<PAGE>
[Photograph]
The First Israel
Fund, Inc.
..................................
SEMI-ANNUAL REPORT
MARCH 31, 1996
<PAGE>
CONTENTS
Letter to Shareholders ........................................... 1
Portfolio Summary ................................................ 5
Schedule of Investments .......................................... 6
Statement of Assets and Liabilities .............................. 9
Statement of Operations .......................................... 10
Statement of Changes in Net Assets ............................... 11
Statement of Cash Flows .......................................... 12
Financial Highlights ............................................. 13
Notes to Financial Statements .................................... 14
Results of Annual Meeting of Shareholders ........................ 18
Description of the Fund's Dividend Reinvestment Plan ............. 19
PICTURED ON THE COVER IS AN EXAMPLE OF ENVIRONMENTAL TECHNOLOGY AND
ALTERNATIVE ENERGY: A MULTI-SOLAR SYSTEM WHICH UTILIZES ADVANCED PHOTOVOLTAIC
AND STORAGE TECHNOLOGIES TO PROVIDE ELECTRICITY AND HOT WATER.
===============================================================================
<PAGE>
LETTER TO SHAREHOLDERS
May 17, 1996
DEAR SHAREHOLDERS:
We are pleased to report on the activities of The First Israel Fund, Inc. (the
"Fund") for the six months ended March 31, 1996.
At March 31, 1996, total net assets of the Fund were approximately $66.4
million. Net asset value (NAV) per share was $13.25, as compared to $13.20 at
September 30, 1995. At March 31, 1996, the Fund's investments in securities
listed and trading on the Tel Aviv Stock Exchange (TASE) and the Israeli and
Israel-related companies listed and trading in the United States totaled
approximately $50.2 million as compared to approximately $52.7 million on
September 30, 1995. The Fund also held investments valued at approximately $12.0
million in unlisted securities of Israeli and Israel-related companies, as
compared to approximately $9.2 million on September 30, 1995. In percentage
terms, at March 31, 1996, 93.7% of the Fund's net assets was invested in listed
and unlisted Israeli and Israel-related equity or equity-linked securities.
For the six months ended March 31, 1996, the Fund's total return, based on NAV,
increased by 0.38%, versus a decline of 9.54% for the TASE Index. From the
inception of the Fund on October 29, 1992 through March 31, 1996, the Fund's
total return based on NAV and assuming reinvestment of dividends declined by
0.41%, while the total return for the TASE Index declined by 21.56%.
POLITICAL DEVELOPMENTS
During the past six months, Israeli politics have been dominated by events
surrounding the Middle East peace process and, most recently, the upcoming May
general election. As the major factor affecting Israel's present and future, the
peace process, along with its ramifications for territorial security, has become
the central issue by which the Israeli electorate is evaluating the presidential
candidates, the incumbent Shimon Peres (Labor party) and Benjamin Netanyahu
(Likud party).
Since our last report, for the fiscal year ending September 30, 1995, several
important developments have taken place. Casting a shadow over all the others is
the tragic and shocking assassination of Prime Minister Yitzhak Rabin in
November. Rabin and his policies, specifically those involving a negotiated
settlement with the Palestinians, had encountered significant opposition among
Israelis. Nevertheless, his commitment and deliberate approach to the difficult
peace process provided many Israelis with both a direction for and a vision of
their nation's future. His death triggered a nationwide soul-searching,
prompting many Israelis to reconsider their views on the nation's direction and
compelling previously undecided citizens to choose between the Labor and Likud
platforms.
As for the process itself, progress has been made in fits and starts. In the
aftermath of Rabin's assassination, Peres has pledged to aggressively pursue
regional peace while balancing national security requirements; the Oslo II
agreement was implemented; and the PLO ratified an amendment to its charter
invalidating all references to the destruction of Israel. The peace process also
suffered some setbacks from the unprecedented outbursts of Islamic terrorism
within Israel; increased shelling of northern Israel by Hezbollah and Israel's
retaliatory strike into Lebanon; and lack of a
- - --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
clear commitment to a comprehensive peace agreement by Syria. These difficulties
notwithstanding, it is worthwhile to mention the diminishing power of the Arab
boycott, which we consider the most important positive impact of the peace
process on the economy currently and into the future; the increasingly warm but
still unofficial relations with several Arab nations in North Africa and the
Gulf; the expansion of diplomatic and economic contacts with Muslim and other
previously inhospitable Asian and Pacific Rim countries; and the March summit
meeting at Sharm-el-Sheikh, where 29 world leaders gathered to denounce
terrorism and express support for peace. On balance, we believe that the peace
process has come sufficiently far that it is unlikely to be reversed.
The Peres-Netanyahu campaign, meanwhile, is significant not only for its
manifestation of Israel's intense left-vs.-right political conflicts, but also
because it is the nation's first direct presidential election. As such, it would
be cause for much national anxiety even if peace were not an issue. Our view of
the election focuses on how its outcome might affect the economic and investment
environment. We feel that, regardless of who is ultimately elected, a
continuation both of the peace process and economic liberalization policies is
best for the economy and investment.
On a more general level, we note that Israel's capital markets and level of
foreign investment are less and less driven by geopolitical/diplomatic events
and more by economic factors such as funds flow, deregulation, the U.S. equity
market and relative attractiveness versus other investment categories.
ECONOMIC DEVELOPMENTS
As measured by GDP, the Israeli economy grew 7.1% to roughly $87.2 billion in
calendar 1995, its fastest yearly growth of the decade. GDP has grown at an
average annual rate of 6.0% since 1990 and is projected to rise at the more
moderate rate of 5.0% in 1996. Exports reached a new high of $17.9 billion in
1995, indicating strong demand abroad for Israeli-produced goods. Other economic
positives for the year included a decade-low inflation rate of 8.1% and
improving numbers for external debt and the budget deficit as percentages of
GDP.
There were, however, also economic negatives in 1995. For example, the current
account deficit hit its highest level, $4.2 billion. Some economists believe
that the size of this deficit needs to be lowered and that a slowdown of the
economy via higher interest rates may be necessary to accomplish such reduction.
In addition, net foreign debt rose to $17.6 billion, also a new high; and
imports reached $28.0 billion, yet another record level.
We continue to favor Israel's substantial economic strengths, which provide an
attractive environment for investors. Among the most prominent strengths:
- - - RISING STANDARD OF LIVING, which raises general consumer demand.
- - - BUSINESS-SECTOR GDP continues to grow faster than overall GDP.
- - - SIGNIFICANT OFFICIAL SUPPORT FOR BUSINESS DEVELOPMENT, such as subsidies and
other financing for R&D programs; grants for joint R&D alliances with U.S.
firms; and subsidization incentives for venture capital.
- - - RISING ESTABLISHMENT OF FOREIGN-BASED OPERATIONS AND SERVICES. There is a
strong trend of non-Israeli multinational companies setting up production
facilities and business offices within Israel.
- - --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
- - - ONE OF THE BEST EDUCATED WORK FORCES IN THE WORLD. On a per capita basis,
Israel now has nearly double the number of scientists and engineers as in the
United States or Japan, and three or four times the number in the major
European countries.
- - - HIGH-TECHNOLOGY CAPABILITIES are widely acknowledged to have reached
world-class levels.
- - - IMPROVING TRADE, TECHNICAL AND DIPLOMATIC TIES both regionally and worldwide,
particularly in the Pacific Rim, Southeast Asia and Eastern Europe.
- - - RECOGNITION OF IMPROVING ECONOMIC MANAGEMENT AND PERFORMANCE BY MAJOR RATING
AGENCIES. In 1995, both Moody's and Standard & Poor's raised Israel's
sovereign credit rating from the lowest rung of investment-grade (Baa3/BBB-),
just barely above the rating for most emerging market nations, to the much
more attractive A3/A- level.
- - - ISRAEL IS THE ONLY COUNTRY TO HAVE FREE-TRADE AGREEMENTS BOTH WITH THE U.S.
AND THE EUROPEAN UNION.
In general, although Israel is enduring a difficult period of national
self-examination, we remain optimistic about the health of its political
structure and economy. The benefits of peace continue to make themselves felt;
the economy continues to show strong GDP growth with declining inflation; and
the basic elements of a constructive economic policy have widespread popular and
political support. We believe that these factors augur well for a highly
positive investment environment over the next several years.
PORTFOLIO STRATEGY
Since the Fund's inception, its basic investment objective and strategy have
remained constant. Simply put, the Fund seeks long-term capital appreciation by
investing in the securities of Israeli and Israel-related companies. We attempt
to add value to the investment process via on-the-ground research in Israel,
active management in New York and access to private equity opportunities.
While we made no substantive changes in the portfolio in the past six months,
the Fund's industry sector allocation is slightly different from what it was at
September 30, 1995 (see page 5). This is primarily accounted for by price
appreciation in the Fund's technology holdings as well as the initial public
offering of one its private equity investments, rather than by deliberate
trading activity.
Overall, we continue to feel that there are compelling reasons to invest in
Israeli securities:
- - - THE EXPANSION OF PEACE IN THE MIDDLE EAST AND THE DIMINISHING STRENGTH OF THE
ARAB BOYCOTT.
- - - ISRAEL'S SINGULAR COMBINATION of emerging market-like growth rates and the
infrastructure, social characteristics and income level of developed-market
nations.
- - - DECLINING EMPHASIS ON MILITARY SPENDING is generating interest in the
application of money and manpower to the private sector.
- - - ISRAEL'S GROWING REPUTATION BOTH FOR HIGH-TECHNOLOGY AND ENTREPRENEURSHIP.
- - --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
- - - LOW FOREIGN PENETRATION OF THE TASE. Foreign-initiated transactions accounted
for no more than 5-10% of TASE trading volume in 1995. Moreover, Israeli
securities are minimally held by emerging market and global funds, and Israel
is weighted roughly 2% in Morgan Stanley Capital International's emerging
market indices.
- - - THE STRONG PERFORMANCE OF TECHNOLOGY STOCKS IN THE U.S. This has allowed a
large number of Israeli companies to access the U.S. markets for capital, thus
giving the Fund additional opportunities for investment and raising general
interest in Israeli securities.
- - - INCREASING MERGERS AND ACQUISITION ACTIVITY INVOLVING ISRAELI COMPANIES.
- - - THE STRONG, ONGOING PRESENCE OF ISRAELI INSTITUTIONS INVESTING IN ISRAELI
COMPANIES.
We believe that substantial opportunities for capital appreciation in Israeli
and Israel-related securities currently exist and should continue to exist over
the long term.
We wish to remind shareholders whose shares are registered in their own names
that they automatically participate in the Fund's dividend reinvestment program.
The automatic Dividend Reinvestment Plan (the "Plan") can be of value to
shareholders in maintaining their proportional ownership interest in the Fund in
an easy and convenient way. A shareholder whose shares are held in the name of a
broker/dealer or nominee should contact that party for details about
participating in the Plan. The Plan is described on pages 19 and 20 of this
report.
We appreciate your interest in the Fund, and would be pleased to respond to your
questions or comments.
Respectfully,
[SIGNATURE]
Emilio Bassini
President
Chief Investment Officer*
- - --------------------------------------------------------------------------------
* Emilio Bassini, who is a member of the Executive Committee and is an Executive
Director of BEA Associates, is primarily responsible for management of the
Fund's assets. He has served in such capacity since the commencement of the
Fund's operations. Mr. Bassini joined BEA Associates (formerly Basic Appraisals,
Inc. and BEA Associates, Inc.) in 1984. Mr. Bassini is a Director, Chairman of
the Board, President and Chief Investment Officer of the Fund and is also a
Director, Chairman of the Board, President and Chief Investment Officer of The
Chile Fund, Inc., The Emerging Markets Infrastructure Fund, Inc., The Emerging
Markets Telecommunications Fund, Inc., The Latin America Equity Fund, Inc., The
Latin America Investment Fund, Inc. and The Portugal Fund, Inc. He is the
President and Secretary of The Indonesia Fund, Inc. and Director, Chairman of
the Board, President and Investment Officer of The Brazilian Equity Fund, Inc.
He is also the managing principal of Bassini, Playfair + Associates LLC.
- - --------------------------------------------------------------------------------
4
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
PORTFOLIO SUMMARY - AS OF MARCH 31, 1996 (UNAUDITED)
- - --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS 03/31/96 09/30/95
<S> <C> <C>
Basic Materials 5.91% 7.34%
Cash & Other Assets 6.33% 6.54%
Conglomerates 5.07% 4.77%
Consumer, Cyclical 1.53% 1.97%
Consumer, Non-Cyclical 10.43% 10.01%
Energy Services 1.92% 2.01%
Financial 19.77% 20.53%
Industrial 1.85% 2.45%
Investment & Holding Companies 3.46% 3.44%
Medical Equipment 2.24% 2.41%
Technology 26.26% 22.81%
Telecommunications 11.92% 12.82%
Venture Capital 3.31% 3.30%
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- - --------------------------------------------------------------------------------------------------------------------------------
1. Geotek Communications, Inc. Telecommunications 6.1
- - --------------------------------------------------------------------------------------------------------------------------------
2. Zoran Corp. Semiconductor & Related
Technology 5.8
- - --------------------------------------------------------------------------------------------------------------------------------
3. Teva Pharmaceutical Industries Ltd. Pharmaceuticals 5.5
- - --------------------------------------------------------------------------------------------------------------------------------
4. Koor Industries, Ltd. Conglomerates 4.3
- - --------------------------------------------------------------------------------------------------------------------------------
5. Bank Hapoalim Ltd. Banking 2.9
- - --------------------------------------------------------------------------------------------------------------------------------
6. FIBI Holdings Ltd. Banking 2.6
- - --------------------------------------------------------------------------------------------------------------------------------
7. IDB Holdings Ltd. Banking 2.5
- - --------------------------------------------------------------------------------------------------------------------------------
8. Madge Networks N.V. Computer Networking 2.5
- - --------------------------------------------------------------------------------------------------------------------------------
9. Scitex Corp. Ltd. Industrial Technology 2.4
- - --------------------------------------------------------------------------------------------------------------------------------
10. Tecnomatix Technologies, Ltd. Computer Software 2.2
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- - --------------------------------------------------------------------------------
5
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS - MARCH 31, 1996 (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- - -----------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-93.67%
ISRAEL-93.67%
BASIC MATERIALS-5.91%
CHEMICALS-2.20%
Dead Sea Bromine Ltd..... 21,901 $ 146,513
Israel Chemicals Ltd..... 790,000 640,352
Makhteshim Chemical Works
Ltd..................... 42,000 241,672
Sano Brunos Enterprises
Ltd. (Shares 1)+........ 54,073 192,471
Sano Brunos Enterprises
Ltd. (Shares 5)+........ 75,357 240,466
-----------
1,461,474
-----------
METAL PRODUCTS-2.66%
Caniel-Israel Can Co.
Ltd..................... 105,210 816,399
Cvalim - The Electric
Wire & Cable Co. of
Israel Ltd.............. 73,640 339,505
Klil Industries Ltd.
(Shares 1).............. 36,250 187,449
Klil Industries Ltd.
(Shares 5).............. 57,018 293,745
Nechushtan Ltd........... 73,827 130,802
-----------
1,767,900
-----------
WOOD & PAPER PRODUCTS-1.05%
American Israel Paper
Mills Ltd............... 19,263 698,921
-----------
TOTAL BASIC MATERIALS................... 3,928,295
-----------
CONGLOMERATES-5.07%
Clal (Israel) Ltd.
(Shares 10)............. 19,780 504,441
Koor Industries, Ltd..... 18,762 1,783,840
<CAPTION>
Par (000)
-------------
<S> <C> <C>
Koor Industries, Ltd.,
Convertible Note, 1.75%,
01/31/97*............... NIS 600 269,315
Koor Industries, Ltd.,
Convertible Note, 1.75%,
01/31/98*............... 600 269,315
Koor Industries, Ltd.,
Convertible Note, 1.75%,
01/31/99*............... 600 269,315
Koor Industries, Ltd.,
Convertible Note, 1.75%,
01/31/00*............... 600 269,315
-----------
TOTAL CONGLOMERATES..................... 3,365,541
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- - -----------------------------------------------------
<S> <C> <C>
CONSUMER, CYCLICAL-1.53%
TEXTILES-1.53%
Fibrotec F.M.S. Ltd.+.... 13,538 $ 63,193
Lodzia Rotex Textile
Ltd.+................... 86,881 256,642
Polgat Industries
Ltd.+................... 309,171 172,353
Zikit Textile Dyeing
Works Ltd............... 60,000 523,829
-----------
TOTAL CONSUMER, CYCLICAL................ 1,016,017
-----------
CONSUMER, NON-CYCLICAL-10.43%
FOOD & BEVERAGES-2.13%
Elite Industries Ltd..... 140,742 550,568
Israel Cold Storage &
Supply Ltd. (Shares
5)...................... 62,620 332,838
Mayanot Eden Ltd......... 71,060 284,354
Shemen Industries
Ltd.+................... 8,213 245,369
-----------
1,413,129
-----------
PHARMACEUTICALS-6.71%
Peptor Ltd.*+............ 56,000 392,000
Taro Pharmaceutical
Industries Ltd. ADR+@... 64,210 441,444
Teva Pharmaceutical
Industries Ltd. ADR@.... 94,200 3,626,700
-----------
4,460,144
-----------
TRADING COMPANIES-1.59%
Rapac Electronics Ltd.... 34,806 183,105
Super-Sol Ltd. Class B
(Shares .01)............ 36,273 871,008
-----------
1,054,113
-----------
TOTAL CONSUMER, NON-CYCLICAL............ 6,927,386
-----------
ENERGY SERVICES-1.92%
Delek-The Israel Fuel Co.
Ltd..................... 16,773 473,215
Granite Hacarmel
Investments Ltd......... 299,660 425,308
Paz Oil Co. Ltd.*+....... 36 378,648
-----------
TOTAL ENERGY SERVICES................... 1,277,171
-----------
</TABLE>
- - --------------------------------------------------------------------------------
6
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- - -----------------------------------------------------
<S> <C> <C>
FINANCIAL-19.77%
BANKING-9.98%
Bank Hapoalim Ltd........ 1,315,800 $ 1,897,028
Bank Leumi of Israel
Ltd..................... 1,146,170 1,351,351
FIBI Holdings Ltd........ 12,648 1,709,228
IDB Holdings Ltd......... 436,224 1,668,727
-----------
6,626,334
-----------
DIVERSIFIED FINANCIAL-0.14%
Nesuah Trading and
Investment in Securities
Ltd..................... 72,468 94,728
-----------
INSURANCE-1.95%
Clal Insurance
Enterprises Holding
Ltd..................... 145,330 758,021
Harel Hamishmar
Investments, Ltd.
(Shares 5).............. 114,483 535,875
-----------
1,293,896
-----------
MORTGAGE BANKING-3.29%
Discount Mortgage Bank
Ltd.+................... 11,198 642,874
Mishkan Hapoalim Mortgage
Bank Ltd.+.............. 8,288 803,853
Tefahot Israel Mortgage
Bank Ltd.+.............. 1,456 742,454
-----------
2,189,181
-----------
REAL ESTATE & CONSTRUCTION-4.41%
Africa Israel Investments
Ltd. (Shares 0.1)+...... 395 399,886
Africa Israel Investments
Ltd. (Shares 1.0)+...... 550 504,927
C Holdings Ltd.+......... 41,625 142,163
Dankner Investment
Ltd..................... 78,973 333,224
Industrial Buildings
Corp. Ltd............... 568,200 633,508
Kardan Investments Ltd.
(Shares 5)+............. 174,251 192,604
Property & Building Corp.
Ltd..................... 13,089 721,368
-----------
2,927,680
-----------
TOTAL FINANCIAL......................... 13,131,819
-----------
INDUSTRIAL-1.85%
BUILDING PRODUCTS-1.44%
Ackerstein Ltd. (Shares
1)+..................... 9,000 33,073
Ackerstein Ltd. (Shares
5)+..................... 77,120 252,516
<CAPTION>
No. of Value
Description Shares (Note A)
- - -----------------------------------------------------
BUILDING PRODUCTS (CONTINUED)
<S> <C> <C>
Wolfman Industries Ltd.
(Shares 5)+............. 114,000 $ 209,282
Ytong Ltd................ 182,302 459,661
-----------
954,532
-----------
TRANSPORTATION-0.41%
Maman Cargo Terminal &
Handling Ltd............ 160,400 275,449
-----------
TOTAL INDUSTRIAL........................ 1,229,981
-----------
INVESTMENT & HOLDING COMPANIES-3.46%
Ampal American Israel@... 92,500 531,875
Ampal American Israel,
Warrants (expiring
02/28/99)+@............. 92,500 28,906
Arad Investment &
Industrial Development
Ltd.+................... 10,617 114,361
Discount Investment Corp.
Ltd..................... 7,000 494,895
Elco Holdings Ltd........ 5,900 238,325
Israel Land Development
Ltd..................... 125,173 381,384
The Renaissance
Fund*##................. 51 505,980
-----------
TOTAL INVESTMENT & HOLDING COMPANIES....
2,295,726
-----------
MEDICAL EQUIPMENT-2.24%
Elscint Ltd.@............ 50,600 676,775
Laser Industries,
Ltd.+@.................. 81,000 810,000
-----------
TOTAL MEDICAL EQUIPMENT................. 1,486,775
-----------
TECHNOLOGY-26.26%
COMPUTER NETWORKING-5.45%
Gilat Satellite Networks
Ltd.@................... 20,000 485,000
IIS Intelligent
Information Systems
Ltd.+@.................. 32,700 67,444
Madge Networks N.V.@..... 40,590 1,628,674
Nice Systems Ltd. ADR@... 47,200 613,600
Scorpio Communications
Ltd.*+.................. 769 664,968
<CAPTION>
Par (000)
-------------
<S> <C> <C>
Scorpio Communications
Ltd., Convertible Bond,
11/06/96*............... U.S.$ 158 158,414
</TABLE>
- - --------------------------------------------------------------------------------
7
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- - -----------------------------------------------------
<S> <C> <C>
Scorpio Communications
Ltd., Warrants (expiring
06/04/97)*+............. 94 $ 1
Scorpio Communications
Ltd., Warrants (expiring
12/31/01)*+............. 13 13
-----------
3,618,114
-----------
COMPUTER SOFTWARE-2.47%
Sapiens International
Corp. N.V.@............. 69,000 211,312
Tecnomatix Technologies,
Ltd.+@.................. 105,800 1,428,300
-----------
1,639,612
-----------
DIVERSIFIED TECHNOLOGY-5.75%
Clal Electronic
Industries Ltd.......... 3,404 384,280
Comverse Technology,
Inc.+@.................. 50,000 1,206,250
Elbit Ltd................ 7,257 394,692
Electra Consumers
Products Ltd............ 18,658 228,290
Electra Ltd.............. 17,500 587,978
Electronics Line Ltd..... 28,154 46,364
Elron Electronic
Industries Ltd.......... 19,007 674,839
Rada Electronic
Industries Ltd.+@....... 87,942 296,804
-----------
3,819,497
-----------
INDUSTRIAL TECHNOLOGY-3.70%
Cubital, Ltd.*+.......... 329,278 105,639
Orbotech, Ltd.+@......... 70,200 780,975
Scitex Corp. Ltd.@....... 113,300 1,572,038
-----------
2,458,652
-----------
SEMICONDUCTOR & RELATED TECHNOLOGY-8.89%
DSP Group Inc.*+......... 91,607 1,030,579
M-Systems Flash Disk
Pioneers Ltd.*+......... 70,042 267,035
M-Systems Flash Disk
Pioneers Ltd., Warrants
(expiring 06/30/98)*+... 35,021 37,924
Oshap Technologies@...... 177,345 543,119
P.C.B. Ltd............... 93,572 148,396
Zoran Corp. Series K*+... 135,981 2,420,462
Zoran Corp. Series K,
Warrants (expiring
7/31/98)*+.............. 73,044 642,787
Zoran Corp., Warrants
(expiring 7/31/96)*+.... 50,000 815,000
-----------
5,905,302
-----------
TOTAL TECHNOLOGY........................ 17,441,177
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- - -----------------------------------------------------
<S> <C> <C>
TELECOMMUNICATIONS-11.92%
Bezeq, Israeli
Telecommunication Corp.,
Ltd..................... 285,665 $ 758,723
ECI Telecom Ltd.@........ 63,400 1,418,575
Geotek Communications,
Inc.@................... 269,600 2,763,400
Geotek Communications,
Inc. Convertible
Preferred Series M,
8.5%*................... 100 1,264,211
Nexus Telecommunication
Systems Ltd. (units)@... 68,933 439,448
Tadiran
Telecommunications@..... 67,000 1,021,750
Teledata Communication
Ltd.+@.................. 23,700 251,812
-----------
TOTAL TELECOMMUNICATIONS................ 7,917,919
-----------
VENTURE CAPITAL-3.31%
Advent Israel Bermuda,
Ltd.*+++##.............. 650,000 739,999
Star Venture Enterprises
II*+.................... 5 1,211,210
Walden Israel Ventures,
L.P.*+++##.............. 250,000 250,000
-----------
TOTAL VENTURE CAPITAL................... 2,201,209
-----------
TOTAL INVESTMENTS
(Cost $64,996,006) (Notes A,D)......... 62,219,016
CASH AND OTHER ASSETS IN EXCESS OF
LIABILITIES-6.33%...................... 4,206,251
-----------
NET ASSETS-100.00%...................... $66,425,267
-----------
-----------
- - ---------------------------------------------------------
* Not readily marketable security.
+ Security is non-income producing.
++ Restricted security (see Note F).
## As of March 31, 1996, the Fund committed to
investing additional capital in Advent Israel
Bermuda, Ltd.-$350,000; The Renaissance Fund-$89,844
and Walden Israel Ventures, L.P.-$250,000.
@ These securities are traded on a U.S. stock
exchange.
ADR American Depositary Receipts.
NIS New Israeli shekel.
U.S.$ United States dollars.
</TABLE>
- - --------------------------------------------------------------------------------
See accompanying notes to financial statements.
8
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - MARCH 31, 1996 (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $64,996,006)
(Note A)............................... $62,219,016
Cash (Note A)........................... 5,083,107
Receivables:
Investments sold...................... 352,923
Note.................................. 86,657
Dividends............................. 37,809
Interest.............................. 3,245
Prepaid expenses and other assets....... 25,954
Unamortized organizational costs (Note
A)..................................... 114,363
-----------
Total Assets............................ 67,923,074
-----------
LIABILITIES
Payables:
Investments purchased................. 1,005,000
Advisory fees (Note B)................ 246,185
Administration fees (Note B).......... 6,558
Other accrued expenses................ 240,064
-----------
Total Liabilities....................... 1,497,807
-----------
NET ASSETS (applicable to 5,012,295
shares of common stock outstanding)
(Note C)............................... $66,425,267
-----------
-----------
NET ASSET VALUE PER SHARE ($66,425,267
DIVIDED BY 5,012,295)................. $13.25
-----------
-----------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
5,012,295 shares issued and outstanding
(100,000,000 shares authorized)........ $ 5,012
Paid-in capital......................... 67,478,381
Accumulated net investment loss......... (179,728)
Accumulated net realized gain on
investments and foreign currency
related transactions................... 1,975,719
Net unrealized depreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currency....................... (2,854,117)
-----------
Net assets applicable to shares
outstanding............................ $66,425,267
-----------
-----------
</TABLE>
- - --------------------------------------------------------------------------------
See accompanying notes to financial statements.
9
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 458,420
Interest.............................. 182,728
Less: Foreign taxes withheld.......... (80,618)
----------
Total Investment Income............... 560,530
----------
Expenses:
Investment advisory fees (Note B)..... 462,078
Audit and legal fees.................. 55,197
Custodian fees........................ 51,096
Administration fees (Note B).......... 39,582
Amortization of organizational costs
(Note A)............................. 31,857
Accounting fees....................... 26,293
Printing.............................. 25,300
Directors' fees....................... 19,025
Transfer agent fees................... 11,784
NYSE listing fee...................... 7,451
Other................................. 10,595
----------
Total Expenses........................ 740,258
----------
Net Investment Loss................... (179,728)
----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments........................... 2,288,391
Foreign currency related
transactions......................... (26,959)
Net change in unrealized depreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currency........ (1,806,772)
----------
Net realized and unrealized gain on
investments and foreign currency
related transactions................... 454,660
----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $ 274,932
----------
----------
</TABLE>
- - --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six Months For the Fiscal
Ended Year
March 31, 1996 Ended
(unaudited) September 30, 1995
<S> <C> <C>
------------------ ------------------
INCREASE IN NET ASSETS
Operations:
Net investment loss................... $ (179,728) $ (520,453)
Net realized gain on investments and
foreign currency related
transactions......................... 2,261,432 1,655,141
Net change in unrealized depreciation
in value of investments and
translation of other assets and
liabilities denominated in foreign
currency............................. (1,806,772) 6,160,580
------------------ ------------------
Net increase in net assets resulting
from operations.................... 274,932 7,295,268
------------------ ------------------
NET ASSETS
Beginning of period..................... 66,150,335 58,855,067
------------------ ------------------
End of period........................... $66,425,267 $66,150,335
------------------ ------------------
------------------ ------------------
</TABLE>
- - --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CASH FLOWS - FOR THE SIX MONTHS ENDED MARCH 31, 1996 (UNAUDITED)
- - --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INCREASE/(DECREASE) IN CASH FROM
OPERATING ACTIVITIES
Investment income received.............. $ 582,831
Operating expenses paid................. (735,232)
-----------
Net decrease in cash from operating
activities............................. $ (152,401)
Investing Activities
Purchases of long-term investments.... (4,917,998)
Proceeds from disposition of
short-term portfolio investments..... 1,986,463
Proceeds from disposition of long-term
portfolio investments................ 5,848,886
-----------
Net increase in cash from investing
activities......................... 2,917,351
-----------
Net increase in cash.................... 2,764,950
Cash at beginning of period............. 2,318,157
-----------
Cash at end of period (Note A).......... $ 5,083,107
-----------
-----------
RECONCILIATION OF NET INCREASE IN NET
ASSETS FROM OPERATIONS TO NET INCREASE
IN CASH FROM OPERATING ACTIVITIES
Net increase in net assets resulting
from operations........................ $ 274,932
Adjustments:
Decrease in dividend and interest
receivable........................... 22,301
Decrease in accrued expenses.......... (4,957)
Decrease in prepaid expenses.......... 9,983
Net realized and unrealized gain on
investments and foreign currency
related transactions................... (454,660)
-----------
Net decrease in cash from investing
activities............................. (427,333)
-----------
NET DECREASE IN CASH FROM OPERATING
ACTIVITIES............................. $ (152,401)
-----------
-----------
</TABLE>
- - --------------------------------------------------------------------------------
See accompanying notes to financial statements.
12
<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
For the period
Six Months For the Fiscal Years October 29,
Ended Ended 1992*
March 31, September 30, through
1996 ------------------------- September 30,
(unaudited) 1995 1994 1993
<S> <C> <C> <C> <C>
---------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period........... $13.20 $11.74 $15.83 $13.74**
------------- ----------- ----------- -------------
Net investment loss............................ (0.04) (0.10) (0.28) (0.07)
Net realized and unrealized gain/(loss) on
investments and foreign currency related
transactions................................. 0.09 1.56 (3.27) 2.16
------------- ----------- ----------- -------------
Net increase/(decrease) in net assets resulting
from operations.............................. 0.05 1.46 (3.55) 2.09
------------- ----------- ----------- -------------
Distributions to shareholders:
Net realized gain on investments and foreign
currency related transactions................ -- -- (0.43) --
In excess of net realized gains................ -- -- (0.11) --
------------- ----------- ----------- -------------
Total distributions to shareholders............ -- -- (0.54) --
------------- ----------- ----------- -------------
Net asset value, end of period................. $13.25 $13.20 $11.74 $15.83
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Market value, end of period.................... $11.625 $12.00 $13.25 $17.375
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
Total investment return(a)..................... (3.13)% (9.43)% (21.26)% 24.58%
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted)........ $66,425 $66,150 $58,855 $79,274
Ratio of expenses to average net assets........ 2.24%(b) 2.57% 2.64% 2.41%(b)
Ratio of net investment loss to average
net assets................................... (0.54)%(b) (0.91)% (2.08)% (0.50)%(b)
Portfolio turnover............................. 9.48%(c) 22.17% 17.07% 34.80%(c)
Average commission rate per share.............. $0.0058 (d) (d) (d)
</TABLE>
- - ---------------------------------------------------------------------------
* Commencement of investment operations.
** Initial public offering price of $15.00 per share less underwriting
discount of $1.05 per share and offering expenses of $0.21 per share.
(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 plan. Total investment return does not
reflect brokerage commissions or initial underwriting discounts and
has not been annualized.
(b) Annualized.
(c) Not annualized.
(d) Only applicable to fiscal years beginning after September 1, 1995.
- - --------------------------------------------------------------------------------
See accompanying notes to financial statements.
13
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
- - --------------------------------------------------------------------------------
NOTE A. SIGNIFICANT ACCOUNTING POLICIES
The First Israel Fund, Inc. (the "Fund") was incorporated in Maryland on March
6, 1990 and commenced investment operations on October 29, 1992. The Fund is
registered under the Investment Company Act of 1940, as amended, as a
closed-end, non-diversified management investment company. Significant
accounting policies are as follows:
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All equity securities for which market quotations are
readily available are valued at the last sales price or lacking any sales, at
the closing price last quoted for the securities (but if bid and asked
quotations are available, at the mean between the current bid and the asked
prices). Securities that are traded over-the-counter are valued at the mean
between the current bid and the asked prices. All other securities and assets
are valued at fair value as determined in good faith by the Board of Directors.
The preparation of financial statements requires the use of estimates by
management, principally the valuation of non-publicly traded securities.
Accordingly, the Board of Directors has established general guidelines for
calculating fair value of non-publicly traded securities. At March 31, 1996, the
Fund held 18.01% of its net assets in securities valued in good faith by the
Board of Directors with an aggregate cost of $8,425,906 and fair value of
$11,962,130. Short-term investments having a maturity of 60 days or less are
valued on the basis of amortized cost. The net asset value per share of the Fund
is calculated weekly, at the end of each month and at any other times determined
by the Board of Directors.
CASH: Deposits held at Brown Brothers Harriman & Co. (Grand Cayman), the Fund's
custodian, in a variable rate account, are classified as cash. At March 31,
1996, the interest rate was 4.875% which resets on a daily basis. Amounts are
generally available on the same business day.
INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are
accounted for on the trade date. The cost of investment sold is determined by
use of the specific identification method for both financial reporting and
income tax purposes. Interest income is recorded on an accrual basis; dividend
income is recorded on the ex-dividend date.
TAXES: No provision is made for U.S. federal income or excise taxes as it is the
Fund's intention to continue to qualify as a regulated investment company and to
make the requisite distributions to its shareholders which will be sufficient to
relieve it from all or substantially all U.S. federal income and excise taxes.
In accordance with U.S. federal tax regulations, the Fund has elected to defer
$10,672 of realized foreign currency losses arising after October 31, 1994. Such
losses are treated for tax purposes as arising on October 1, 1995.
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 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 gain sourced to unlisted unapproved securities are
subject to a 40% Israeli tax and an inflationary tax. Dividends derived from
listed or approved securities are subject to 15% withholding tax, while
dividends from unlisted unapproved securities are subject to a 25% withholding
tax. Interest on debt
- - --------------------------------------------------------------------------------
14
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- - --------------------------------------------------------------------------------
obligations (whether listed or not) is subject to withholding tax of 25% to 35%.
The Fund records deferred Israeli Capital gains taxes on the net unrealized
appreciation on unlisted Israeli investments. At March 31, 1996, the Fund had
deferred $77,085 in Israeli capital gains taxes.
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
current 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. However, the Fund does isolate the
effect of fluctuations in foreign exchange rates when determining the gain or
loss upon the sale or maturity of foreign currency denominated debt obligations
pursuant to U.S. federal income tax regulations, with such amount categorized as
foreign exchange gain or loss for both financial reporting and U.S. federal
income tax reporting purposes.
Net currency gains from valuing foreign currency denominated assets and
liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation/depreciation on investments, foreign currency holdings,
and other assets and liabilities denominated in foreign currencies.
Net realized foreign exchange losses represent foreign exchange gains and losses
from sales and maturities of debt securities, transactions in foreign currencies
and forward foreign currency contracts, exchange gains or losses realized
between the trade date and settlement dates 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.
The Fund reports certain foreign currency related transactions as components of
realized gains for financial reporting purposes, whereas such components are
treated as ordinary income for U.S. federal income tax purposes.
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 any 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.
federal income tax purposes due to U.S. generally accepted accounting
principles/tax differences in the character of income and expense recognition.
- - --------------------------------------------------------------------------------
15
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- - --------------------------------------------------------------------------------
OTHER: Costs incurred by the Fund in connection with its organization are being
amortized on a straight-line basis over a five-year period beginning at the
commencement of operations of the Fund.
Securities denominated in currencies other than U.S. dollars are subject to
changes in values due to fluctuations in exchange rates.
Investments in Israel may involve certain considerations and risks not typically
associated with investments in the U.S., including the possibility of future
political and economic developments and the level of Israeli governmental
supervision and regulation of its securities markets. The Israeli securities
markets are substantially smaller, less liquid and more volatile than the major
securities markets in the United States. Consequently acquisition and
disposition of securities by the Fund may be inhibited.
NOTE B. AGREEMENTS
BEA Associates ("BEA") serves as the Fund's investment adviser. As compensation
for its advisory services, BEA receives from the Fund an annual fee, calculated
weekly and paid quarterly, equal to 1.30% of the Fund's average weekly net
assets invested in listed securities (including securities traded
over-the-counter in the United States) and 2.00% of the amount invested in
unlisted Israeli securities. The aggregate fee may not exceed an annual rate of
1.40% of the Fund's average weekly net assets. For the six months ended March
31, 1996, the fee amounted to $462,078. BEA Associates also provides certain
administration services to the Fund and is reimbursed by the Fund for costs they
incur on behalf of the Fund (up to $20,000 per annum). For the six months ended
March 31, 1996, BEA was reimbursed $3,233 for administration services rendered
to the Fund.
Analyst I.M.S. and GIZA serve as the Fund's investment sub-advisers. Pursuant to
the sub-advisory agreement, BEA pays Analyst I.M.S. and GIZA out of its
quarterly fee each an amount equal to 0.20% of the Fund's average weekly net
assets. In addition, BEA pays Analyst I.M.S. and GIZA, out of its advisory fee,
reimbursement for any Israeli Value Added taxes (currently 17%) and $12,500 to
each annually to cover expenses incurred in the execution of sub-advisory
services.
For the six months ended March 31, 1996, the fees earned by Analyst I.M.S. and
GIZA amounted to $83,600 each.
Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund's administrator.
The Fund pays BSFM a monthly fee that is computed weekly at an annual rate of
0.11% of the Fund's average weekly net assets. For the six months ended March
31, 1996, BSFM earned $36,349 for administrative services.
NOTE C. CAPITAL STOCK
The authorized capital stock of the Fund is 100,000,000 shares of common stock,
$0.001 par value. Of the 5,012,295 shares outstanding at March 31, 1996, BEA
Associates owned 7,169 shares.
NOTE D. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at March 31,
1996 was $65,207,614. Accordingly, the net unrealized depreciation of
investments (including investments denominated in foreign currencies) of
$2,988,598, was composed of gross appreciation of $10,249,114 for those
investments having an excess of value over cost and gross depreciation of
$13,237,712 for those investments having an excess of cost over value.
For the six months ended March 31, 1996, total purchases and sales of
securities, other than short-term obligations, were $5,845,923 and $6,127,439,
respectively.
For the six months ended March 31, 1996, the Fund paid $2,996 in brokerage
commissions to Analyst I.M.S., the Fund's sub-adviser.
- - --------------------------------------------------------------------------------
16
<PAGE>
- - --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- - --------------------------------------------------------------------------------
NOTE E. CREDIT AGREEMENT
The Fund, along with 15 other U.S. regulated investment companies for which BEA
serves as investment adviser, has a credit agreement with The First National
Bank of Boston. The agreement provides that each fund is permitted to borrow an
amount equal to the lesser of $50,000,000 or 25% of the net assets of the fund.
However, at no time shall the aggregate outstanding principal amount of all
loans to any of the 16 funds exceed $50,000,000.
The line of credit will bear interest at (i) the greater of the bank's prime
rate or the Federal Funds Effective Rate plus 0.50% or (ii) the Adjusted
Eurodollar Rate plus 1.50%. The Fund had no amounts outstanding under the credit
agreement during the six months ended March 31, 1996.
NOTE F. RESTRICTED SECURITIES
Certain of the Fund's investments are restricted as to resale and are valued at
the direction of the Fund's Board of Directors in good faith, at fair value,
after taking into consideration available indications of value. The table below
shows the number of shares held, the acquisition date, aggregate cost, fair
value at March 31, 1996, share value of the securities and percent of net assets
which the securities comprise.
<TABLE>
<CAPTION>
NUMBER OF ACQUISITION FAIR VALUE VALUE PER PERCENT OF
SECURITY SHARES DATE COST AT 3/31/96 SHARE NET ASSETS
- - ----------------------------------------------- ----------- ----------- ---------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Walden Israel Ventures, L.P.................... 125,000 10/1/93 $ 125,000 $ 125,000 $ 1.00 0.19
Walden Israel Ventures, L.P.................... 125,000 5/27/95 125,000 125,000 1.00 0.19
Advent Israel Bermuda, Ltd..................... 650,000 6/18/93 650,000 650,000 1.00 0.98
</TABLE>
- - --------------------------------------------------------------------------------
17
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On January 16, 1996, the annual meeting of shareholders for The First Israel
Fund, Inc. (the "Fund") was held and the following matters were voted upon:
(1) To re-elect two directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
VOTES
NAME OF DIRECTOR VOTES FOR WITHHELD NON-VOTES
- - ------------------------------------------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Jonathan Lubell 3,602,595 52,861 1,356,839
Steven Rappaport 3,605,884 49,572 1,356,839
</TABLE>
In addition to the directors elected at the meeting, Emilio Bassini, Peter
Gordon, Daniel Sigg, Zeev Holtzman and George Landau, continue to serve as
directors of the Fund.
(2) To ratify the selection of Coopers & Lybrand L.L.P. as independent public
accountants for the Fund for the fiscal year ending September 30, 1996.
<TABLE>
<CAPTION>
VOTES
VOTES FOR VOTES AGAINST WITHHELD NON-VOTES
---------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
3,588,465 37,327 29,664 1,356,839
</TABLE>
- - --------------------------------------------------------------------------------
18
<PAGE>
DESCRIPTION OF THE FUND'S DIVIDEND REINVESTMENT PLAN
Pursuant to The First Israel Fund, Inc.'s (the "Fund") Dividend Reinvestment
Plan (the "Plan"), each shareholder will be deemed to have elected, unless The
First National Bank of Boston, the Fund's transfer agent, as the Plan Agent (the
"Plan Agent"), is otherwise instructed by the shareholder in writing, to have
all distributions, net of any applicable U.S. withholding tax, automatically
reinvested in additional shares of the Fund. Shareholders who do not participate
in the Plan will receive all dividends and distributions in cash, net of any
applicable U.S. withholding tax, paid in dollars by check mailed directly to the
shareholder by the Plan Agent, as dividend-paying agent. Shareholders who do not
wish to have dividends and distributions automatically reinvested should notify
the Plan Agent for the Fund at the address set forth below. Dividends and
distributions with respect to shares registered in the name of a broker-dealer
or other nominee (i.e., in "street name") will be reinvested under the Plan
unless such service is not provided by the broker or nominee, or the shareholder
elects to receive dividends and distributions in cash. A shareholder whose
shares are held by a broker or nominee that does not provide a dividend
reinvestment program may be required to have his shares registered in his own
name to participate in the Plan. Investors who owns shares of the Fund's Common
Stock registered in street name should contact the broker or nominee for details
concerning participation in the Plan.
Certain distributions of cash attributable to (a) some of the dividends and
interest amounts paid to the Fund and (b) certain capital gains earned by the
Fund that are derived from securities of certain foreign issuers are subject to
taxes payable by the Fund at the time amounts are remitted. Such taxes, if any,
will by borne by the Fund and allocated to all shareholders in proportion to
their interests in the Fund.
The Plan Agent serves as agent for the shareholders in administering the Plan.
If the Board of Directors of the Fund declares an income dividend or a capital
gains distribution payable either in the Fund's common stock or in cash, as
shareholders may have elected, nonparticipants in the Plan will receive cash and
participants in the Plan will receive common stock to be issued by the Fund. If
the market price per share on the valuation date equals or exceeds net asset
value per share on that date, the Fund will issue new shares to participants
valued at net asset value or, if the net asset value is less than 95% of the
market price on the valuation date, then valued at 95% of the market price. If
net asset value per share on the valuation date exceeds the market price per
share on that date, the Plan Agent will make open market purchases on the New
York Stock Exchange or elsewhere, and participants will pay the average price
paid plus a pro rata portion of commissions. If, before the Plan Agent has
completed its purchases, the market price exceeds the net asset value of shares,
the average per share purchase price paid by the Plan Agent may exceed the net
asset value of shares, resulting in the acquisition of fewer shares than if the
dividend or distribution had been paid in shares issued by the Fund at net asset
value. Additionally, if the market price exceeds the net asset value of shares
before the Plan Agent has completed its purchases, the Plan Agent is permitted
to cease purchasing shares and the Fund may issue the remaining shares at a
price equal to the greater of (a) net asset value or (b) 95% of the then current
market price. In a case where the Plan Agent has terminated open market
purchases and the Fund has issued the remaining shares, the number of shares
received by the participant in respect of the cash dividend or distribution will
be based on the weighted average of prices paid for shares purchased in the open
market and the price at which the Fund issues the remaining shares.
The valuation date is the dividend or distribution payment date or, if that date
is not a New York Stock Exchange trading day, the next preceding trading day. If
the Fund should declare an income dividend or capital gains distribution payable
only in cash the Plan Agent will, as agent for the participants, buy Fund shares
in
- - --------------------------------------------------------------------------------
19
<PAGE>
DESCRIPTION OF THE FUND'S DIVIDEND REINVESTMENT PLAN (CONTINUED)
the open market, on the New York Stock Exchange or elsewhere, for the
participants' accounts on, or shortly after, the payment date.
The Plan Agent maintains all shareholder accounts in the Plan and furnishes
written confirmations of all transactions in the account, including information
needed by shareholders for personal and tax records. Shares in the account of
each Plan participant will be held by the Plan Agent in the name of the
participant and each shareholder's proxy will include those shares purchased
pursuant to the Plan.
In the case of a shareholder, such as a bank, broker or nominee, that holds
shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of shares certified from time to time by the
shareholder as representing the total amount registered in the name and held for
the account of beneficial owners who are to participate in the Plan.
There is no charge to participants for reinvesting dividends or capital gains
distributions payable in either stock or cash. The Plan Agent's fees for the
handling of reinvestment of such dividends and capital gains distributions will
be paid by the Fund. There will be no brokerage charges with respect to shares
issued directly by the Fund as a Result of dividends or capital gains
distributions payable either in stock or in cash. However, each participant will
be charged by the Plan Agent a pro rata share of brokerage commissions incurred
with respect to the Plan Agent's open market purchases in connection with
voluntary cash payments made by the participant or the reinvestment of dividends
or capital gains distributions payable only in cash. Brokerage charges for
purchasing small amounts of stock for individual accounts through the Plan are
expected to be less than the usual brokerage charges for such transactions
because the Plan Agent will be purchasing stock for all participants in block
and prorating the lower commission thus obtainable. Brokerage commissions will
vary based on, among other things, the broker selected to effect a particular
purchase and the number of participants on whose behalf such purchase is being
made. The Fund cannot predict, therefore, whether the cost to a participant who
makes a voluntary cash payment will be less than if a participant were to make
an open market purchase of the Fund's common stock on his own behalf.
The receipt of dividends and distributions in stock under the Plan will not
relieve participants of any income tax (including withholding tax) that may be
payable on such dividends or distributions.
The Fund and the Plan Agent reserve the right to terminate the Plan as applied
to any dividend or distribution paid subsequent to notice of the termination
sent to the members of the Plan at the record date for dividends or
distributions. The Plan also may be amended by the Fund or the Plan Agent, but
(except when necessary or appropriate to comply with applicable law, rules or
policies of a regulatory authority) only by at least 30 days' written notice to
members of the Plan. All correspondence concerning the Plan should be directed
to the Plan Agent, The First National Bank of Boston, Investor Relations
Department, P.O. Box 644, Mail Stop 45-02-09, Boston, Massachusetts 02102-0644
or by telephone at 1-800-730-6001.
- - --------------------------------------------------------------------------------
20
<PAGE>
SUMMARY OF GENERAL INFORMATION
The Fund -- The First Israel Fund, Inc. -- is a closed-end, non-diversified
management investment company whose shares trade on the New York Stock
Exchange. Its investment objective is long-term capital appreciation through
investments primarily in Israeli equity securities. The Fund is managed and
advised by BEA Associates.
SHAREHOLDER INFORMATION
The market price is published in: THE NEW YORK TIMES (daily) under the
designation "FtIsrl" and THE WALL STREET JOURNAL (daily), and BARRON'S (each
Monday) under the designation "FstIsrael". The Fund's New York Stock Exchange
trading symbol is ISL. Weekly comparative net asset value (NAV) and market
price information about the First Israel Fund, Inc. shares are published each
Sunday in THE NEW YORK TIMES, and each Monday in THE WALL STREET JOURNAL, THE
NEW YORK TIMES, and BARRON'S as well as other newspapers in a table called
"Closed End Funds."
To request an annual report, or to be placed on the Fund's mailing list,
shareholders should call 1-800-293-1232.
DIVIDEND REINVESTMENT -- SUMMARY
An automatic Dividend Reinvestment Plan (the "Plan") is available to provide
shareholders with automatic reinvestment of their dividend income and capitals
gains distributions in additional shares of the Fund's common stock. A brochure
describing the Plan is available from the Plan agent, The First National Bank
of Boston, by calling: 1-800-730-6001.
As per the Plan, each shareholder will be automatically reinvested in
additional shares of the Fund by The First National Bank of Boston, unless
otherwise instructed by the shareholder in writing. Shareholders who do not
participate in the Plan will receive all dividends and distributions in cash
paid by check in U.S. dollars. Shares registered in street name will be
reinvested under the Plan, unless the broker-dealer or other nominee does not
provide a dividend reinvestment plan or the shareholder elects to receive their
dividends in cash.
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DIRECTORS AND CORPORATE OFFICERS ADMINISTRATOR
Emilio Bassini Chairman of the Board Bear Stearns Funds Management Inc.
of Directors, President 245 Park Avenue
and Investment Officer New York, NY 10167
Peter Gordon Director
CUSTODIAN
Zeev Holtzman Director
Brown Brothers Harriman & Co.
George Landau Director 40 Water Street
Boston, MA 02109
Steven Rappaport Director
Jonathan Rubell Director SHAREHOLDER SERVICING AGENT
Daniel Sigg Director, Senior Vice The First National Bank of Boston
President P.O. Box 1865
Mail Stop 45-02-62
Paul Stamler Senior Vice President Boston, MA 02105-1865
Michael Pignataro Chief Financial Officer
and Secretary INDEPENDENT ACCOUNTANTS
Rachel Manney Vice President and Coopers & Lybrand L.L.P.
Treasurer 2400 Eleven Penn Center
Philadelphia, PA 19103
INVESTMENT ADVISER LEGAL COUNSEL
BEA Associates Skadden, Arps, Slate, Meagher & Flom
One Citicorp Center 919 3rd Avenue
153 East 53rd Street New York, NY 10022
New York, NY 10022
L O G O
ISL
Listed
NYSE
The New York Stock Exchange
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