<PAGE>
[PHOTO]
The First Israel
Fund, Inc.
...........................
SEMI-ANNUAL REPORT
MARCH 31, 1997
<PAGE>
CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders................................................ 1
Portfolio Summary..................................................... 7
Schedule of Investments............................................... 8
Statement of Assets and Liabilities................................... 11
Statement of Operations............................................... 12
Statement of Changes in Net Assets.................................... 13
Statement of Cash Flows............................................... 14
Financial Highlights.................................................. 15
Notes to Financial Statements......................................... 16
Results of Annual Meeting of Shareholders............................. 20
Description of Dividend Reinvestment Plan............................. 21
</TABLE>
PICTURED ON THE COVER IS THE CITADEL MUSEUM LOCATED IN JERUSALEM, ISRAEL.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
May 16, 1997
DEAR SHAREHOLDERS:
We are writing to report on the activities of The First Israel Fund, Inc. (the
"Fund") for the six months ended March 31, 1997.
At March 31, 1997, total net assets of the Fund were approximately $78.4
million. 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 $63.7 million, as compared to
approximately $51.9 million on September 30, 1996. The Fund also held
investments valued at approximately $11.4 million in unlisted securities of
Israeli and Israel-related companies, as compared to approximately $8.6 million
on September 30, 1996. In percentage terms, at March 31, 1997, 95.8% of the
Fund's net assets was invested in listed and unlisted Israeli and Israel-related
equity or equity-linked securities.
At March 31, 1997, net asset value ("NAV") per share was $15.64, as compared to
$13.10 at September 30, 1996. The Fund's common stock closed on the New York
Stock Exchange on March 31, 1997 at $12.75 per share, representing a discount of
18.5% to the Fund's NAV.
PERFORMANCE
For the six months ended March 31, 1997, the Fund's total return, based on NAV
and assuming reinvestment of dividends and distributions, was 21.2%, versus
20.0% for the Morgan Stanley Capital International Israel Index (the "Index").
We attribute this outperformance to effective stock selection, especially in the
financial services sector. In addition, the Fund's overweighting of financial
services and insurance, as well as its underweighting of electronics,
conglomerates and business/public services, proved most successful.
POLITICAL COMMENTARY
Political conditions in Israel have been problematic, to say the least, since
our last report. Investors have been concerned over the apparent breakdown of
the peace process, as well as domestic political problems for Prime Minister
Benjamin Netanyahu.
Events over the last few months suggest that neither the Israeli government nor
Palestinian leaders have acted responsibly. Among other things, the Israelis
object that the Palestinian Authority has taken insufficient steps to reduce
terrorist activity and has not amended its own constitution both to explicitly
recognize Israel and repudiate all anti-Zionist language. The Palestinians cite
Israel's failure to withdraw as scheduled from the West Bank as well as related
actions such as the decision to begin construction of the Har Homa housing
project in an Arab section of Jerusalem. The net result has been that the level
of mutual distrust has greatly increased and both sides have stiffened in their
bargaining positions.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
Difficulties in the peace process are being exacerbated by other, internal
developments. The most prominent of these is the accusation that the Netanyahu
administration agreed to nominate as Attorney General Roni Bar-On, a candidate
favored by the right-wing Shas party, in exchange for Shas's vote to approve the
plan to withdraw Israeli troops from the key West Bank town of Hebron. [Note:
Bar-On served less than one day as Attorney General and resigned amid heavy
criticism of his qualifications for the post.] After investigating the matter,
the Israeli police took the unprecedented step of recommending that Prime
Minister Netanyahu be indicted along with several members of his administration.
The new Attorney General and state's attorney, however, decided against
indicting Netanyahu.
These problems created doubts about the sustainability of the tenuous coalition
that gives Netanyahu a slim majority of votes in the Israeli parliament.
Compounding these concerns, the possibility of a new "unity" government of
Netanyahu's Likud party and the opposition Labor party seems to have receded in
light of Labor's recent decision not to re-elect Shimon Peres (Netanyahu's
predecessor and a passionate advocate for peace) as its leader.
Our overall view is that both the peace process and Israel's internal issues
ultimately can be resolved but will remain sources of periodic tension. It is
most appropriate, therefore, to maintain a somewhat longer-term investment
perspective.
THE ECONOMY
If political trends were of concern, at least the broad macroeconomic
environment provides more encouragement.
Most commentators agree that the key to sustainable long-term growth for
Israel's economy (and, we believe, equity prices) is the reduction of its fiscal
deficit. The existence of a fiscal deficit keeps interest rates from falling and
restricts the nation's ability to save and invest. As a percentage of Gross
Domestic Product ("GDP"), Israel's deficit has risen from 1.6% in 1994 to 4.4%
in 1996. Measures recently undertaken to reverse this trend appear to be
working, however, as the year-to-date deficit through April is running at an
annualized rate much lower than the government had forecast. We now expect the
deficit to fall to 3.0% of GDP in 1997.
Equally encouraging, interest rates and inflation trends are positive. After
rising four times during 1996 to a high of 17.0% in June, the Israeli discount
rate has been cut seven times, most recently to 13.9% in late February.
Inflation, which rose from 8.1% in 1995 to 10.6% in 1996, is cooling off as
well; through April, it ran at a 12-month rate of 9.4%, well within the 7-10%
range desired by the government for 1997. We project another two or three cuts
in the discount rate this year, with the first to occur perhaps as early as
June.
PORTFOLIO STRATEGY
We have positioned the Fund to benefit from the expected decline in interest
rates, with significant weightings to financial services and other
interest-sensitive sectors. Our strategy also continues to emphasize a deep
commitment to the high-technology sector, both via public and privately listed
companies.
To better illustrate our investment strategy, we would like to briefly discuss a
few of the Fund's specific holdings.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
BANK LEUMI ISRAEL
Bank Leumi Israel ("BLI") is the oldest bank in Israel, having been founded in
1902. It is the nation's second-largest bank in terms of total assets, with a
market share of around 30%, just behind the 35% share of Bank Hapoalim Ltd. It
is generally acknowledged, furthermore, as the Israeli bank strongest both in
private banking and international exposure.
BLI's operations are diversified. In addition to lending and private banking, it
owns a mortgage bank and a significant equity stake in Israel's biggest
insurance company. It also is Israel's largest mutual fund manager and
second-largest manager of provident funds (Israeli pension and life insurance
plans). Approximately 60% of total income is interest-based (i.e., comes from
lending), while the remaining 40% mainly derives from fee-based activities such
as credit cards and various commissions.
We like BLI both as a natural beneficiary of the improving Israeli economy and a
successful turnaround story. Throughout the early 1990s, it suffered from a
harsh combination of large overseas losses, heavy provisioning for problem loans
dating back to the 1980s and high level of inefficiency relative to its peers.
New top management was installed in 1995 and a sound recovery plan has been
implemented.
The key to BLI's subsequent turnaround and future profitability is its emphasis
on cutting costs. Beginning in 1995, it has exited from many non-essential
businesses, trimmed and reorganized its international operations, substantially
raised the quality of its loans and modestly reduced its workforce. The result
is a much more efficient bank that is sharply focused on meeting its customers'
needs. Perhaps the highest endorsement of BLI's recovery plan is the fact that
Bank Hapoalim Ltd. currently is restructuring itself along similar guidelines.
Going forward, we believe that BLI's concentration on cost-cutting will continue
to drive profitability. This is particularly appropriate in the context of the
maturity of the Israeli banking business. We also expect that an upcoming sale
of shares by the government (which owns about 82% of BLI's equity) will make BLI
the TASE's most liquid stock and, in the process, attract increased attention
from investors. Overall, our confidence in BLI is such that we have nearly
doubled the Fund's position since our last report.
ORBOTECH LTD.
One of the Fund's original holdings is Orbotech Ltd. ("Orbotech"), which
develops, manufactures and markets automated inspection systems for printed
circuit boards ("PCBs"), as well as related products. We consider Orbotech a
fine example of an Israeli technology company that creates innovative products
to fill niche-type technological needs and is the world leader in its field.
Orbotech has approximately 70% of the global market in PCB inspection systems
(73% of total 1996 sales) and its customers include virtually every major PCB
producer. In its second-biggest product line, inspection systems for flat panel
displays ("FPDs"), its market share is estimated at about 45%. Orbotech's
products, which are installed in PCB
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
and FPD manufacturing facilities, offer users substantial benefits. These
include maximization of production yield; cost savings in the forms of detection
of defects early in the manufacturing process and the reduction of man-hours
required for visual inspection; shortening of production cycles; and
minimization of scrap material.
Here's why we believe that Orbotech shares provide an excellent opportunity for
long-term appreciation:
HEALTHY PCB OUTLOOK - PCBs are utilized in a wide and growing variety of
applications, such as notebook and desktop personal computers,
telecommunications equipment, consumer electronics, medical equipment and
military/ aerospace electronics. Demand for inspection systems should rise as
manufacturers seek to upgrade existing production facilities or add new ones.
INCREASING COMPLEXITY OF PCBS - PCBs are becoming more complex as the individual
circuits that occupy them gain in density and technological sophistication. This
should create a significant flow of ongoing demand for inspection systems.
GROWTH OF SERVICE REVENUES - Orbotech services the systems it sells. Servicing
revenues, which accounted for 31% of total 1996 revenues, should increase as
more new systems are sold and existing systems require upgrading or additional
maintenance.
POTENTIAL OF FPD - For the last few years, FPDs have been regarded as the next
generation of screens for viewing devices such as televisions and computers, but
too expensive for general usage. This is in the process of changing, however, as
huge additions to production capacity in Japan and Korea should drive down FPD
prices to levels competitive with those of standard cathode ray tubes. Analysts
project FPD as the area of highest growth potential for Orbotech's products over
the next few years.
NEW PRODUCTS - Orbotech is developing and beginning to market several new
products. Perhaps the most exciting is the OrboCAR character-recognition system
for handwritten and machine-made documents, which the company has only recently
introduced. OrboCAR is initially targeted at banks and utilities, which process
huge volumes of checks, and provides much higher accuracy and efficiency while
substantially reducing labor costs. It is Orbotech's first product designed for
application outside the electronics industry.
REDUCED EXPOSURE TO ISRAELI ECONOMY - Orbotech is relatively insulated from
exposure to the volatile Israeli economy, as only a small fraction of sales are
domestic. Sales are particularly strong in the U.S. and Japan and expected to
grow in the Far East.
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
OUTLOOK
Looking ahead, political conditions clearly will impact the near- and
medium-term prospects for Israeli equities. We note in this context, however,
that the various political shocks, over the last few years (e.g., the
assassination of Itzchak Rabin, election of Netanyahu, difficulties with peace
negotiations) have not prevented the TASE from moving upward. On the contrary,
the chart below illustrates that such shocks have created significant buying
opportunities:
[CHART]
SOURCE: ING BARINGS
In addition, as we described earlier, the macroeconomic environment is becoming
increasingly favorable for equities. Trends in interest rates, inflation, the
shekel and the fiscal deficit all are positive.
We also note that external investment into TASE-traded stocks is rising.
Foreigners now own $4.4 billion, or 9.9% of the exchange's total capital, up
from 9.3% at year-end 1996. Hence, there seems to be a growing willingness to
see through the current problems and look for better times ahead. We agree. With
current equity valuations discounting much bad news, we anticipate that
political issues will become less important and the macroeconomic climate will
maintain its solid improvement. This scenario provides clear scope for stocks to
appreciate.
- --------------------------------------------------------------------------------
5
<PAGE>
LETTER TO SHAREHOLDERS
We appreciate your interest in the Fund, and would be pleased to respond to your
questions or comments.
Respectfully,
/s/ Richard W. Watt
Richard W. Watt
President and Chief Investment Officer*
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 21 and 22 of this
report.
- --------------------------------------------------------------------------------
* Richard W. Watt, who is a Managing Director of BEA Associates, is primarily
responsible for management of the Fund's assets. He joined BEA Associates on
August 2, 1995. Mr. Watt was formerly associated with Gartmore Investment
Limited in London, where he was head of emerging markets investments and
research. In this capacity, he led a team of four portfolio managers and was
manager of a closed-end Latin American fund focusing on smaller companies.
Before joining Gartmore Investment Limited in 1992, Mr. Watt was a director of
Kleinwort Benson International Investments in London, where he was responsible
for research, analysis and trading of equities in Latin America and other
regions. Mr. Watt is a Director, President and Chief Investment Officer of the
Fund. Mr. Watt is also Director, President and Chief Investment Officer of The
Brazilian Equity Fund, Inc., 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.
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
PORTFOLIO SUMMARY - AS OF MARCH 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
MARCH 31, 1997 SEPTEMBER 30, 1996
<S> <C> <C>
Banking 10.08 6.50
Building Products 3.84 3.17
Chemicals 3.77 1.72
Computer Software 4.13 4.31
Conglomerates 9.85 10.78
Electronics/Electrical Equipment 2.46 2.41
Financial Services 3.64 3.15
Food & Beverages 4.93 4.14
Insurance 3.23 2.13
Metal Products 2.13 1.88
Mortgage Banking 3.97 3.01
Pharmaceuticals 7.87 7.96
Semiconductor & Related Technology 5.65 7.41
Telecommunications 10.32 14.99
Venture Capital 8.17 3.50
Other 11.71 15.17
Cash & Other Assets 4.25 7.77
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of
Holding Sector Net Assets
<C> <S> <C> <C>
- -------------------------------------------------------------------------------------------
1. Teva Pharmaceutical Industries Ltd. Pharmaceuticals 6.7
- -------------------------------------------------------------------------------------------
2. Star Venture Enterprises II Venture Capital 6.3
- -------------------------------------------------------------------------------------------
3. Bank Leumi Israel Banking 5.1
- -------------------------------------------------------------------------------------------
4. Bank Hapoalim Ltd. Banking 5.0
- -------------------------------------------------------------------------------------------
5. Zoran Corp. Semiconductor & Related Technology 3.9
- -------------------------------------------------------------------------------------------
6. Koor Industries Ltd. Conglomerates 3.2
- -------------------------------------------------------------------------------------------
7. F.I.B.I. Holdings Ltd. Financial Services 2.7
- -------------------------------------------------------------------------------------------
8. Geotek Communications, Inc. Telecommunications 2.5
- -------------------------------------------------------------------------------------------
9. IDB Holding Corp., Ltd. Conglomerates 2.2
- -------------------------------------------------------------------------------------------
10. Israel Chemicals Ltd. Chemicals 1.9
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS - MARCH 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- -----------------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-95.75%
AEROSPACE/DEFENSE EQUIPMENT-0.25%
Elbit Systems Ltd............................. 24,191 $ 192,807
------------
AUTO PARTS-0.86%
Delek Automotive Systems Ltd.................. 327,641 671,408
------------
BANKING-10.08%
Bank Hapoalim Ltd.+........................... 1,995,800 3,935,045
Bank Leumi Israel+............................ 2,484,132 3,964,237
------------
7,899,282
------------
BUILDING PRODUCTS-3.84%
Ackerstein Industries Ltd., (Shares 1)+....... 9,000 34,711
Ackerstein Industries Ltd., (Shares 5)+....... 15,424 257,044
Industrial Buildings Corp., Ltd............... 568,200 806,751
Property & Building Corp., Ltd................ 15,103 1,103,746
Wolfman Industries Ltd., (Shares 5)+.......... 22,800 352,558
Ytong Industries Ltd.......................... 182,302 453,512
------------
3,008,322
------------
CHEMICALS-3.77%
Agan Chemical
Manufacturers Ltd.+.......................... 21,531 503,899
Dead Sea Bromine Ltd.......................... 30,662 177,525
Israel Chemicals Ltd., (Shares 1)+............ 1,390,000 1,488,471
Makhteshim Chemical Works Ltd.+............... 114,632 650,353
Sano-Brunos Enterprises Ltd., (Shares 5)...... 7,971 138,598
------------
2,958,846
------------
COMPUTER NETWORKING-0.45%
Madge Networks N.V.+.......................... 40,590 352,626
------------
COMPUTER SOFTWARE-4.13%
ISG International Software
Group Ltd.+.................................. 32,300 323,000
Magic Software Enterprises Ltd.+.............. 92,800 626,400
Oshap Technologies Ltd.+...................... 177,345 931,061
Sapiens International Corp. N.V.+............. 69,000 258,750
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------------------------------
<S> <C> <C>
COMPUTER SOFTWARE (CONTINUED)
Tecnomatix Technologies Ltd.+................. 52,900 $ 1,097,675
------------
3,236,886
------------
CONGLOMERATES-9.85%
Clal Israel Ltd., (Shares 10)................. 1,978,000 560,507
Discount Investment Corp...................... 7,000 507,466
Elco Holdings Ltd............................. 23,600 163,739
Elron Electronic Industries Ltd............... 63,356 775,960
Granite Hacarmel
Investments Ltd.............................. 299,660 425,468
IDB Holding Corp., Ltd........................ 87,245 1,734,747
Koor Industries Ltd........................... 18,762 1,726,440
<CAPTION>
Par (000)
--------------
<S> <C> <C>
Koor Industries Ltd., Convertible Note, 1.75%,
01/31/98*.................................... NIS 600 273,536
Koor Industries Ltd., Convertible Note, 1.75%,
01/31/99*.................................... 600 273,536
Koor Industries Ltd., Convertible Note, 1.75%,
01/31/00*.................................... 600 273,536
<CAPTION>
No. of
Shares
--------------
<S> <C> <C>
PEC Israel Economic Corp.+.................... 23,000 434,125
The Israel Land
Development Ltd.+............................ 125,173 570,886
------------
7,719,946
------------
ELECTRONICS/ELECTRICAL EQUIPMENT-2.46%
Clal Electronic Industries Ltd................ 3,404 336,613
Elbit Ltd..................................... 24,191 51,737
Elco Industries Ltd.+......................... 13,500 226,188
Electra Consumers Products Ltd................ 58,658 325,615
Electra Israel Ltd............................ 17,500 693,684
Electronics Line Ltd., (Shares 1)............. 28,154 47,449
Rada Electronic Industries Ltd.+.............. 87,942 247,337
------------
1,928,623
------------
ENERGY SERVICES-1.21%
Delek Israel Fuel Corp., Ltd.................. 16,773 492,906
Superbowl Acquisition LDC*=/=+................ 36 455,840
------------
948,746
------------
</TABLE>
- --------------------------------------------------------------------------------
8
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------------------------------
<S> <C> <C>
FINANCIAL SERVICES-3.64%
Ampal-American Israel, Class A+............... 92,500 $ 474,062
Ampal-American Israel, Warrants
(expiring 02/28/99)+......................... 92,500 14,453
C Holdings Ltd., (Shares 5)+.................. 41,625 120,934
F.I.B.I. Holdings Ltd......................... 12,648 2,128,599
Nesuah Trading and Investment in Securities
Ltd.......................................... 72,468 112,620
------------
2,850,668
------------
FOOD & BEVERAGES-4.93%
Blue Square Chain Investments & Properties
Ltd.+........................................ 40,157 386,178
Elite Industries Ltd., (Shares 5)............. 28,148 704,445
Israel Salt Industries Ltd.................... 208,552 510,105
Mayanot Eden Ltd., (Shares 1)................. 149,750 809,834
Shemen Industries Ltd., (Shares A4)+.......... 8,213 415,756
SuperSol Ltd., Class B........................ 362,726 1,041,925
------------
3,868,243
------------
INDUSTRIAL TECHNOLOGY-1.75%
Cubital Ltd.*+................................ 329,278 105,639
Orbotech Ltd.+................................ 70,200 1,263,600
------------
1,369,239
------------
INSURANCE-3.23%
Clal Insurance Enterprises Holdings Ltd.,
(Shares 1)................................... 145,330 1,314,364
Harel-Hamishmar
Investments Ltd., (Shares 5)................. 22,897 987,441
Leumi Insurance Holdings Ltd.+................ 349,678 230,511
------------
2,532,316
------------
INVESTMENT & HOLDING COMPANIES-1.86%
Dankner Investments Ltd., (Shares 1).......... 118,973 567,806
GC Holdings Corp., Series K Preferred*+....... 299,513 47,922
GC Holdings Corp., Series L Preferred*+....... 308,432 37,012
Polaris Fund II*=/=+#......................... 250,000 250,000
The Renaissance Fund*=/=...................... 60 552,881
------------
1,455,621
------------
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------------------------------
<S> <C> <C>
MEDICAL EQUIPMENT-1.40%
Elbit Medical Imaging Ltd..................... 24,191 $ 129,092
Laser Industries Ltd.+........................ 81,000 972,000
------------
1,101,092
------------
METAL PRODUCTS-2.13%
Caniel-Israel Can Co., Ltd., (Shares 1)....... 105,210 909,780
Cvalim - The Electric Wire & Cable Co. of
Israel Ltd................................... 73,640 278,305
Klil Industries Ltd., (Shares 1).............. 36,250 196,469
Klil Industries Ltd., (Shares 5).............. 11,404 283,926
------------
1,668,480
------------
MORTGAGE BANKING-3.97%
Discount Mortgage Bank Ltd.+.................. 11,198 784,044
Israel Discount Bank Ltd...................... 168,150 175,047
Mishkan Hapoalim Mortgage Bank Ltd.+.......... 8,288 1,143,484
Tefahot Israel Mortgage
Bank Ltd.+................................... 1,456 1,011,261
------------
3,113,836
------------
PHARMACEUTICALS-7.87%
Peptor Ltd.*+................................. 56,000 392,000
Taro Pharmaceutical
Industries Ltd. ADR+......................... 64,210 553,811
Teva Pharmaceutical
Industries Ltd. ADR.......................... 94,200 5,228,100
------------
6,173,911
------------
REAL ESTATE & CONSTRUCTION-0.61%
Africa-Israel Investments Ltd., (Shares 1)+... 550 280,107
Kardan Investments Ltd., (Shares 5)+.......... 34,850 202,188
------------
482,295
------------
SEMICONDUCTOR & RELATED TECHNOLOGY-5.65%
DSP Group Inc.+............................... 91,607 847,365
M-Systems Flash Disk
Pioneers Ltd.+............................... 54,542 279,528
</TABLE>
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------------------------------
<S> <C> <C>
SEMICONDUCTOR & RELATED TECHNOLOGY (CONTINUED)
M-Systems Flash Disk
Pioneers Ltd., Warrants
(expiring 06/30/98)+......................... 35,021 $ 66,376
P.C.B. Ltd.................................... 93,572 176,119
Zoran Corp., Series K+........................ 99,837 1,609,872
Zoran Corp., Series K*=/=+.................... 86,144 1,169,540
Zoran Corp., Series K, Warrants (expiring
07/30/98)*+.................................. 73,045 284,876
------------
4,433,676
------------
STORAGE & WAREHOUSING-0.37%
Israel Cold Storage & Supply Company Ltd.,
(Shares 5)+.................................. 12,524 287,016
------------
TELECOMMUNICATIONS-10.32%
Bezeq Israeli Telecommunication Corp., Ltd.... 285,665 751,548
ECI Telecommunications Ltd.................... 63,400 1,172,900
Geotek Communications, Inc.+.................. 225,219 1,126,095
Geotek Communications, Inc., Convertible
Preferred
Series M, 8.50%*............................. 100 566,211
Geotek Communications, Inc., Convertible
Preferred
Series N*+(1)................................ 595 295,459
Gilat Satellite Networks Ltd.+................ 38,000 1,149,500
Nexus Telecommunication Systems Ltd.+......... 68,933 297,274
Nexus Telecommunication Systems Ltd., Warrants
(expiring 11/28/97)+......................... 68,933 47,391
NICE-Systems Ltd. ADR+........................ 23,600 483,800
Tadiran Ltd. ADR.............................. 29,900 740,025
Tadiran Telecommunications Ltd................ 33,500 607,188
Teledata Communication Ltd.+.................. 47,300 851,400
------------
8,088,791
------------
<CAPTION>
No. of Value
Description Shares (Note A)
- -----------------------------------------------------------------------------
<S> <C> <C>
TEXTILES-1.69%
Fibrotec F.M.S. Ltd., (Shares 1).............. 13,538 $ 75,471
Lodzia Rotex Textile Co., (Shares 4).......... 21,720 294,916
Polgat Ltd., (Shares B4)+..................... 77,293 210,495
Zikit Textile Dye Print Ltd.+................. 12,000 744,877
------------
1,325,759
------------
TRADING COMPANIES-0.24%
Rapac Electronics Ltd......................... 34,806 187,917
------------
VENTURE CAPITAL-8.17%
Advent Israel Bermuda Ltd.*=/=+............... 1,000,000 1,040,000
Star Venture Enterprises II*.................. 5 4,960,000
Walden Israel Ventures, L.P.*=/=+#............ 375,000 405,179
------------
6,405,179
------------
WOOD & PAPER PRODUCTS-1.02%
American Israeli Paper Mills Ltd.............. 19,263 797,918
------------
TOTAL INVESTMENTS-95.75%
(Cost $64,357,755) (Notes A,D)............................... 75,059,449
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-4.25%..........
3,330,317
------------
NET ASSETS-100.00%............................................ $ 78,389,766
------------
------------
- ---------------------------------------------------------
* Not readily marketable security.
+ Security is non-income producing.
=/= Restricted security (See Note F).
# As of March 31, 1997, the Fund committed to investing
additional capital in Walden Israel Ventures, L.P. -
$125,000 and Polaris Fund II - $750,000.
(1) With an additional 595 warrants attached, expiring
06/20/01, with no market value.
ADR American Depositary Receipts.
NIS New Israeli Shekel.
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - MARCH 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $64,357,755) (Note A)........... $ 75,059,449
Cash (Note A)............................................... 3,871,836
Receivables:
Note...................................................... 649,327
Dividends................................................. 127,217
Interest.................................................. 1,770
Prepaid expenses............................................ 9,849
Unamortized organizational costs (Note A)................... 50,824
-------------
Total Assets................................................ 79,770,272
-------------
LIABILITIES
Payables:
Advisory fees (Note B).................................... 269,226
Administration fees (Note B).............................. 8,394
Israeli capital gains taxes (Note A)...................... 944,512
Other accrued expenses.................................... 158,374
-------------
Total Liabilities........................................... 1,380,506
-------------
NET ASSETS (applicable to 5,012,295 shares of common stock
outstanding) (Note C)...................................... $ 78,389,766
-------------
-------------
NET ASSET VALUE PER SHARE ($78,389,766 DIVIDED BY
5,012,295)................................................. $15.64
-------------
-------------
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............................................. 67,477,576
Accumulated net investment loss............................. (164,505)
Accumulated net realized gain on investments and foreign
currency related transactions.............................. 463,019
Net unrealized appreciation in value of investments and
translation of other assets and liabilities denominated in
foreign currency........................................... 10,608,664
-------------
Net assets applicable to shares outstanding................. $ 78,389,766
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends................................................. $ 660,335
Interest.................................................. 141,751
Less: Foreign taxes withheld.............................. (119,297)
-------------
Total Investment Income................................... 682,789
-------------
Expenses:
Investment advisory fees (Note B)......................... 502,473
Custodian fees............................................ 83,786
Audit and legal fees...................................... 59,088
Administration fees (Note B).............................. 43,872
Printing.................................................. 34,904
Amortization of organizational costs (Note A)............. 31,683
Accounting fees........................................... 29,917
Directors' fees........................................... 23,186
Transfer agent fees....................................... 13,728
NYSE listing fees......................................... 8,052
Insurance................................................. 7,722
Other..................................................... 8,883
-------------
Total Expenses............................................ 847,294
-------------
Net Investment Loss....................................... (164,505)
-------------
NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND FOREIGN
CURRENCY RELATED TRANSACTIONS
Net realized loss from:
Investments............................................... (4,666,198)
Foreign currency related transactions..................... (56,363)
Net change in unrealized depreciation in value of
investments and translation of other assets and liabilities
denominated in foreign currency............................ 18,630,250
-------------
Net realized and unrealized gain on investments and foreign
currency related transactions.............................. 13,907,689
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 13,743,184
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Six For the
Months Fiscal Year
Ended March Ended
31, 1997 September 30,
(unaudited) 1996
<S> <C> <C>
--------------------------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment loss....................................... $ (164,505) $ (450,669)
Net realized gain/(loss) on investments and foreign
currency related transactions............................ (4,722,561) 6,923,616
Net change in unrealized depreciation in value of
investments and translation of other assets and
liabilities denominated in foreign currency.............. 18,630,250 (6,974,241)
------------- -------------
Net increase/(decrease) in net assets resulting from
operations............................................. 13,743,184 (501,294)
------------- -------------
Distributions to shareholders:
Net realized gain on investments.......................... (1,002,459) --
------------- -------------
Total increase/(decrease) in net assets................. 12,740,725 (501,294)
------------- -------------
NET ASSETS
Beginning of period......................................... 65,649,041 66,150,335
------------- -------------
End of period............................................... $ 78,389,766 $ 65,649,041
------------- -------------
------------- -------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CASH FLOWS - FOR THE SIX MONTHS ENDED MARCH 31, 1997 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
DECREASE IN CASH FROM
Operating Activities
Investment income received.............................. $ 598,157
Operating expenses paid................................. (842,766)
-------------
Net decrease in cash from operating activities.............. $ (244,609)
Investing Activities
Purchases of long-term portfolio investments............ (4,834,417)
Proceeds from disposition of long-term portfolio
investments............................................ 4,127,871
-------------
Net decrease in cash from investing activities.............. (706,546)
Financing Activities
Notes receivable........................................ 3,015
Cash distributions paid................................. (1,002,459)
-------------
Net decrease in cash from financing activities.............. (999,444)
-------------
Net decrease in cash........................................ (1,950,599)
Cash at beginning of period................................. 5,822,435
-------------
Cash at end of period (Note A).............................. $ 3,871,836
-------------
-------------
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET DECREASE IN CASH FROM OPERATING
ACTIVITIES
Net increase in net assets resulting from operations........ $ 13,743,184
Adjustments:
Increase in dividend and interest receivable............ $ (84,632)
Decrease in accrued expenses............................ (26,758)
Decrease in prepaid expenses............................ 31,286
Net realized and unrealized gain on investments and foreign
currency
related transactions....................................... (13,907,689)
-------------
Net decrease in cash from operating activities.............. (13,987,793)
-------------
NET DECREASE IN CASH FROM OPERATING ACTIVITIES.............. $ (244,609)
-------------
-------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
14
<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 Period
For the Six For the Fiscal October 29,
Months Ended Years Ended 1992*
March 31, September 30, through
1997 ------------------------------------ September 30,
(unaudited) 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
----------------------------------------------------------------------
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of period....... $13.10 $13.20 $11.74 $15.83 $13.74**
------------ --------- --------- ---------- --------------
Net investment loss........................ (0.03) (0.09) (0.10) (0.28) (0.07)
Net realized and unrealized gain/(loss) on
investments and foreign currency related
transactions.............................. 2.77 (0.01) 1.56 (3.27) 2.16
------------ --------- --------- ---------- --------------
Net increase/(decrease) in net assets
resulting from operations............. 2.74 (0.10) 1.46 (3.55) 2.09
------------ --------- --------- ---------- --------------
Distributions to shareholders:
Net realized gains on investments and
foreign currency related
transactions.......................... (0.20) -- -- (0.43) --
In excess of net realized gains........ -- -- -- (0.11) --
------------ --------- --------- ---------- --------------
Total distributions to shareholders.... (0.20) -- -- (0.54) --
------------ --------- --------- ---------- --------------
Net asset value, end of period............. $15.64 $13.10 $13.20 $11.74 $15.83
------------ --------- --------- ---------- --------------
------------ --------- --------- ---------- --------------
Market value, end of period................ $12.750 $11.250 $12.000 $13.250 $17.375
------------ --------- --------- ---------- --------------
------------ --------- --------- ---------- --------------
Total investment return(a)................. 15.07% (6.25)% (9.43)% (21.26)% 24.58%
------------ --------- --------- ---------- --------------
------------ --------- --------- ---------- --------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (000 omitted).... $78,390 $65,649 $66,150 $58,855 $79,274
Ratio of expenses to average net assets.... 2.34%(b) 2.23% 2.57% 2.64% 2.41%(b)
Ratio of net investment loss to
average net assets........................ (0.45)%(b) (0.68)% (0.91)% (2.08)% (0.50)%(b)
Portfolio turnover rate.................... 6.06% 21.68% 22.17% 17.07% 34.80%
Average commission rate per share(c)....... $0.0080 $0.0073 -- -- --
</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) Disclosure is required for fiscal years beginning on or after
September 1, 1995. Represents average commission rate per share
charged to the Fund on purchases and sales of investments subject to
such commissions during the period.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
15
<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:
MANAGEMENT ESTIMATES: The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make certain
estimates and assumptions that may affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those estimates.
PORTFOLIO VALUATION: Investments are stated at value in the accompanying
financial statements. All 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 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. Short-term investments
having a maturity of 60 days or less are valued on the basis of amortized cost.
The Board of Directors has established general guidelines for calculating fair
value of non-publicly traded securities. At March 31, 1997, the Fund held 14.52%
of its net assets in securities valued in good faith by the Board of Directors
with an aggregate cost of $6,731,609 and fair value of $11,383,167. 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., the Fund's custodian, in a
variable rate account are classified as cash. At March 31, 1997, the interest
rate was 5.0625% which resets on a daily basis. Amounts on deposit 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 investments 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.
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 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 debt obligations.
At
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
March 31, 1997, the Fund had deferred $93,193 in Israeli capital gains taxes on
unlisted Israeli debt obligations.
Currently the Fund is reviewing with the Israeli tax authorities the conditions
of its original tax ruling, to determine whether that ruling has been preempted
by the recent treaty between the U.S. and Israel. If it is determined that the
U.S.-Israel treaty does preempt the original tax ruling, then certain Israeli
taxes payable by the Fund will no longer apply.
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 in investments in
equity securities which is due to changes in the foreign exchange rates from
that which is due to changes in market prices of equity securities. Accordingly,
realized and unrealized foreign currency gains and losses with respect to such
securities are included in the reported net realized and unrealized gains and
losses on investment 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 in value of investments and translation of
other assets and liabilities denominated in foreign currency.
Net realized foreign exchange losses represent foreign exchange gains and losses
from sales and maturities of debt securities, transactions in foreign currency
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.
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.
federal income tax purposes due to U.S. generally accepted accounting
principles/tax differences in the character of income and expense recognition.
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.
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Securities denominated in currencies other than U.S. dollars are subject to
changes in value due to fluctuations in exchange rates.
Investments in Israel may involve certain considerations and risks not typically
associated with investments in the U.S., including the possibility of future
political and economic developments and the level of Israeli governmental
supervision and regulation of its securities markets. The Israeli securities
markets are substantially smaller, less liquid and more volatile than the major
securities markets in the United States. Consequently, acquisition and
disposition of securities by the Fund may be inhibited.
The Fund, subject to local investment limitations, may invest up to 30% of its
assets in non-publicly traded equity securities 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 less than
those originally paid by the Fund. 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.
NOTE B. AGREEMENTS
BEA Associates ("BEA") serves as the Fund's investment adviser, with respect to
all investments. 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 Fund's
average weekly net assets 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, 1997, BEA earned $502,473 for
advisory services. BEA 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 March 31, 1997, BEA was reimbursed
$3,990 for administrative services rendered to the Fund.
Analyst I.M.S. Investment Management Services, Ltd. ("Analyst I.M.S.") and Giza
Ltd. ("Giza") serves as the Fund's investment sub-advisers. Pursuant to the sub-
advisory agreement, Analyst I.M.S. and Giza are each paid a fee, out of the
advisory fee payable to BEA, computed weekly and paid quarterly at an annual
rate of 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, a 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, 1997, the fees earned by Analyst I.M.S. and Giza amounted to
$91,073 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, 1997, BSFM earned $39,882 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, 1997, BEA
owned 7,169 shares.
NOTE D. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at March 31,
1997 was $64,358,153.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
Accordingly, the net unrealized appreciation of investments (including
investments denominated in foreign currency) of $10,701,296, was composed of
gross appreciation of $19,566,619 for those investments having an excess of
value over cost and gross depreciation of $8,865,323 for those investments
having an excess of cost over value.
For the six months ended March 31, 1997, purchases and sales of securities,
other than short-term investments, were $4,740,394 and $4,075,487, respectively.
NOTE E. CREDIT AGREEMENT
The Fund, along with 18 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 19 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, 1997.
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 appropriate indications of value. The table
below shows the number of shares held, the acquisition dates, aggregate costs,
fair value as of March 31, 1997, share value of the securities and percentage of
net assets which the securities comprise.
<TABLE>
<CAPTION>
FAIR VALUE
NUMBER OF ACQUISITION AT VALUE PER PERCENT OF
SECURITY SHARES DATES COST 03/31/97 SHARE NET ASSETS
- -------------------------------------------- ----------- ----------- ---------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Advent Israel Bermuda Ltd................... 650,000 06/16/93 $ 530,000 $ 676,000 $ 1.04 0.86
Advent Israel Bermuda Ltd................... 350,000 06/10/96 350,000 364,000 1.04 0.47
Polaris Fund II............................. 250,000 10/31/96 250,000 250,000 1.00 0.32
Superbowl Acquisition LDC................... 36 10/10/94 279,730 455,840 12,662.22 0.58
The Renaissance Fund........................ 60 03/30/94 600,000 552,881 9,214.68 0.71
Walden Israel Ventures, L.P................. 45,000 09/28/93 45,000 48,621 1.08 0.06
Walden Israel Ventures, L.P................. 80,000 11/30/93 80,000 86,438 1.08 0.11
Walden Israel Ventures, L.P................. 125,000 05/24/95 125,000 135,060 1.08 0.17
Walden Israel Ventures, L.P................. 125,000 08/08/96 125,000 135,060 1.08 0.17
Zoran Corp.................................. 36,144 12/20/95 253,325 524,540 14.51 0.67
Zoran Corp.................................. 50,000 07/31/96 75,000 645,000 12.90 0.82
</TABLE>
The Fund may incur certain costs in connection with the disposition of the above
securities.
- --------------------------------------------------------------------------------
19
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On January 16, 1997, the Annual Meeting of Shareholders of The First Israel
Fund, Inc. (the "Fund") was held and the following matters were voted upon:
(1) To re-elect three directors to the Board of Directors of the Fund.
<TABLE>
<CAPTION>
NAME OF DIRECTOR FOR WITHHELD NON-VOTES
- -------------------------------------------------------------------------- ---------- ----------- ----------
<S> <C> <C> <C>
Dr. Enrique R. Arzac 3,471,136 60,427 1,480,732
Emilio Bassini * 3,475,861 55,702 1,480,732
Peter A. Gordon 3,462,821 68,742 1,480,732
</TABLE>
- --------------
* Resigned effective January 1, 1997.
In addition to the directors re-elected at the meeting, Zeev Holtzman, George W.
Landau, Jonathan W. Lubell and Steven N. Rappaport continue to serve as
directors of the Fund. Richard W. Watt and William W. Priest, Jr. were appointed
as directors of the Fund effective February 11, 1997. Daniel Sigg resigned as
director of the Fund effective February 11, 1997.
(2) To ratify the selection of Coopers & Lybrand L.L.P. as independent public
accountants for the fiscal year ending September 30, 1997.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
---------- --------- --------- ----------
<S> <C> <C> <C> <C>
3,461,445 39,578 30,540 1,480,732
</TABLE>
- --------------------------------------------------------------------------------
20
<PAGE>
DESCRIPTION OF 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 dividends and 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 own 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 be 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
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21
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DESCRIPTION OF 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 shareholder's
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 and 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 blocks
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 on 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.
Experience under the Plan may indicate that changes in the Plan are desirable.
Accordingly 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.
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<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 equity securities of Israeli companies. The Fund is managed and
advised by BEA Associates ("BEA"). BEA is a diversified asset manager, handling
equity, balanced, fixed income, international and derivative based accounts.
Portfolios include international and emerging market investments, common stocks,
taxable and non-taxable bonds, options, futures and venture capital. BEA manages
money for corporate pension and profit-sharing funds, public pension funds,
union funds, endowments and other charitable institutions and private
individuals. As of March 31, 1997, BEA managed approximately $28.6 billion in
assets.
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.'s shares are published each Sunday
in THE NEW YORK TIMES and each Monday in THE WALL STREET JOURNAL and BARRON'S,
as well as other newspapers, in a table called "Closed End Funds."
THE BEA GROUP OF FUNDS
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds or a prospectus on any of the open-end mutual funds listed
below. The prospectus contains more complete information, including fees,
charges and expenses, and should be read carefully before investing or sending
money.
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<S> <C>
CLOSED-END FUNDS BEA ADVISOR FUNDS
SINGLE COUNTRY OPEN-END MUTUAL FUNDS
The Brazilian Equity Fund, Inc. (BZL) BEA Emerging Markets Equity Fund
The Chile Fund, Inc. (CH) BEA Global Telecommunications Fund
The Indonesia Fund, Inc. (IF) BEA High Yield Fund
The Portugal Fund, Inc. (PGF) BEA International Equity Fund
MULTIPLE COUNTRY
The Emerging Markets Infrastructure
Fund, Inc. (EMG)
The Emerging Markets Telecommunications
Fund, Inc. (ETF)
The Latin America Equity Fund, Inc.
(LAQ)
The Latin America Investment Fund, Inc.
(LAM)
FIXED INCOME For shareholder information or a copy
BEA Income Fund, Inc. (FBF) of a prospectus for any of the
BEA Strategic Income Fund, Inc. (FBI) open-end mutual funds please call,
1-800-401-2230.
For closed-end fund information Visit our website on the Internet:
please call, 1-800-293-1232. http://www.beafunds.com
</TABLE>
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<PAGE>
DIRECTORS AND CORPORATE OFFICERS
William W. Priest, Jr. Chairman of the
Board of Directors
Richard W. Watt President, Chief Investment Officer and Director
Dr. Enrique R. Arzac Director
Peter A. Gordon Director
Zeev Holtzman Director
George W. Landau Director
Jonathan W. Lubell Director
Steven N. Rappaport Director
Paul P. Stamler Senior Vice President
Michael A. Pignataro Chief Financial Officer and Secretary
Rachel D. Manney Vice President and Treasurer
Wendy S. Setnicka Assistant Treasurer
INVESTMENT ADVISER
BEA Associates
One Citicorp Center
153 East 53rd Street
New York, NY 10022
ADMINISTRATOR
Bear Stearns Funds Management Inc.
245 Park Avenue
New York, NY 10167
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
SHAREHOLDER SERVICING AGENT
The First National Bank of Boston
P.O. Box 1865
Mail Stop 45-02-62
Boston, MA 02105-1865
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
2400 Eleven Penn Center
Philadelphia, PA 19103
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, NY 10022
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<S> <C>
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
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. [LOGO]
</TABLE>
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3917-SAR-3/97
