shares outstanding $ 74,273,268
==============
NET ASSET VALUE PER SHARE ($74,273,268 DIVIDED BY 4,259,295) $ 17.44
==============
MARKET PRICE PER SHARE $ 15.67
==============
</Table>
See accompanying notes to financial statements.
8
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF OPERATIONS
<Table>
<Caption>
FOR THE THREE FOR THE FISCAL
MONTHS ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
2005 2005
--------------- ---------------
INVESTMENT INCOME/(LOSS)
Income (Note B):
Dividends $ 408,411 $ 1,798,137
Interest 72,128 145,344
Investment income/(loss) allocated from partnerships 4,001 (395,540)
Less: Foreign taxes withheld (126,880) (330,381)
--------------- ---------------
Total Investment Income 357,660 1,217,560
--------------- ---------------
Expenses:
Investment advisory fees (Note C) 236,501 887,288
Custodian fees 35,288 138,498
Directors' fees 20,528 45,712
Administration fees (Note C) 16,703 79,514
Audit and tax fees 15,684 109,001
Printing (Note C) 13,082 74,629
Legal fees 12,180 237,600
Accounting fees 7,561 29,999
NYSE listing fees 5,986 23,387
Shareholder servicing fees 3,012 19,999
Insurance 643 5,269
Miscellaneous 2,269 10,969
--------------- ---------------
Total Expenses 369,437 1,661,865
Less: Fee waivers (Note C) (43,596) (164,244)
--------------- ---------------
Net Expenses 325,841 (1,497,621)
--------------- ---------------
Net Investment Income/(Loss) 31,819 (280,061)
--------------- ---------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments (92,533) 7,295,297
Foreign currency related transactions (7,390) (9,535)
Net change in unrealized appreciation in value of
investments and translation of other assets and
liabilities denominated in foreign currency 3,281,357 10,095,852
--------------- ---------------
Net realized and unrealized gain on investments and
foreign currency related transactions 3,181,434 17,381,614
--------------- ---------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 3,213,253 $ 17,101,553
=============== ===============
</Table>
See accompanying notes to financial statements.
9
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE FISCAL
FOR THE THREE YEARS ENDED
MONTHS ENDED SEPTEMBER 30,
DECEMBER 31, ---------------------------------
2005 2005 2004
--------------- --------------- ---------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income/(loss) $ 31,819 $ (280,061) $ (118,846)
Net realized gain/(loss) on investments and
foreign currency related transactions (99,923) 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 3,281,357 10,095,852 6,707,593
--------------- --------------- ---------------
Net increase in net assets resulting from
operations 3,213,253 17,101,553 8,169,475
--------------- --------------- ---------------
Distributions to shareholders:
Net realized gain on investments (6,814,872) - -
--------------- --------------- ---------------
Total increase/(decrease) in net assets (3,601,619) 17,101,553 8,169,475
--------------- --------------- ---------------
NET ASSETS
Beginning of period 77,874,887 60,773,334 52,603,859
--------------- --------------- ---------------
End of period $ 74,273,268* $ 77,874,887 $ 60,773,334
=============== =============== ===============
</Table>
- ----------
* Includes undistributed net investment income of $22,574.
See accompanying notes to financial statements.
10
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CASH FLOWS
<Table>
<Caption>
FOR THE THREE FOR THE FISCAL
MONTHS ENDED YEAR ENDED
DECEMBER 31, SEPTEMBER 30,
2005 2005
--------------- ---------------
INCREASE/(DECREASE) IN CASH FROM
Operating Activities:
Investment income received $ 365,975 $ 1,923,278
Operating expenses paid (371,185) (1,504,721)
Purchases of long-term portfolio investments (1,061,295) (6,855,374)
Proceeds from disposition of long-term portfolio
investments 2,380,710 12,131,559
Net purchase of short-term portfolio investments (1,285,000) (5,724,000)
--------------- ---------------
Net decrease in cash from operating activities 29,205 (29,258)
Cash at beginning of period (29,176) 82
--------------- ---------------
Cash at end of period $ 29 $ (29,176)
=============== ===============
RECONCILIATION OF NET INCREASE/(DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS TO NET INCREASE/(DECREASE)
IN CASH FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations $ 3,213,253 $ 17,101,553
--------------- ---------------
Adjustments:
Decrease in receivables 12,316 310,178
Decrease in accrued expenses (50,855) (5,827)
Increase/(decrease) in prepaid expenses 5,512 (1,273)
Net realized gain/(loss) from partnership investments 413,611 (83,023)
Net increase/(decrease) in cash from investment
transactions (383,198) 30,748
Net realized and unrealized gain on investments and
foreign currency related transactions (3,181,434) (17,381,614)
--------------- ---------------
Total adjustments (3,184,048) (17,130,811)
--------------- ---------------
NET INCREASE/(DECREASE) IN CASH FROM OPERATING ACTIVITIES $ 29,205 $ (29,258)
=============== ===============
</Table>
See accompanying notes to financial statements.
11
<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 period 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 THREE
MONTHS ENDED FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------------------------------------
2005 2005 2004 2003 2002
------------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 18.28 $ 14.27 $ 12.35 $ 9.50 $ 11.64
------------- ---------- ---------- ---------- ----------
Net investment income/(loss) 0.01 (0.07) (0.03) (0.22)+ (0.17)+
Net realized and unrealized gain/(loss) on investments
and foreign currency related transactions 0.75 4.08 1.95 3.42 (1.80)
------------- ---------- ---------- ---------- ----------
Net increase/(decrease) in net assets resulting from
operations 0.76 4.01 1.92 3.20 (1.97)
------------- ---------- ---------- ---------- ----------
Dividends and distributions to shareholders:
Net investment income -- -- -- -- --
Net realized gain on investments and
foreign currency related transactions (1.60) -- -- (0.35) (0.17)
------------- ---------- ---------- ---------- ----------
Total dividends and distributions to shareholders (1.60) -- -- (0.35) (0.17)
------------- ---------- ---------- ---------- ----------
Anti-dilutive impact due to capital shares repurchased -- -- -- -- --
------------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 17.44 $ 18.28 $ 14.27 $ 12.35 $ 9.50
============= ========== ========== ========== ==========
Market value, end of period $ 15.67 $ 16.21 $ 12.09 $ 10.10 $ 7.41
============= ========== ========== ========== ==========
Total investment return (a) 6.15% 34.08% 19.70% 40.57% (21.24)%
============= ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 74,273 $ 77,875 $ 60,773 $ 52,604 $ 40,457
Ratio of expenses to average net assets (b) 1.65%(c) 2.10% 1.92% 2.31% 2.08%
Ratio of expenses to average net assets,
excluding fee waivers 1.87%(c) 2.33% 2.13% 2.54% 2.30%
Ratio of net investment income/(loss) to average
net assets (b) 0.16%(c) (0.39)% (0.19)% (2.01)% (1.44)%
Portfolio turnover rate 1.53% 10.65% 8.53% 2.94% 11.26%
</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 period 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.
(c) Annualized.
See accompanying notes to financial statements.
12
<Page>
<Table>
<Caption>
FOR THE FISCAL YEARS ENDED SEPTEMBER 30,
---------------------------------------------------------------------------
2001 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ----------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 23.24 $ 17.18 $ 15.04 $ 18.41 $ 13.10 $ 13.20
---------- ---------- ---------- ---------- ---------- ----------
Net investment income/(loss) (0.06)+ (0.02)+ (0.02)+ 0.07 0.35 (0.09)
Net realized and unrealized gain/(loss) on
investments and foreign currency related
transactions (8.39) 7.80 3.21 (2.97) 6.20 (0.01)
---------- ---------- ---------- ---------- ---------- ----------
Net increase/(decrease) in net assets resulting
from operations (8.45) 7.78 3.19 (2.90) 6.55 (0.10)
---------- ---------- ---------- ---------- ---------- ----------
Dividends and distributions to shareholders:
Net investment income (0.08) (0.41) (0.21) -- -- --
Net realized gain on investments and
foreign currency related transactions (3.07) (1.46) (1.20) (0.47) (1.24) --
---------- ---------- ---------- ---------- ---------- ----------
Total dividends and distributions to shareholders (3.15) (1.87) (1.41) (0.47) (1.24) --
---------- ---------- ---------- ---------- ---------- ----------
Anti-dilutive impact due to capital shares
repurchased -- 0.15 0.36 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 11.64 $ 23.24 $ 17.18 $ 15.04 $ 18.41 $ 13.10
========== ========== ========== ========== ========== ==========
Market value, end of period $ 9.60 $ 18.563 $ 14.000 $ 11.813 $ 14.938 $ 11.250
========== ========== ========== ========== ========== ==========
Total investment return (a) (38.21)% 47.61% 32.61% (18.05)% 44.36% (6.25)%
========== ========== ========== ========== ========== ==========
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $ 49,565 $ 98,979 $ 76,683 $ 75,373 $ 92,298 $ 65,649
Ratio of expenses to average net assets (b) 1.88% 2.05% 2.05% 2.06% 2.26% 2.23%
Ratio of expenses to average net assets, excluding
fee waivers 2.09% 2.28% 2.30% 2.31% 2.30% --
Ratio of net investment income/(loss) to average
net assets (b) (0.39)% (0.08)% (0.12)% 0.42% 2.20% (0.68)%
Portfolio turnover rate 21.11% 27.06% 18.65% 29.11% 16.98% 21.68%
</Table>
13
<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. On November 17, 2005,
the Fund's Board of Directors approved a change in the Fund's fiscal year end
from a twelve-month period ending September 30 to a twelve-month period ending
December 31. The statements of operations, changes in net assets, cash flows and
financial highlights for December 31, 2005 represent the three month period
beginning on October 1, 2005 and ended on December 31, 2005.
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. Investments in mutual funds are
valued at the mutual fund's closing net asset value per share on the day of
valuation.
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 December 31, 2005, the Fund held 9.75% of its net assets in
securities valued at fair value as determined in good faith under procedures
established by the Board of Directors with an aggregate cost of $12,784,034 and
fair value of $7,241,971. 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 sweeps available U.S. dollar cash into a
short-term time 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.
14
<Page>
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 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
three months ended December 31, 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 unrealized 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 accrued 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
15
<Page>
foreign currencies and forward foreign currency contracts, exchange gains or
losses realized between the trade date and settlement date on security
transactions, and the difference between the amounts of interest and dividends
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received.
DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes at least annually to
shareholders substantially all of its net investment income and net realized
short-term capital gains, if any. The Fund determines annually whether to
distribute any net realized long-term capital gains in excess of net realized
short-term capital losses, including capital loss carryovers, if any. An
additional distribution may be made to the extent necessary to avoid the payment
of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are
recorded by the Fund on the ex-dividend date.
On December 19, 2005, a distribution in the aggregate amount of $6,814,872,
equal to $1.60 per share, from net realized gains on investment was declared.
This distribution was paid on January 6, 2006 to shareholders of record as of
December 21, 2005.
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 underlying partnerships
and adjusts the cost of 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 risk (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 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
16
<Page>
those originally paid by the Fund or the current carrying values, and these
differences 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
original 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. However, the Fund has adopted a policy
to invest, under normal circumstances, at least 80% of the value of its assets
in investments that are tied economically to Israel.
NOTE C. AGREEMENTS
Credit Suisse Asset Management, LLC ("Credit Suisse") serves as the Fund's
investment adviser with respect to all investments. Credit Suisse is
contractually entitled to receive as compensation for its advisory services from
the Fund an annual fee, calculated weekly and paid quarterly, equal to 1.30% of
the Fund's average weekly market value or net assets (whichever is lower)
invested in listed securities (including securities traded over-the-counter in
the United States) and 2.00% of the Fund's average weekly market value or net
assets (whichever is lower) invested in unlisted 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). Credit Suisse has agreed to waive the
advisory fee previously payable to the Fund's former investment sub-adviser. For
the three months ended December 31, 2005, Credit Suisse earned $236,501 for
advisory services, of which Credit Suisse waived $43,596. Credit Suisse 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
three months ended December 31, 2005, Credit Suisse was reimbursed $2,898 for
administrative services rendered to the Fund.
Credit Suisse Asset Management Limited ("Credit Suisse U.K.") an affiliate of
Credit Suisse, is a sub-investment adviser to the Fund. Credit Suisse U.K.
sub-investment advisory fees are paid by Credit Suisse out of Credit Suisse's
net investment advisory fee and not paid by the Fund.
Analyst Exchange and Trading Services Ltd. ("Analyst I.M.S.") is also a
sub-investment adviser to the Fund. Analyst I.M.S. is paid a fee, out of the
advisory fee payable to Credit Suisse, 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, Credit Suisse 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 three months ended December 31, 2005, Analyst
I.M.S. earned $67,097 for sub-advisory services.
Analyst I.M.S. has certain commercial arrangements with banks and brokers in
Israel from which Analyst I.M.S. receives a portion of the commissions on the
Fund's trades executed in Israel. For the three months December 31, 2005, such
commissions amounted to approximately $1,400.
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 three months ended December 31, 2005, BSFM
earned $13,805 for administrative services.
Merrill Corporation ("Merrill"), an affiliate of Credit Suisse, has been engaged
by the Fund to provide certain financial printing services. For the three
17
<Page>
months ended December 31, 2005, Merrill was paid $2,203 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 December 31, 2005,
Credit Suisse owned 7,169 shares.
NOTE E. INVESTMENT IN SECURITIES
For the three months ended December 31, 2005, purchases and sales of securities,
other than short-term investments, were $1,070,092 and $2,238,809, respectively.
NOTE F. CREDIT FACILITY
The Fund, together with other funds/portfolios advised by Credit Suisse
(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 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 three months ended December 31, 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.
The tax character of the distribution paid during the period ended December 31,
2005 of $6,814,872 was long-term capital gains.
The tax basis of components of distributable earnings differ from the amounts
reflected in the Statement of Assets and Liabilities by temporary book/tax
differences. These differences are primarily due to losses deferred on wash
sales and deferral of Post-October losses (as later defined). At December 31,
2005, the components of distributable earnings on a tax basis, for the Fund were
as follows:
<Table>
Undistributed ordinary
income $ 22,574
Accumulated net realized
gain 30,870
Unrealized appreciation 20,216,608
-------------
Total distributable earnings $ 20,270,052
=============
</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 December
31, 2005, the Fund incurred and elected to defer net realized capital losses of
$344,403 and net realized foreign currency losses of $6,931.
At December 31, 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 $61,138,136, $29,460,813,
$(9,243,874) and $20,216,939, respectively.
18
<Page>
At December 31, 2005, the Fund reclassified from accumulated net realized loss
on investments and foreign currency related transactions $9,245 to undistributed
net investment income to adjust for current period permanent book/tax
differences. Net assets were not affected by these reclassifications.
NOTE H. 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
OF VALUE AT VALUE PER
UNITS/SHARES ACQUISTION DATE(S) COST 12/31/05 UNIT/SHARE
------------ --------------------- ------------ ----------- ----------
ABS GE Capital Giza 1,250,001 02/03/98 - 02/13/02 $ 1,009,773 $ 224,025 $ 0.18
------------ ------------ -----------
Advent Israel
(Bermuda) L.P. 1,682,293 06/16/93 - 01/16/98 1,835,404 75,015 0.04
------------ ------------ -----------
BPW Israel Ventures LLC 1,482,848 10/05/00 - 07/1/04 1,078,779 843,609 0.57
94,446 1/3/2005 - 09/21/05 89,549 53,731 0.57
97,294 12/09/05 97,294 55,352 0.57
------------ ------------ -----------
1,674,588 1,265,622 952,692
------------ ------------ -----------
Concord Ventures II
Fund L.P. 1,760,000 03/29/00 - 08/19/04 1,199,721 640,854 0.36
120,000 3/4/2005 - 7/11/05 107,839 43,695 0.36
------------ ------------ -----------
1,880,000 1,307,560 684,549
------------ ------------ -----------
Delta Fund I, L.P. 212,940 11/15/00 - 07/01/04 149,410 136,182 0.64
7,500 09/09/05 8,061 4,797 0.64
------------ ------------ -----------
220,440 157,471 140,979
------------ ------------ -----------
Emerging Markets
Ventures IL.P. 2,205,494 01/22/98 - 07/06/04 1,525,572 1,694,547 0.77
21,396 1/10/2005 - 6/30/05 21,227 16,439 0.77
------------ ------------ -----------
2,226,890 1,546,799 1,710,986
------------ ------------ -----------
Formula Ventures L.P. 1,000,000 08/06/99 - 06/14/04 228,948 81,300 0.08
------------ ------------ -----------
Giza GE Venture
Fund III L.P. 850,000 1/31/00 - 03/15/04 537,991 490,348 0.58
275,000 10/11/2004 - 08/10/05 252,521 158,642 0.58
------------ ------------ -----------
1,125,000 790,512 648,990
------------ ------------ -----------
K.T. Concord Venture
Fund L.P. 1,000,000 12/08/97 - 09/29/00 788,287 499,818 0.50
------------ ------------ -----------
<Caption>
PERCENT
OF NET DISTRIBUTIONS OPEN
ASSETS RECEIVED COMMITMENTS
------- ------------- ------------
ABS GE Capital Giza 0.30 $ 1,605,498 $ --
------- ------------- ------------
Advent Israel
(Bermuda) L.P. 0.10 3,851,769 --
------- ------------- ------------
BPW Israel Ventures LLC 1.14
0.07
0.07
------- ------------- ------------
1.28 -- 625,412
------- ------------- ------------
Concord Ventures II
Fund L.P. 0.86
0.06
------- ------------- ------------
0.92 75,777 120,000
------- ------------- ------------
Delta Fund I, L.P. 0.18
0.01
------- ------------- ------------
0.19 45,794 30,000
------- ------------- ------------
Emerging Markets
Ventures I L.P. 2.28
0.02
------- ------------- ------------
2.30 603,504 273,110
------- ------------- ------------
Formula Ventures L.P. 0.11 275,968 --
------- ------------- ------------
Giza GE Venture
Fund III L.P. 0.66
0.22
------- ------------- ------------
0.88 89,781 125,000
------- ------------- ------------
K.T. Concord Venture
Fund L.P. 0.67 329,701 --
------- ------------- ------------
</Table>
19
<Page>
<Table>
<Caption>
NUMBER FAIR PERCENT
OF VALUE AT VALUE PER OF NET
UNITS/SHARES ACQUISTION DATE(S) COST 12/31/05 UNIT/SHARE ASSETS
------------ ------------------- ------------- ----------- ---------- -------
Neurone Ventures II, L.P. 438,684 11/24/00 - 09/24/04 $ 208,373 $ 178,342 $ 0.41 0.25
97,500 3/24/2005 - 8/15/05 83,184 39,637 0.41 0.05
--------- ------------- ----------- -------
536,184 291,557 217,979 0.30
--------- ------------- ----------- -------
Pitango Fund II LLC 1,000,000 10/31/96 - 08/01/01 536,638 222,406 0.22 0.30
--------- ------------- ----------- -------
SVE Star Ventures
Enterprises GmbH &
Co. No. IX KG 1,250,000 12/21/00 - 08/09/04 933,905 737,600 0.59 0.99
250,000 03/30/2005 243,284 147,520 0.59 0.20
--------- ------------- ----------- -------
1,500,000 1,177,189 885,120 1.19
--------- ------------- ----------- -------
The Renaissance Fund 60 03/30/94 - 03/21/97 213,193 31,781 529.68 0.04
--------- ------------- ----------- -------
Walden-Israel
Ventures,L.P. 500,000 09/28/93 - 05/16/97 282,752 65,715 0.13 0.09
--------- ------------- ----------- -------
Walden-Israel
Ventures III, L.P. 492,938 02/23/01 - 05/27/04 353,364 398,481 0.81 0.54
371,250 11/10/04 - 06/09/05 356,966 300,111 0.81 0.40
--------- ------------- ----------- -------
864,188 710,330 698,592 0.94
--------- ------------- ----------- -------
Total $ 12,142,035 $ 7,139,947 9.61
============= =========== =======
<Caption>
DISTRIBUTIONS OPEN
RECEIVED COMMITMENTS
------------- ------------
Neurone Ventures II, L.P.
------------- ------------
$ 39,421 $ 225,000
------------- ------------
Pitango Fund II LLC 1,115,588 --
------------- ------------
SVE Star Ventures
Enterprises GmbH &
Co. No. IX KG
------------- ------------
-- 500,000
------------- ------------
The Renaissance Fund 567,308 --
------------- ------------
Walden-Israel
Ventures,L.P. 442,280 --
------------- ------------
Walden-Israel
Ventures III, L.P.
------------- ------------
10,234 510,813
------------- ------------
$ 9,052,623 $ 2,409,335
============= ============
</Table>
The Fund may incur certain costs in connection with the disposition of the above
securities.
NOTE I. 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.
20
<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 December 31, 2005, the results of its operations and
its cash flows for the three months then ended and the year ended September 30,
2005, the changes in its net assets for the three months then ended, each of the
two years in the period ended September 30, 2005 and September 30, 2004, and the
financial highlights for each of the periods presented, 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 December 31, 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
$7,241,971 (9.75% 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
February 17, 2006
21
<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.
NAME OF DIRECTOR FOR WITHHELD
- ------------------- --------- --------
James J. Cattano 3,411,468 97,161
Steven N. Rappaport 3,406,077 102,552
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 elected as Directors of the Fund by the Board of
Directors.
Effective December 6, 2005, Michael E. Kenneally resigned as a Director of the
Fund.
22
<Page>
TAX INFORMATION (UNAUDITED)
The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of the Fund's year end
(December 31, 2005) as to the U.S. federal tax status of dividends and
distributions received by the Fund's shareholders in respect of such year. The
$1.60 per share distribution paid in respect of such year is represented
entirely by net realized long-term capital gains. There were no distributions
which would qualify for the dividend received deduction available to corporate
shareholders.
The Fund does not intend to make an election under Section 853 to pass through
foreign taxes paid by the Fund to its shareholders. This information is given to
meet certain requirements of the Internal Revenue Code of 1986, as amended.
Shareholders should refer to their Form 1099-DIV to determine the amount
includable on their respective tax returns for 2005.
Notification for calendar year 2005 was mailed in January 2006. The notification
along with Form 1099-DIV reflects the amount to be used by calendar year
taxpayers on their U.S. federal income tax returns.
Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their distribution. They will generally not be entitled to a foreign
tax credit or deduction for the withholding taxes paid by the Fund.
In general, distributions received by tax-exempt recipients (e.g., IRAs and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7)
plans) may need this information for their annual information reporting.
Shareholders are advised to consult their own tax advisors with respect to the
tax consequences of their investment in the Fund.
23
<Page>
DESCRIPTION OF INVESTLINK(SM) PROGRAM (UNAUDITED)
The InvestLink(SM) Program is sponsored and administered by Computershare Trust
Company, N.A., ("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
24
<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.
25
<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: Computershare
Trust Company N.A., Computershare InvestLink(SM) Program, P.O. Box 43010,
Providence, RI 02940-3010.
InvestLink is a service mark of Computershare Trust Company, N.A.
26
<Page>
INFORMATION CONCERNING DIRECTORS AND OFFICERS (UNAUDITED)
<Table>
<Caption>
NUMBER OF
TERM PORTFOLIOS IN
OF OFFICE FUND
POSITION(S) AND 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* Chairman of the Director since Professor of Finance 47 Director of The Adams Express
c/o Credit Suisse Asset Board of 1996; Chairman and Economics, Company (a closed-end
Management, LLC Directors;Nomi- since 2005; Graduate School of investment company); Director
Attn: General Counsel nating Committ- current term Business, Columbia of Petroleum and Resources
466 Lexington Avenue ee Chairman and ends at the University since Corporation (a closed-end
New York, New York Audit Committee 2006 annual 1971 investment company)
10017-3140 Member meeting
Date of Birth: 10/02/41
James J. Cattano Director; Nomi- Since 2005 President, Primary 4 None
c/o Primary Resources, Inc. nating and Resources, Inc. (an
55 Old Field Point Road Audit Committee international
Greenwich, Connecticut Member trading and manufac-
06830 turing company
specializing in the
Date of Birth: 06/24/43 sale of agricultural
commodities through-
out Latin American
markets) since
October 1996
Phillip Goldstein Director; Nomi- Since 2005 Investment Adviser, 2 Director, Brantley Capital
Opportunity Partners L.P. nating and Opportunity Partners Corporation; Director, The
60 Heritage Drive Audit Committee L.P. since 1992 Mexico Equity and Income Fund
Pleasantville, NY 10570 Member
Date of Birth: 01/28/45
Steven N. Rappaport Director; Nomi- Since 1992; Partner of Lehigh 46 Director of Presstek, Inc.
Lehigh Court, LLC nating and current term Court, LLC and RZ (digital imaging technologies
40 East 52nd Street Audit Committee ends at the Capital (private company); Director of Wood
New York, New York Member 2008 annual investment firms) Resources, LLC (plywood
10022 meeting since July 2002; manufacturing company)
Transition Advisor
Date of Birth: 07/10/48 to SunGard Securities
Finance, Inc. from
February 2002 to
July 2002; President
of SunGard Securit-
ies Finance, Inc.
from 2001 to
February 2002;
President of
Loanet, Inc.
(on-line accounting
service) from 1997
to 2001
George W. Landau Honorary Since 2005; Senior Advisor, 4 Director of GAM Funds, Inc.
c/o Credit Suisse Director Director since Latin America, The
Asset Management, LLC 1995 Coca-Cola Company
Attn: General Counsel since 1988; Advisor
466 Lexington Avenue of Guardian Industr-
New York, New York ies (a glass manufa-
10017-3140 cturer) since 1992
Date of Birth: 03/04/20
</Table>
- ----------
* Effective December 6, 2005, Enrique R. Arzac was appointed as Chairman of
the Board of Directors. Michael E. Kenneally, who previously held this
position, resigned as a Director effective December 6, 2005.
27
<Page>
<Table>
<Caption>
POSITION(S) LENGTH
NAME, ADDRESS AND HELD WITH TIME OF
DATE OF BIRTH FUND SERVED PRINCIPAL OCCUPATION(S) DURING PAST FIVE YEARS
- ----------------------- --------------------- ----------- -----------------------------------------------
OFFICERS
Steven B. Plump** Chief Executive Since 2005 Managing Director; Associated with Credit
Credit Suisse Asset Officer and President Suisse or its predecessor since 1995; Officer
Management, LLC 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
c/o Credit Suisse Asset Officer Management Limited ("Credit Suisse U.K.");
Management, LLC Associated with Credit Suisse U.K. since 1990
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
Credit Suisse Asset Officer and Secretary Credit Suisse; Associated with Credit Suisse or
Management, LLC its predecessor since 1984; Officer of other
466 Lexington Avenue Credit Suisse Funds
New York, New York
10017-3140
Date of Birth: 11/15/59
Emidio Morizio Chief Compliance Since 2004 Director and Global Head of Compliance of
Credit Suisse Asset Officer Credit Suisse; Associated with Credit Suisse
Management, LLC since July 2000; Vice President and Director of
466 Lexington Avenue Compliance of Forstmann-Leff Associates from
New York, New York 1998 to June 2000; Officer of other Credit
10017-3140 Suisse Funds
Date of Birth: 09/21/66
Ajay Mehra Chief Legal Officer Since 2004 Director and Head of Legal Americas Traditional
Credit Suisse Asset Asset Management and Hedge Funds; Associated
Management, LLC with Credit Suisse since September 2004.;
466 Lexington Avenue Senior Associate of Sherman & Sterling LLP from
New York, New York September 2000 to September 2004; Senior
10017-3140 Counsel of the SEC Division of Investment
Management from June 1997 to September 2000;
Date of Birth: 08/14/70 Officer of other Credit Suisse Funds
</Table>
- ----------
** 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, resigned effective July 31, 2005.
28
<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
- ----------------------- --------------------- ----------- -----------------------------------------------
J. Kevin Gao Senior Vice President Since 2004 Director and Legal Counsel of Credit Suisse;
Credit Suisse Asset Associated with Credit Suisse since July 2003;
Management, LLC Associated with the law firm of Willkie Farr &
466 Lexington Avenue Gallagher LLP from 1998 to 2003; Officer of
New York, New York other Credit Suisse Funds
10017-3140
Date of Birth: 10/13/67
Robert Rizza Treasurer Since 1999 Vice President of Credit Suisse; Associated
Credit Suisse Asset with Credit Suisse since 1998; Officer of other
Management, LLC Credit 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.
29
<Page>
ADVISORY AGREEMENT APPROVAL DISCLOSURE (UNAUDITED)
Board Consideration and Re-Approval of Investment Advisory and Sub-Advisory
Agreements
Section 15(c) of the Investment Company Act of 1940 (the "1940 Act")
contemplates that the Board of Directors (the "Board") of The First Israel Fund,
Inc. (the "Fund"), including a majority of the Directors who have no direct or
indirect interest in the investment advisory and sub-advisory agreements and are
not "interested persons" of the Fund, as defined in the 1940 Act (the
"Independent Directors"), will annually review and re-approve the terms of the
Fund's existing investment advisory and sub-advisory agreements. In this regard,
the Board reviewed and re-approved, during the most recent six months covered by
this report: (i) an investment advisory agreement with Credit Suisse Asset
Management, LLC ("Credit Suisse") for the Fund, (ii) a sub-advisory agreement
with Analyst Exchange Trading Services Ltd. ("Analyst") for the Fund, and (iii)
a sub-advisory agreement with Credit Suisse Asset Management Limited ("Credit
Suisse U.K.") for the Fund. The investment advisory agreement with Credit Suisse
and the investment sub-advisory agreements with Credit Suisse U.K. and Analyst
(the "Sub-Advisers") are collectively referred to as the "Advisory Agreements."
More specifically, at a meeting held on November 16-17, 2005, the Board,
including the Independent Directors advised by their independent legal counsel,
considered the factors and reached the conclusions described below relating to
the selection of Credit Suisse and the Sub-Advisers and the re-approval of the
Advisory Agreements.
NATURE, EXTENT AND QUALITY OF SERVICES
The Board received and considered various data and information regarding the
nature, extent and quality of services provided to the Fund by Credit Suisse and
the Sub-Advisers under the Advisory Agreements. The most recent investment
adviser registration forms ("Forms ADV") for Credit Suisse and the Sub-Advisers
were provided to the Board, as were responses of Credit Suisse and the
Sub-Advisers to requests submitted by the Independent Directors' independent
legal counsel on behalf of such Directors. The Board reviewed and analyzed these
materials, which included, among other things, information about the background
and experience of the senior management and the expertise of, and amount of
attention devoted to the Fund by, investment personnel of Credit Suisse and the
Sub-Advisers. In this regard, the Board specifically reviewed the
qualifications, backgrounds and responsibilities of the chief investment officer
who is primarily responsible for day-to-day portfolio management services for
the Fund.
In addition, the Board received and reviewed information on Securities and
Exchange Commission ("SEC") and other regulatory inquiries and examinations
relating to the Fund, Credit Suisse and the Sub-Advisers. The Board considered
the investment and legal compliance programs of each of these entities,
including their implementation of enhanced compliance policies and procedures in
response to SEC rule changes and other regulatory initiatives. The Board also
considered the Fund's Chief Compliance Officer's report and recommendations.
30
<Page>
The Board evaluated the ability of Credit Suisse and the Sub-Advisers, including
their respective resources, reputations and other attributes, to attract and
retain highly qualified investment professionals, including research, advisory,
and supervisory personnel. In this regard, the Board considered information
regarding Credit Suisse's compensation arrangements for its personnel involved
in the management of the Fund.
Based on the above factors, together with those referenced below, the Board
concluded that it was generally satisfied with the nature, extent and quality of
the investment advisory services provided to the Fund by Credit Suisse and the
Sub-Advisers.
FUND PERFORMANCE AND EXPENSES
The Board considered the performance results of the Fund over a number of years
and since the inception of the Fund, as well as for recent periods. It also
considered these results in comparison to the Fund's benchmark indices, the MSCI
Israel Index and the TA-100 Index. The Board noted that, although the Fund
underperformed its benchmark indices in some periods, the Fund has significantly
outperformed the MSCI Israel Index since inception. The Board also observed that
the Fund's underperformance compared to its benchmark indices can in part be
explained by restrictions on diversification of the Fund's portfolio holdings.
The Board received and considered statistical information regarding the Fund's
total expense ratio and its various components, including management fees,
non-management fees, fee waivers/caps and/or expense reimbursements and actual
total expenses of the Fund (including and excluding investment-related expenses
and taxes). It also considered comparisons of these fees to the expense
information for the group of funds that was determined to be the most similar to
the Fund (the "Peer Group") and a broader universe of relevant funds (the
"Universe"). Lipper Inc. ("Lipper"), an independent provider of investment
company data, determined the Peer Group and Universe for the Fund and provided
the comparative data. The Board was provided with a description of the
methodology used by Lipper to select the closed-end mutual funds in the Fund's
Peer Group and Universe. The Board noted that the overall expense ratio of the
Fund was consistent with the Peer Group's median overall expense ratio, both
including and excluding investment-related expenses and taxes.
Based on the above-referenced considerations and other factors, the Board
concluded that the overall performance and expense results supported the
re-approval of the Advisory Agreements for the Fund.
INVESTMENT ADVISORY AND SUB-ADVISORY FEE RATES
The Board reviewed and considered the proposed contractual investment advisory
fee rate (the "Advisory Agreement Rate") payable by the Fund to Credit Suisse
for investment advisory services. The Board also reviewed and considered the
proposed contractual investment sub-advisory fee rates (the "Sub-Advisory
Agreement Rates") payable by Credit
31
<Page>
Suisse to the Sub-Advisers for investment sub-advisory services. In addition,
the Board reviewed and considered the proposed fee waiver/cap arrangements
applicable to the Advisory Agreement Rate and considered the Advisory Agreement
Rate after taking the waivers into account (the "Net Advisory Rate"). The Board
noted that Credit Suisse had voluntary fee waivers in effect to base its current
investment advisory fee upon the lower of the average weekly stock price or its
average weekly net assets and to waive the advisory fee previously paid to the
Fund's former sub-adviser Giza Ltd.
Additionally, the Board received and considered information comparing the Net
Advisory Rate (both on a stand-alone basis and on a combined basis with the
Fund's administration fee rate) with that of the other funds in its Peer Group.
The Board noted that the Net Advisory Rate for the Fund, considering the
effective voluntary fee waivers, was not appreciably higher than the median rate
of the Fund's Peer Group. The Board noted that the Net Advisory Rate reflected
that Credit Suisse was authorized to invest a significant percentage of the
Fund's assets in privately placed securities. The Board also noted that the
Fund's administrator is not affiliated with Credit Suisse and that the Fund's
administration agreement and corresponding fees were negotiated at arm's-length.
The Board concluded that the combined rates of investment advisory and
administration fees for the Fund, considering the effective voluntary fee
waivers, were not appreciably higher than the combined median rates of its Peer
Group. The Board concluded that these factors supported the Advisory Agreement
Rate and the Net Advisory Rate.
The Board also reviewed the Sub-Advisory Agreement Rates charged by Credit
Suisse U.K. and Analyst, which serve as Sub-Advisers to the Fund. The Board
concluded that the Sub-Advisory Agreement Rates were fair and equitable, based
on its consideration of the factors described here.
PROFITABILITY
The Board received and considered an estimated profitability analysis of Credit
Suisse based on the Advisory Agreement Rate and the Net Advisory Rate, as well
as on other relationships between the Fund and Credit Suisse and its affiliates,
including Credit Suisse U.K. The Board concluded that, in light of the costs of
providing investment management and other services to the Fund, the profits and
other ancillary benefits that Credit Suisse and its affiliates received with
regard to providing these services to the Fund were not unreasonable.
The Board received and considered an estimated profitability analysis and
financial statements of Credit Suisse U.K. and a profit and loss statement from
Analyst for the Fund based on their Sub-Advisory Agreement Rates, as well as on
other relationships between the Fund and Credit Suisse U.K. and its affiliates,
and between the Fund and Analyst and its affiliates, respectively. The Board
noted the costs of providing portfolio management and other services to the
Fund. The Board also noted that the sub-advisory fees are paid to the
Sub-Advisers by Credit Suisse and not directly by the Fund, and that the Board
separately determined that the Advisory Agreement Rate for the Fund was fair and
32
<Page>
equitable. Based on these factors, the Board concluded that the profits and
other ancillary benefits that the Sub-Advisers and their affiliates received
with regard to providing these services to the Fund were not unreasonable.
ECONOMIES OF SCALE
The Board received and considered information regarding whether there have been
economies of scale with respect to the management of the Fund, whether the Fund
has appropriately benefited from any economies of scale, and whether there is
potential for realization of any further economies of scale.
The Board observed that the Advisory Agreement for the Fund did not offer
breakpoints. However, the Board considered the diminished opportunity to achieve
economies of scale in the context of a closed-end fund and concluded that the
fees were fair and equitable based on relevant factors.
The Board did not receive information regarding any economies of scale of
unaffiliated sub-advisers given that the sub-advisory fees are paid to Analyst
by Credit Suisse and not directly by the Fund, and that the Board separately
determined that the Advisory Agreement Rate for the Fund was fair and equitable.
INFORMATION ABOUT SERVICES TO OTHER CLIENTS
The Board received and considered information about the nature and extent of
services and fee rates offered by Credit Suisse to other clients, including
other registered investment companies, separate accounts and institutional
investors and investment companies to which Credit Suisse serves as an
unaffiliated sub-adviser. The Board also received and considered information
about the nature and extent of services, and general information about the fees,
offered by Credit Suisse U.K. to other clients as well as services offered by
Analyst to other clients. The Board concluded that the Advisory Agreement Rate
and Sub-Advisory Agreement Rate for Credit Suisse U.K. were reasonable, given
the nature and extent of services provided and comparison with rates offered to
other clients. Where Credit Suisse's rates offered to its other clients were
appreciably lower, the Board considered that Credit Suisse's voluntary fee
waivers would decrease the Advisory Agreement Rate. The Board concluded, based
on information provided by Credit Suisse, that the costs associated with
managing and operating a registered, closed-end, emerging market country fund,
particularly one that is authorized to invest a significant percentage of its
assets in privately placed securities, compared with other clients or other
funds, provided a justification for the higher fee rates charged to the Fund.
The Board did not receive comparative fee rate materials for Analyst, but
concluded that the Sub-Advisory Agreement Rate for Analyst was fair and
equitable based on other considerations, including the performance of the Fund
as sub-advised by Analyst. The Board also considered that sub-advisory fees are
paid to Analyst by Credit Suisse and not the Fund, and that the Board had
separately determined that the Advisory Agreement Rate for the Fund was fair and
equitable.
33
<Page>
OTHER BENEFITS TO CREDIT SUISSE AND THE SUB-ADVISERS
The Board received and considered information regarding potential "fall-out" or
ancillary benefits received by Credit Suisse and its affiliates, including
Credit Suisse U.K., and the Sub-Advisers as a result of their relationship with
the Fund. Such benefits could include, among others, benefits directly
attributable to the relationship of Credit Suisse and the Sub-Advisers with the
Fund (such as soft-dollar credits) and benefits potentially derived from an
increase in the business of Credit Suisse and the Sub-Advisers as a result of
their relationship with the Fund (such as the ability to market to shareholders
other financial products offered by Credit Suisse and its affiliates or the
Sub-Advisers and their affiliates).
The Board also considered the effectiveness of practices of Credit Suisse and
Credit Suisse U.K. in achieving the best execution of portfolio transactions,
whether and to what extent soft dollar credits are sought and how any such
credits are utilized. The Board also reviewed the policies of Credit Suisse U.K.
regarding the allocation of portfolio investment opportunities among the Fund
and its other clients.
OTHER FACTORS AND BROADER REVIEW
As discussed above, the Board reviews detailed materials received from Credit
Suisse and the Sub-Advisers annually as part of the re-approval process under
Section 15(c) of the 1940 Act. The Board also reviews and assesses the quality
of the services that the Fund receives throughout the year. In this regard, the
Board reviews reports of Credit Suisse and the Sub-Advisers at least in each of
its quarterly meetings, which include, among other things, a detailed portfolio
review and detailed fund performance reports, and confers with the chief
investment officer and managers of the Fund at various times throughout the
year.
After considering the above-described factors and based on the deliberations and
its evaluation of the information provided to it, the Board concluded that
re-approval of the Advisory Agreements for the Fund was in the best interest of
the Fund and its shareholders. Accordingly, the Board unanimously re-approved
the Advisory Agreements.
34
<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.credit-suisse.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.
35
<Page>
OTHER FUNDS MANAGED BY CREDIT SUISSE ASSET MANAGEMENT, LLC
<Table>
Credit Suisse Capital Appreciation Fund Credit Suisse Japan Equity Fund
Credit Suisse Cash Reserve Fund Credit Suisse Large Cap Blend Fund
Credit Suisse Commodity Return Strategy Fund Credit Suisse Large Cap Value Fund
Credit Suisse Emerging Markets Fund Credit Suisse Mid-Cap Growth Fund
Credit Suisse Fixed Income Fund Credit Suisse New York Municipal Fund
Credit Suisse Global Fixed Income Fund Credit Suisse Short Duration Bond Fund
Credit Suisse Global Small Cap Fund Credit Suisse Small Cap Growth Fund
Credit Suisse High Income Fund Credit Suisse Small Cap Value Fund
Credit Suisse International Focus Fund Credit Suisse Strategic Allocation Fund
</Table>
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.
36
<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, the Fund's investment adviser, is part of the Asset Management
business of Credit Suisse, a leading global financial services organization
headquartered in Zurich, with offices focused on asset management in 18
countries.
SHAREHOLDER INFORMATION
The Fund's 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.credit-suisse.com/us.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 Chairman of the Board of Directors
James J. Cattano Director
Phillip Goldstein Director
George W. Landau Honorary Director
Steven N. Rappaport Director
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
Computershare Trust Company, N.A.
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 LOGO]
ISL-AR-1205
<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 December 31, 2005. There were no waivers or implicit waivers from the
code granted by the registrant during the fiscal year ended December 31, 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 year ended September 30, 2005
and the fiscal period ended December 31, 2005.
<Table>
<Caption>
SEPTEMBER 30, 2005 DECEMBER 31, 2005
------------------- ------------------
Audit Fees $ 53,550 $ 32,600
Audit-Related Fees(1) $ 12,050 $ 8,900
Tax Fees(2) $ 7,860 $ 7,860
All Other Fees -- --
Total $ 73,460 $ 49,360
</Table>
(1) Services include agreed-upon procedures in connection with the registrant's
semi-annual financial statements ($3,150 for the fiscal year ended
September 30, 2005) and an attestation on the Fund's compliance with an
Israeli Tax Ruling ($8,900 in the fiscal year ended September 30, 2005
and $8,900 for the fiscal period ended December 31, 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 ("Credit Suisse"), and any service provider
to the registrant controlling, controlled by or under common control with Credit
Suisse that provided ongoing services to the registrant ("Covered Services
Provider"), for the registrant's fiscal years ended September 30, 2005 and
December 31, 2005.
<Page>
<Table>
<Caption>
SEPTEMBER 30, 2005 DECEMBER 31, 2005
------------------- ------------------
Audit-Related Fees N/A N/A
Tax Fees N/A N/A
All Other Fees $ 394,000 N/A
Total $ 394,000 N/A
</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 Credit
Suisse 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 Credit Suisse 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, Credit Suisse 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>
SEPTEMBER 30, 2005 DECEMBER 31, 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 Credit
Suisse 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, 2005 and December 31, 2005:
<Table>
<Caption>
SEPTEMBER 30, 2005 DECEMBER 31, 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, Credit Suisse and Covered Service Providers for the fiscal years
ended September 30, 2005 and December 31, 2005 were $19,910 and $16,760,
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 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.
<Page>
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
<Page>
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.
<Page>
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
<Page>
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Information pertaining to the Chief Investment Officer of The First Israel Fund,
Inc., as of December 31, 2005, is set forth below.
Neil Gregson Managing Director of Credit Suisse Asset Management
Chief Investment Limited; Associated with Credit Suisse Asset Management
Officer Since 2004 Limited since 1990
Date of Birth: 05/10/62
Registered Investment Companies, Pooled Investment Vehicles and Other
Accounts Managed
As reported to the Registrant, the information in the following table
reflects the number of registered investment companies, pooled investment
vehicles and other accounts managed by Mr. Gregson and the total assets managed
within each category as of December 31, 2005.
<Table>
<Caption>
REGISTERED INVESTMENT OTHER POOLED INVESTMENT
COMPANIES VEHICLES OTHER ACCOUNTS
----------------------------------------------------------------
4 $ 414 million 3 $ 560 million 0 N/A
----------------------------------------------------------------
</Table>
No advisory fee is paid based on performance for any of the accounts listed
above.
Potential Conflicts of Interest
It is possible that conflicts of interest may arise in connection with
the portfolio managers' management of the Portfolio's investments on the one
hand and the investments of other accounts on the other. For example, the
portfolio managers may have conflicts of interest in allocating management time,
resources and investment opportunities among the Portfolio and other accounts
they advise. In addition due to differences in the investment strategies or
restrictions between the Portfolio and the other accounts, the portfolio
managers may take action with respect to another account that differs from the
action taken with respect to the Portfolio. Credit Suisse has adopted policies
and procedures that are designed to minimize the effects of these conflicts.
If Credit Suisse believes that the purchase or sale of a security is
in the best interest of more than one client, it may (but is not obligated to)
aggregate the orders to be sold or purchased to seek favorable execution or
lower brokerage commissions, to the extent permitted by applicable laws and
regulations. Credit Suisse may aggregate orders if all participating client
accounts benefit equally (i.e., all receive an average price of the aggregated
orders). In the event Credit Suisse aggregates an order for participating
accounts, the method of allocation will generally be determined prior to
<Page>
the trade execution. Although no specific method of allocation of transactions
(as well as expenses incurred in the transactions) is expected to be used,
allocations will be designed to ensure that over time all clients receive fair
treatment consistent with Credit Suisse's fiduciary duty to its clients
(including its duty to seek to obtain best execution of client trades). The
accounts aggregated may include registered and unregistered investment companies
managed by Credit Suisse's affiliates and accounts in which Credit Suisse's
officers, directors, agents, employees or affiliates own interests. Applicant
may not be able to aggregate securities transactions for clients who direct the
use of a particular broker-dealer, and the client also may not benefit from any
improved execution or lower commissions that may be available for such
transactions.
Compensation
Credit Suisse's compensation to Mr. Gregson set forth below includes
both a fixed base salary component and bonus component. The bonus component is
composed of two parts. The first part of the bonus component is discretionary
and generally is determined by considering various factors, such as the assets
held in the Fund and other accounts managed by Mr. Gregson, business growth,
teamwork, management, corporate citizenship, etc. The second part of the bonus
generally is determined by the pre-tax investment performance of products,
including the Fund, for which Mr. Gregson is responsible ("Performance Based
Bonus"). Credit Suisse considers both the short-term (generally one-year) and
long-term (generally three-years) performance of a portfolio manager relative to
selected benchmarks in determining the portfolio manager's bonus. The following
table sets forth the benchmark used over a one year period in determining Mr.
Gregson's Performance Based Bonus.
<Table>
<Caption>
BENCHMARK PEER GROUP
- ----------------------------- -----------------------------------
MSCI Global Emerging Markets Lipper Emerging Markets Fund
Performance Attribution Rpts
MSCI Eastern Europe Lipper Hindsight LUX Eastern Europe
MSCI Emerging Europe
FT Gold Mines Index Lipper Hindsight Global Emerging
MSCI Global Emerging Markets Markets
MSCI Weighted sub-sectors
Lipper Emerging Markets Fund
Lipper Precious Metals
</Table>
Securities Ownership. As of December 31, 2005, Mr. Gregson did not own any
shares of 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
-------------------
Name: Steven B. Plump
Title: Chief Executive Officer
Date: March 9, 2006
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: March 9, 2006
/s/ Michael A. Pignataro
------------------------
Name: Michael A. Pignataro
Title: Chief Financial Officer
Date: March 9, 2006