<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 31
Date of reporting period: January 1, 2006 to June 30, 2006
<Page>
ITEM 1. REPORTS TO STOCKHOLDERS.
<Page>
THE FIRST ISRAEL FUND, INC.
SEMI-ANNUAL REPORT
JUNE 30, 2006
(UNAUDITED)
[AMERICAN STOCK EXCHANGE(R) LOGO]
LISTED
ISL
ISL-SAR-0606
<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
Results of Annual Meeting of Shareholders 21
Privacy Policy Notice 22
Description of InvestLink(SM) Program 23
Proxy Voting and Portfolio Holdings Information 26
</Table>
<Page>
LETTER TO SHAREHOLDERS
August 2, 2006
DEAR SHAREHOLDER:
For the six month period ended June 30, 2006, The First Israel Fund, Inc. (the
"Fund") had a loss of 0.40%, based on net asset value, vs. a same-period loss of
14.7% for the Morgan Stanley Capital International Israel Index* (the "MSCI
Index") and a gain in the Tel Aviv 100 Index** of 0.1%. Based on market price,
the Fund had a loss of 4.02% for the period.
FUND NOW TRADING ON AMEX
Effective May 11, 2006, the Fund is listed on, and has commenced trading on, the
American Stock Exchange, LLC ("AMEX"). The Fund opted to make the move based on
listing costs. The Fund estimates that the Fund's annual listing fees will
decline substantially. The Fund continues to trade under the same ticker symbol
(ISL).
At June 30, 2006, total net assets of the Fund were approximately $74.0 million.
The Fund's investments in securities listed and trading on the Tel Aviv Stock
Exchange ("TASE") were $44.4 million, with another $16.5 million in Israeli and
Israeli-related companies listed and trading in the United States. Combined,
these totalled $60.9 million, as compared with $63.9 million on December 31,
2005. The Fund also held investments valued at approximately $6.7 million in
unlisted securities, as compared to approximately $7.2 million on December 31,
2005. In percentage terms, at June 30, 2006, 91.4% of the Fund's net assets were
invested in Israeli and Israeli-related companies, of which 82.3% were listed
and trading on the TASE and in the United States and 9.1% were in unlisted
securities.
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
On an absolute basis, the top performing components of the Fund during the
period were mainly in the broad industrials sector which also included real
estate related companies. Relative to the MSCI Index, by far the most dominant
contribution was as a result of the Fund's underweight position in the index
heavyweight Teva Pharmaceutical Industries Ltd. (9.2% of the Fund's net assets
as of June 30, 2006). The Fund's underweight in Check Point Software
Technologies Ltd. (4.9% of the Fund's net assets as of June 30, 2006) also
contributed as did gains in a number of small holdings in Industrial stocks
which are not represented in the MSCI Index.
As it relates to the Fund's private equity holdings, we continue to see
improvements in the valuations of investments of the various limited
partnerships in which the Fund is invested. 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 which impact the
future realization of value for an investment.
1
<Page>
As we noted previously, the last two years have seen an improvement in the
performance of Israel's technology sector from the 1999 post-bubble valuations.
In the period of January through June 2006, the Fund received distributions from
limited partnerships totalling approximately $1,592,000, from six different
realizations. During this period, the Fund also funded capital commitments of
approximately $465,000, at valuations significantly below the pre-bubble period.
The unfunded commitments of the Fund totalled $1.9 million at June 30, 2006,
compared with $2.4 million at the end of 2005.
THE MARKET
The early period of 2006 saw a supportive environment for emerging markets as a
whole with strong inflows into the asset class. This was particularly prevalent
in the so called " BRIC " group, Brazil, Russia, India and China. However,
during this period the Israeli market lagged, largely reflecting a rise in
political risk with Hamas being victorious in the Palestinian Authority's
January parliamentary elections and the hospitalization of Prime Minister Sharon
leading to Israeli elections on March 28th. In spite of the lack of
participation of the Israeli market in the general emerging market euphoria
earlier in the year, the market was influenced by the emerging market sell off
starting in mid-May 2006. The broad emerging market sell off was attributed to a
number of factors, including stubborn U.S. inflation, the expectation of higher
interest rates both in the U.S. and Japan and higher oil prices.
The domestic economic news was largely positive with a number of upward
revisions to growth statistics. In the first quarter 2006, GDP growth reached
6.6% with strong areas particularly in industrial exports, tourist services and
private consumption. There were also ongoing signs of recovery in residential
construction.
In spite of the strong growth numbers, the strengthening of the shekel, together
with the expectation of easing inflationary pressures, allowed the Bank of
Israel to refrain from further interest rate increases, keeping the benchmark
interest rate on hold at 5.25%.
PORTFOLIO
The slight fall in the Fund's NAV during the first half of the year could be
attributed to gains in the industrials and real estate sectors which were
negated by share price falls elsewhere, particularly in the health care and
technology sectors.
During the earlier part of the year, investments in commercial banks were
decreased slightly and the proceeds invested in Clal Industries (0.9% of the
Fund's net assets as of June 30, 2006). Also during the period, investments in
the insurance and real estate sectors were reduced.
OUTLOOK
At the time of writing, events and the hostilities in Lebanon are ongoing and
unresolved. The military conflict will likely impact a number of areas such as
tax revenue, government expenditure, and tourism and business and consumer
confidence. The extent of the economic impact will probably be dependent on the
duration of the conflict and the nature of the resolution. So far, the situation
has had a limited impact on the Israeli stock market, although we believe that
this is in part a result of the heavyweight global companies in the MSCI index.
Away from the political situation, the moderation of inflationary pressures and
currency stability could allow ongoing economic growth in our view, thus
potentially benefiting the domestically orientated Israeli companies. Elsewhere,
we feel that the global environment will continue to influence Israel's leading
global companies.
2
<Page>
As always, we will remain focused on close analysis of the Fund's current
holdings and potential future investments.
Respectfully,
/s/ Neil Gregson
- ----------------------------------------
Neil Gregson
Chief Investment Officer***
/s/ Steven B. Plump
- ----------------------------------------
Steven B. Plump
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 Ltd."), 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 Ltd. 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 JUNE 30, 2006 (UNAUDITED)
SECTOR ALLOCATION
[CHART]
AS A PERCENT OF NET ASSETS
<Table>
<Caption>
30-JUN-06 31-DEC-05
--------- ---------
Chemicals 8.06% 8.11%
Commercial Banks 15.53% 16.08%
Communications Equipment 2.79% 3.57%
Diversified Telecommunication Services 4.61% 4.96%
Electric Equipment & Instruments 4.80% 4.39%
Industrial Conglomerates 5.93% 4.20%
Insurance 7.75% 8.06%
Pharmaceuticals 12.28% 16.89%
Semiconductor & Semiconductor Equipment 1.70% 1.57%
Software 6.29% 6.36%
Venture Capital 8.88% 9.56%
Other Sectors 12.79% 11.93%
Cash & Other Assets 8.59% 4.32%
</Table>
TOP 10 HOLDINGS, BY ISSUER
<Table>
<Caption>
PERCENT OF
HOLDING SECTOR NET ASSETS
- ------------------------------------------------------------------------------------------------------------
1. Teva Pharmaceutical Industries Ltd. Pharmaceuticals 9.2
2. Harel Insurance Investments Ltd. Insurance 6.7
3. Bank Hapoalim Ltd. Commercial Banks 6.1
4. Bank Leumi Le-Israel Ltd. Commercial Banks 5.6
5. Israel Chemicals Ltd. Chemicals 5.3
6. Check Point Software Technologies Ltd. Software 4.9
7. Bezeq Israeli Telecommunication Corporation Ltd. Diversified Telecommunication Services 4.6
8. Perrigo Co. Pharmaceuticals 3.0
9. Makhteshim-Agan Industries Ltd. Chemicals 2.8
10. Israel Discount Bank Ltd. Commercial Banks 2.4
</Table>
4
<Page>
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS - JUNE 30, 2006 (UNAUDITED)
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES VALUE
- --------------------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-91.41%
ISRAEL-89.80%
AEROSPACE & DEFENSE-0.83%
Elbit Systems Ltd. 23,000 $ 617,081
-----------
AIRLINES-0.16%
EL AL Israel Airlines+ 174,089 117,769
-----------
BUILDING PRODUCTS-0.59%
Electra Consumer Products Ltd.+ 52,000 334,031
Klil Industries Ltd.+ 18,654 106,370
-----------
440,401
-----------
CAPITAL MARKETS-1.06%
IBI Investment House Ltd. 82,000 785,039
-----------
CHEMICALS-8.06%
Israel Chemicals Ltd. 960,000 3,902,446
Makhteshim-Agan Industries Ltd. 385,001 2,056,864
-----------
5,959,310
-----------
COMMERCIAL BANKS-15.53%
Bank Hapoalim Ltd. 1,035,000 4,511,263
Bank Leumi Le-Israel Ltd. 1,140,000 4,135,476
F.I.B.I. Holdings Ltd.+ 27,500 434,472
Israel Discount Bank Ltd., Class A+ 1,035,000 1,811,854
United Mizrahi Bank Ltd.+ 100,000 593,608
-----------
11,486,673
-----------
COMMUNICATIONS EQUIPMENT-2.79%
AudioCodes Ltd.+ 35,000 381,500
ECI Telecom Ltd.+ 45,564 367,246
NICE Systems Ltd., ADR+ 24,200 680,988
RADWARE Ltd.+ 49,300 633,012
-----------
2,062,746
-----------
CONSTRUCTION & ENGINEERING-1.31%
Housing & Construction Holdings Ltd.+ 1,000,000 966,451
-----------
</Table>
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES/UNITS VALUE
- --------------------------------------------------------------------------------
DIVERSIFIED FINANCIAL SERVICES-0.91%
Ampal-American Israel Corp., Class A+ 135,000 $ 675,000
-----------
DIVERSIFIED TELECOMMUNICATION SERVICES-4.61%
Bezeq Israeli Telecommunication Corporation Ltd. 2,900,000 3,407,970
-----------
ELECTRICAL EQUIPMENT & INSTRUMENTS-4.80%
Electra (Israel) Ltd.+ 8,109 845,692
Nisko Industries (1992) Ltd.+ 32,500 177,040
Orbotech, Ltd.+ 66,755 1,530,692
Rapac Electronics Ltd. 116,278 460,264
Rapac Technologies (2000) Ltd. 29,500 211,296
Telsys Ltd. 50,000 326,816
-----------
3,551,800
-----------
FOOD & STAPLES RETAILING-0.60%
Blue Square Chain Investments & Properties Ltd.+ 11,605 106,916
Gan Shmuel Food Industries 16,940 63,991
Supersol Ltd.+ 100,000 277,178
-----------
448,085
-----------
HOUSEHOLD DURABLES-1.41%
Elco Holdings Ltd. 97,391 1,044,372
-----------
HOUSEHOLD PRODUCTS-0.56%
Albad Massuot Yitzhak Ltd.+ 50,000 411,832
-----------
INDUSTRIAL CONGLOMERATES-5.93%
Clal Industries Ltd. 140,000 698,799
Discount Investment Corporation 33,500 783,978
IDB Development Corporation Ltd. 44,001 1,301,284
IDB Holding Corporation Ltd. 42,251 984,130
Koor Industries Ltd.+ 8,500 447,426
Macpell Industries Ltd.+ 116,074 171,361
-----------
4,386,978
-----------
</Table>
See accompanying notes to financial statements.
5
<Page>
<Table>
<Caption>
NO. OF
DESCRIPTION SHARES/UNITS VALUE
- --------------------------------------------------------------------------------
INSURANCE-7.75%
Clal Insurance Enterprise Holdings Ltd. 40,000 $ 791,055
Harel Insurance Investments Ltd. 115,000 4,939,409
-----------
5,730,464
-----------
INTERNET SOFTWARE & SERVICES-0.52%
Aladdin Knowledge Systems+ 18,800 382,580
-----------
INVESTMENT & HOLDING COMPANIES-0.04%
The Renaissance Fund LDC+~ 60 30,261
-----------
MACHINERY-0.51%
Plasson Ltd. 17,500 374,800
-----------
PAPER & FOREST PRODUCTS-0.41%
American Israeli Paper Mills Ltd. 6,089 302,200
-----------
PHARMACEUTICALS-12.28%
DeveloGen AG+* 497 105,265
Perrigo Co. 134,000 2,209,603
Teva Pharmaceutical Industries Ltd., ADR 214,300 6,769,737
-----------
9,084,605
-----------
REAL ESTATE MANAGEMENT & DEVELOPMENT-1.52%
Elbit Medical Imaging Ltd.+ 3,001 64,856
Industrial Buildings Corporation Ltd. 140,001 227,895
Property & Building Corporation Ltd. 7,083 831,937
-----------
1,124,688
-----------
ROAD & RAIL-0.72%
Dan Vehicle & Transportation 100,000 533,776
-----------
SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT-1.70%
Camtek Ltd.+ 29,400 173,754
DSP Group Inc.+ 43,500 1,080,975
-----------
1,254,729
-----------
SOFTWARE-6.29%
Check Point Software Technologies Ltd.+ 208,100 $ 3,658,398
ECtel Ltd.+ 1,124 4,946
Formula Systems (1985) Ltd.+ 72,500 800,991
MIND C.T.I. Ltd.+ 72,200 186,276
-----------
4,650,611
-----------
THRIFTS & MORTGAGE FINANCE-1.63%
Discount Mortgage Bank Ltd.+ 9,500 1,208,654
-----------
VENTURE CAPITAL-7.28%
ABS GE Capital Giza Fund, L.P.+~ 1,250,001 211,313
Advent Israel (Bermuda) L.P.+~ 1,682,293 69,859
BPA Israel Ventures LLC+~# 1,674,588 1,040,390
Concord Ventures II Fund L.P.+~# 1,920,000 556,418
Delta Fund I, L.P.+~# 232,940 131,729
Formula Ventures L.P.+~# 1,000,000 71,960
Giza GE Venture Fund III L.P.+~# 1,150,000 694,749
K.T. Concord Venture Fund L.P.+~ 1,000,000 383,265
Neurone Ventures II, L.P.+~# 573,684 237,651
Pitango Fund II LLC+~ 1,000,000 190,543
SVE Star Ventures Enterprises
GmbH & Co. No. IX KG+~# 1,750,000 1,143,187
Walden-Israel Ventures, L.P.+~ 500,000 48,155
Walden-Israel Ventures III, L.P.+~# 953,563 601,440
-----------
5,380,659
-----------
TOTAL ISRAEL
(Cost $51,178,278) 66,419,534
-----------
GLOBAL-1.61%
VENTURE CAPITAL-1.61%
Emerging Markets Ventures I L.P.
(Cost $1,279,008)+~# 2,237,292 1,193,416
-----------
TOTAL EQUITY OR EQUITY-LINKED SECURITIES
(Cost $52,457,286) 67,612,950
-----------
</Table>
See accompanying notes to financial statements.
6
<Page>
<Table>
<Caption>
PRINCIPAL
AMOUNT
DESCRIPTION (000'S) VALUE
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENT-8.62%
GRAND CAYMAN-8.62%
Wachovia Bank, overnight deposit, 4.25%, 07/03/06**
(Cost $6,372,000) $6,372 $ 6,372,000
-----------
TOTAL INVESTMENTS-100.03%
(Cost $58,829,286) (Notes B,E,G ) 73,984,950
-----------
LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS-(0.03)% (19,438)
-----------
NET ASSETS-100.00% $73,965,512
===========
</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 June 30, 2006, the aggregate amount of open commitments for the Fund
is $1,944,558. (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. (See Note
B).
** Variable rate account. Rate resets on a daily basis; amounts are available
on the same business day.
ADR American Depositary Receipts.
See accompanying notes to financial statements.
7
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2006 (UNAUDITED)
<Table>
ASSETS
Investments, at value (Cost $58,829,286) (Notes B,E,G) $73,984,950
Cash 142,159
Receivables:
Israeli tax refunds (Note B) 129,428
Dividends 71,004
Prepaid expenses 6,711
-----------
Total Assets 74,334,252
-----------
LIABILITIES
Payables:
Investment advisory fees (Note C) 182,361
Administration fees (Note C) 9,658
Directors' fees 27,842
Other accrued expenses 148,879
-----------
Total Liabilities 368,740
-----------
NET ASSETS (applicable to 4,259,295 shares of common stock
outstanding) (Note D) $73,965,512
===========
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 661,321
Accumulated net realized gain on investments and foreign
currency related transactions 3,790,729
Net unrealized appreciation in value of investments and
translation of other assets and liabilities denominated
in foreign currency 15,158,912
-----------
Net assets applicable to shares outstanding $73,965,512
===========
NET ASSET VALUE PER SHARE ($73,965,512 / 4,259,295) $ 17.37
===========
MARKET PRICE PER SHARE $ 15.04
===========
</Table>
See accompanying notes to financial statements.
8
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
<Table>
INVESTMENT INCOME
Income (Note B):
Dividends $ 1,365,189
Interest 142,823
Less: Foreign taxes withheld (204,144)
-----------
Total Investment Income 1,303,868
-----------
Expenses:
Investment advisory fees (Note C) 466,474
Custodian fees 76,624
Directors' fees 40,101
Audit and tax fees 39,629
Administration fees (Note C) 32,136
Legal fees 31,718
Printing (Note C) 19,836
Accounting fees 14,876
Stock exchange listing fees 11,778
Shareholder servicing fees 11,132
Insurance 2,313
Miscellaneous 9,464
-----------
Total Expenses 756,081
Less: Fee waivers (Note C) (90,960)
-----------
Net Expenses 665,121
-----------
Net Investment Income 638,747
-----------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments 4,205,795
Foreign currency related transactions (4,528)
Net change in unrealized appreciation in value of investments and
translation of other assets and liabilities denominated in
foreign currency (5,147,770)
-----------
Net realized and unrealized loss on investments and foreign
currency related transactions (946,503)
-----------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (307,756)
===========
</Table>
See accompanying notes to financial statements.
9
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
<Table>
<Caption>
FOR THE SIX FOR THE THREE FOR THE FISCAL
MONTHS ENDED MONTHS ENDED YEAR ENDED
JUNE 30, 2006 DECEMBER 31, SEPTEMBER 30,
(UNAUDITED) 2005 2005
------------- ------------- --------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income/(loss) $ 638,747 $ 31,819 $ (280,061)
Net realized gain/(loss) on investments and foreign currency
related transactions 4,201,267 (99,923) 7,285,762
Net change in unrealized appreciation in value of investments
and translation of other assets and liabilities denominated
in foreign currency (5,147,770) 3,281,357 10,095,852
----------- ----------- -----------
Net increase/(decrease) in net assets resulting from operations (307,756) 3,213,253 17,101,553
----------- ----------- -----------
Distributions to shareholders:
Net realized gain on investments -- (6,814,872) --
----------- ----------- -----------
Total increase/(decrease) in net assets (307,756) (3,601,619) 17,101,553
----------- ----------- -----------
NET ASSETS
Beginning of period 74,273,268 77,874,887 60,773,334
----------- ----------- -----------
End of period $73,965,512* $74,273,268* $77,874,887
=========== =========== ===========
</Table>
- ----------
* Includes undistributed net investment income of $661,321 and $22,574,
respectively.
See accompanying notes to financial statements.
10
<Page>
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CASH FLOWS - FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)
<Table>
INCREASE IN CASH FROM
Operating Activities:
Investment income received $ 1,198,813
Operating expenses paid (665,428)
Purchases of long-term portfolio investments (4,655,583)
Proceeds from disposition of long-term portfolio investments 7,202,200
Net sales of short-term portfolio investments 3,877,000
Cash distributions paid (6,814,872)
-----------
Net increase in cash from operating activities $ 142,130
Cash at beginning of period 29
---------
Cash at end of period $ 142,159
=========
RECONCILIATION OF NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET INCREASE
IN CASH FROM OPERATING ACTIVITIES
Net decrease in net assets resulting from operations $(307,756)
Adjustments:
Increase in receivables $ (105,055)
Increase in accrued expenses 3,942
Increase in prepaid expenses (4,249)
Net realized gain from partnership distributions (915,437)
Net increase in cash from investment transactions 7,339,054
Net realized and unrealized loss on investments and foreign
currency related transactions 946,503
Cash distributions paid (6,814,872)
-----------
Total adjustments 449,886
---------
NET INCREASE IN CASH FROM OPERATING ACTIVITIES $ 142,130
=========
</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 SIX FOR THE THREE FOR THE FISCAL YEARS
MONTHS ENDED MONTHS ENDED ENDED SEPTEMBER 30,
JUNE 30, 2006 DECEMBER 31, --------------------
(UNAUDITED) 2005 2005 2004
------------- ------------- ------- -------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 17.44 $ 18.28 $ 14.27 $ 12.35
------- ------- ------- -------
Net investment income/(loss) 0.15 0.01 (0.07) (0.03)
Net realized and unrealized gain/(loss) on
investments and foreign currency related
transactions (0.22) 0.75 4.08 1.95
------- ------- ------- -------
Net increase/(decrease) in net assets
resulting from operations (0.07) 0.76 4.01 1.92
------- ------- ------- -------
Dividends and distributions to shareholders:
Net investment income -- -- -- --
Net realized gain on investments and
foreign currency related transactions -- (1.60) -- --
------- ------- ------- -------
Total dividends and distributions to
shareholders -- (1.60) -- --
------- ------- ------- -------
Anti-dilutive impact due to capital shares
repurchased -- -- -- --
------- ------- ------- -------
Net asset value, end of period $ 17.37 $ 17.44 $ 18.28 $ 14.27
======= ======= ======= =======
Market value, end of period $ 15.04 $ 15.67 $ 16.21 $ 12.09
======= ======= ======= =======
Total investment return (a) (4.02)% 6.15% 34.08% 19.70%
======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $73,966 $74,273 $77,875 $60,773
Ratio of expenses to average net assets (b) 1.76%(c) 1.65%(c) 2.10% 1.92%
Ratio of expenses to average net assets,
excluding fee waivers 2.00%(c) 1.87%(c) 2.33% 2.13%
Ratio of net investment income/(loss) to
average net assets (b) 1.69%(c) 0.16%(c) (0.39)% (0.19)%
Portfolio turnover rate 6.74% 1.53% 10.65% 8.53%
</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,
-----------------------------------------------------------------------------------
2003 2002 2001 2000 1999 1998 1997 1996
------- ------- ------- ------- ------- ------- ------- -------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period $ 9.50 $ 11.64 $ 23.24 $ 17.18 $ 15.04 $ 18.41 $ 13.10 $ 13.20
------- ------- ------- ------- ------- ------- ------- -------
Net investment income/(loss) (0.22)+ (0.17)+ (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 3.42 (1.80) (8.39) 7.80 3.21 (2.97) 6.20 (0.01)
------- ------- ------- ------- ------- ------- ------- -------
Net increase/(decrease) in net assets
resulting from operations 3.20 (1.97) (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 (0.35) (0.17) (3.07) (1.46) (1.20) (0.47) (1.24) --
------- ------- ------- ------- ------- ------- ------- -------
Total dividends and distributions to
shareholders (0.35) (0.17) (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 $ 12.35 $ 9.50 $ 11.64 $ 23.24 $ 17.18 $ 15.04 $ 18.41 $ 13.10
======= ======= ======= ======= ======= ======= ======= =======
Market value, end of period $ 10.10 $ 7.41 $ 9.60 $18.563 $14.000 $11.813 $14.938 $11.250
======= ======= ======= ======= ======= ======= ======= =======
Total investment return (a) 40.57% (21.24)% (38.21)% 47.61% 32.61% (18.05)% 44.36% (6.25)%
======= ======= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted) $52,604 $40,457 $49,565 $98,979 $76,683 $75,373 $92,298 $65,649
Ratio of expenses to average net assets (b) 2.31% 2.08% 1.88% 2.05% 2.05% 2.06% 2.26% 2.23%
Ratio of expenses to average net assets,
excluding fee waivers 2.54% 2.30% 2.09% 2.28% 2.30% 2.31% 2.30% --
Ratio of net investment income/(loss) to
average net assets (b) (2.01)% (1.44)% (0.39)% (0.08)% (0.12)% 0.42% 2.20% (0.68)%
Portfolio turnover rate 2.94% 11.26% 21.11% 27.06% 18.65% 29.11% 16.98% 21.68%
</Table>
13
<Page>
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
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.
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. 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. When
fair-value pricing is employed, the prices of securities used by a fund to
calculate its net asset value may differ from quoted or published prices for the
same securities. At June 30, 2006, the Fund held 9.07% 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 $12,572,936 and
fair value of $6,709,601. The Fund's estimate of fair value assumes a willing
buyer and a willing seller neither acting under the 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 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.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on a trade date basis. The cost of investments sold is determined
14
<Page>
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 six
months ended June 30, 2006, 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 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
15
<Page>
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.
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 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.
16
<Page>
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 six months ended June 30, 2006, Credit Suisse earned $466,474 for advisory
services, of which Credit Suisse waived $90,960. 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 six
months ended June 30, 2006, Credit Suisse was reimbursed $5,701 for
administrative services rendered to the Fund.
Credit Suisse Asset Management Limited ("Credit Suisse Ltd.") an affiliate of
Credit Suisse, is a sub-investment adviser to the Fund. Credit Suisse Ltd.'s
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 effective July 1, 2006, was reduced to 15.5%) and $25,000 annually to cover
expenses incurred in the execution of sub-advisory services. For the six months
ended June 30, 2006, Analyst I.M.S. earned $132,403 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 six months ended June 30, 2006, such
commissions amounted to approximately $2,900.
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 six months ended June 30, 2006, BSFM earned
$26,435 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 six months
ended June 30, 2006, Merrill was paid $31,233 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.
17
<Page>
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 June 30, 2006, Credit
Suisse owned 7,169 shares.
NOTE E. INVESTMENT IN SECURITIES
For the six months ended June 30, 2006, purchases and sales of securities, other
than short-term investments, were $4,646,786 and $5,603,650, 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 six months ended June 30, 2006, the Fund had
no borrowings under the Credit Facility.
NOTE G. FEDERAL INCOME TAXES
Income and capital gain distributions are determined in accordance with federal
income tax regulations, which may differ from GAAP. These differences are
primarily due to differing treatments of foreign currency transactions, losses
deferred due to wash sales, and excise tax regulations.
At June 30, 2006, 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 $58,919,360, $24,257,724,
$(9,192,134) and $15,065,590, respectively.
18
<Page>
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 PERCENT
OF VALUE AT VALUE PER OF NET DISTRIBUTIONS OPEN
SECURITY UNITS/SHARES ACQUISITION DATE(S) COST 06/30/06 UNIT/SHARE ASSETS RECEIVED COMMITMENTS
- -------- ------------ ------------------- ---------- ---------- ---------- ------- ------------- -----------
ABS GE Capital
Giza Fund, L.P. 1,250,001 02/03/98 - 02/13/02 $1,009,773 $ 211,313 $0.17 0.29 $1,605,498 $ --
--------- ---------- ---------- ---- ---------- --------
Advent Israel
(Bermuda) L.P. 1,682,293 06/16/93 - 01/16/98 1,835,405 69,859 0.04 0.09 3,851,769 --
--------- ---------- ---------- ---- ---------- --------
BPA Israel Ventures LLC 1,674,588 10/05/00 - 12/09/05 1,265,622 1,040,390 0.62 1.41 -- 625,412
--------- ---------- ---------- ---- ---------- --------
Concord Ventures II
Fund L.P. 1,880,000 03/29/00 - 07/11/05 1,307,560 544,826 0.29 0.74
40,000 04/12/06 40,000 11,592 0.29 0.01
--------- ---------- ---------- ---- ---------- --------
1,920,000 1,347,560 556,418 0.75 75,777 80,000
--------- ---------- ---------- ---- ---------- --------
Delta Fund I, L.P. 220,440 11/15/00 - 09/09/05 157,471 124,660 0.57 0.17
12,500 04/04/06 12,500 7,069 0.57 0.01
--------- ---------- ---------- ---- ---------- --------
232,940 169,971 131,729 0.18 45,794 17,500
--------- ---------- ---------- ---- ---------- --------
Emerging Markets
Ventures I L.P. 2,226,890 01/22/98 - 06/30/05 1,268,606 1,187,867 0.53 1.60
10,402 01/10/06 10,402 5,549 0.53 0.01
--------- ---------- ---------- ---- ---------- --------
2,237,292 1,279,008 1,193,416 1.61 1,208,504 262,708
--------- ---------- ---------- ---- ---------- --------
Formula Ventures L.P. 1,000,000 08/06/99 - 06/14/04 228,948 71,960 0.07 0.10 275,968 --
--------- ---------- ---------- ---- ---------- --------
Giza GE Venture
Fund III L.P. 1,125,000 1/31/00 - 08/10/05 776,083 679,646 0.60 0.92
25,000 03/02/06 24,679 15,103 0.60 0.02
--------- ---------- ---------- ---- ---------- --------
1,150,000 800,762 694,749 0.94 118,145 100,000
--------- ---------- ---------- ---- ---------- --------
K.T. Concord Venture
Fund L.P. 1,000,000 12/08/97 - 09/29/00 776,258 383,265 0.38 0.52 544,497 --
--------- ---------- ---------- ---- ---------- --------
Neurone Ventures
II, L.P. 536,184 11/24/00 - 08/15/05 291,557 222,116 0.41 0.30
37,500 04/17/06 37,500 15,535 0.41 0.02
--------- ---------- ---------- ---- ---------- --------
573,684 329,057 237,651 0.32 39,421 187,500
--------- ---------- ---------- ---- ---------- --------
Pitango Fund II LLC 1,000,000 10/31/96 - 08/01/01 536,638 190,543 0.19 0.26 1,115,588 --
--------- ---------- ---------- ---- ---------- --------
SVE Star Ventures
Enterprises GmbH &
Co. No. IX KG 1,500,000 12/21/00 - 03/30/05 1,177,189 979,875 0.65 1.32
250,000 05/04/06 250,000 163,312 0.65 0.22
--------- ---------- ---------- ---- ---------- --------
1,750,000 1,427,189 1,143,187 1.54 -- 250,000
--------- ---------- ---------- ---- ---------- --------
</Table>
19
<Page>
<Table>
<Caption>
NUMBER FAIR PERCENT
OF VALUE AT VALUE PER OF NET DISTRIBUTIONS OPEN
SECURITY UNITS/SHARES ACQUISITION DATE(S) COST 06/30/06 UNIT/SHARE ASSETS RECEIVED COMMITMENTS
- -------- ------------ ------------------- ----------- ---------- ---------- ------- ------------- -----------
The Renaissance
Fund LDC 60 03/30/94 - 03/21/97 $ 213,193 $ 30,261 $504.35 0.04 $ 567,308 $ --
------- ----------- ---------- ---- ----------- ----------
Walden-Israel
Ventures, L.P. 500,000 09/28/93 - 05/16/97 282,752 48,155 0.10 0.07 442,280 --
------- ----------- ---------- ---- ----------- ----------
Walden-Israel
Ventures III, L.P. 864,188 02/23/01 - 11/22/05 589,425 545,069 0.63 0.74
89,375 03/29/06 89,375 56,371 0.63 0.07
------- ----------- ---------- ---- ----------- ----------
953,563 678,800 601,440 0.81 728,770 421,438
------- ----------- ---------- ---- ----------- ----------
Total $12,180,936 $6,604,336 8.93 $10,619,319 $1,944,558
=========== ========== ==== =========== ==========
</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>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On April 20, 2006, the Annual Meeting of Shareholders of the Fund (the
"Meeting") was held and the following matter was voted upon:
(1) To re-elect two directors (Mr. Arzac and Mr. Goldstein) and to elect two
directors (Mr. Fox and Mr. Haber) to the Board of Directors of the Fund:
<Table>
NAME OF DIRECTOR FOR WITHHELD
- ---------------- --------- --------
Enrique R. Arzac (Class III) 3,499,783 70,272
Lawrence J. Fox (Class I) 3,497,575 72,480
Phillip Goldstein (Class I) 3,506,274 63,781
Lawrence D. Haber (Class III) 3,495,838 74,217
In addition to the directors elected at the Meeting, James J. Cattano and Steven
N. Rappaport continue to serve as directors of the Fund.
21
<Page>
IMPORTANT PRIVACY CHOICES FOR CONSUMERS (UNAUDITED)
We are committed to maintaining the privacy of every current and prospective
customer. We recognize that you entrust important personal information to us,
and we wish to assure you that we take seriously our responsibilities in
protecting and safeguarding this information.
In connection with making available investment products and services to current
and potential customers, we may obtain nonpublic personal information about you.
This information may include your name, address, e-mail address, social security
number, account number, assets, income, financial situation, transaction history
and other personal information.
We may collect nonpublic information about you from the following sources:
- - Information we receive on applications, forms, questionnaires, web sites,
agreements or in the course of establishing or maintaining a customer
relationship; and
- - Information about your transactions with us, our affiliates, or others.
We do not disclose any nonpublic personal information about our customers or
former customers to anyone, except with your consent or as otherwise permitted
by law.
In cases where we believe that additional products and services may be of
interest to you, we may share the information described above with our
affiliates.
We may also disclose this information to firms that perform services on our
behalf. These agents and service providers are required to treat the information
confidentially and use it only for the purpose for which it is provided.
We restrict access to nonpublic personal information about you to those
employees, agents or other parties who need to know that information to provide
products or services to you or in connection with your investments with or
through us. We maintain physical, electronic and procedural safeguards that
comply with federal standards to guard your nonpublic personal information.
NOTE: THIS NOTICE IS PROVIDED TO CLIENTS AND PROSPECTIVE CLIENTS OF CREDIT
SUISSE ASSET MANAGEMENT, LLC ("CREDIT SUISSE"), AND CREDIT SUISSE ASSET
MANAGEMENT SECURITIES, INC., AND SHAREHOLDERS AND PROSPECTIVE SHAREHOLDERS IN
CREDIT SUISSE SPONSORED AND ADVISED INVESTMENT COMPANIES, INCLUDING CREDIT
SUISSE FUNDS, AND OTHER CONSUMERS AND CUSTOMERS, AS APPLICABLE. THIS NOTICE IS
NOT INTENDED TO BE INCORPORATED IN ANY OFFERING MATERIALS BUT IS MERELY A
STATEMENT OF OUR CURRENT PRIVACY POLICY, AND MAY BE AMENDED FROM TIME TO TIME
UPON NOTICE TO YOU. THIS NOTICE IS DATED AS OF MAY 18, 2006.
22
<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 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
23
<Page>
requests having an 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.
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
24
<Page>
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., InvestLink(SM) Program, P.O. Box 43010, Providence, RI
02940-3010.
InvestLink is a service mark of Computershare Trust Company, N.A.
25
<Page>
PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED)
Information regarding how 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 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
1-202-551-8090.
26
<Page>
OTHER FUNDS MANAGED BY CREDIT SUISSE ASSET MANAGEMENT, LLC
CLOSED-END FUNDS
SINGLE COUNTRY
The Chile Fund, Inc. (CH)
The Indonesia Fund, Inc. (IF)
MULTIPLE COUNTRY
The Latin America Equity Fund, Inc. (LAQ)
The Emerging Markets Telecommunications Fund, Inc. (ETF)
FIXED INCOME
Credit Suisse Asset Management Income Fund, Inc. (CIK)
Credit Suisse High Yield Bond Fund (DHY)
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds listed above at 1-800-293-1232 or visit our website on the
Internet: http://www.credit-suisse.com/us.
OPEN-END FUNDS
Credit Suisse Capital Appreciation Fund
Credit Suisse Cash Reserve Fund
Credit Suisse Commodity Return Strategy Fund
Credit Suisse Emerging Markets Fund
Credit Suisse Fixed Income Fund
Credit Suisse Global Fixed Income Fund
Credit Suisse Global Small Cap Fund
Credit Suisse High Income Fund
Credit Suisse International Focus Fund
Credit Suisse Japan Equity Fund
Credit Suisse Large Cap Blend Fund
Credit Suisse Large Cap Value Fund
Credit Suisse Mid-Cap Growth Fund
Credit Suisse New York Municipal Fund
Credit Suisse Short Duration Bond Fund
Credit Suisse Small Cap Growth Fund
Credit Suisse Small Cap Value Fund
Credit Suisse Strategic Allocation Fund
Fund shares are not deposits or other obligations of Credit Suisse Asset
Management, LLC or any affiliate, are not FDIC-insured and are not guaranteed by
Credit Suisse Asset Management, LLC or any affiliate. Fund investments are
subject to investment risks, including loss of your investment. There are
special risk considerations associated with international, global,
emerging-market, small-company, private equity, high-yield debt,
single-industry, single-country and other special, aggressive or concentrated
investment strategies. Past performance cannot guarantee future results.
More complete information about a fund, including charges and expenses, is
provided in the Prospectus, which should be read carefully before investing. You
may obtain copies by calling Credit Suisse Funds at 800-927-2874. Performance
information current to the most recent month-end is available at
www.credit-suisse.com/us.
Credit Suisse Asset Management Securities, Inc., Distributor.
27
<Page>
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<Page>
SUMMARY OF GENERAL INFORMATION (UNAUDITED)
The Fund is a closed-end, non-diversified management investment company whose
shares trade on the American Stock Exchange, LLC ("AMEX"). The Fund's AMEX
trading symbol is ISL. 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." Weekly comparative net asset value
(NAV) and market price information about the Fund'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."
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
<Table>
Enrique R. Arzac Chairman of the Board of Directors
James J. Cattano Director
Lawrence J. Fox Director
Phillip Goldstein Director
George W. Landau Honorary Director
Lawrence D. Haber Director
Steven N. Rappaport Director
Steven B. Plump Chief Executive Officer and President
Neil Gregson Chief Investment Officer
J. Kevin Gao Senior Vice President and Secretary
Ajay Mehra Chief Legal Officer
Emidio Morizio Chief Compliance Officer
Michael A. Pignataro Chief Financial Officer
Robert Rizza Treasurer
John E. Smith, Jr. Assistant Treasurer
Brooke Brown Assistant Secretary
Karen Regan Assistant Secretary
</Table>
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. The financial information
included herein is taken from the records of the Fund without examination by
independent registered public accountants who do not express an opinion thereon.
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.
[AMERICAN STOCK EXCHANGE(R) LOGO]
LISTED
ISL
ISL-SAR-0606
<Page>
ITEM 2. CODE OF ETHICS.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
This item is inapplicable to a semi-annual report on Form N-CSR.
<Page>
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
This item is inapplicable to a semi-annual report on Form N-CSR.
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.
This item is inapplicable to a semi-annual report on Form N-CSR.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
This item is inapplicable to a semi-annual report on Form N-CSR.
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 March 1, 2006.
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
registrant's last fiscal half-year that have materially affected, or are
reasonably likely to materially affect, the registrant's internal control over
financial reporting.
ITEM 12. EXHIBITS.
<Page>
(a)(1) Not applicable.
(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: September 5, 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: September 5, 2006
/s/ Michael A. Pignataro
------------------------------------
Name: Michael A. Pignataro
Title: Chief Financial Officer
Date: September 5, 2006