<PAGE>
[GRAPHIC]
THE FIRST ISRAEL
FUND, INC.
-------------------
SEMI-ANNUAL REPORT
MARCH 31, 1999
<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
Financial Highlights.......................................................................... 14
Notes to Financial Statements................................................................. 15
Results of Annual Meeting of Shareholders..................................................... 21
Description of InvestLink-SM- Program......................................................... 22
</TABLE>
PICTURED ON THE COVER IS AN AERIAL VIEW OF THE TEL AVIV SKYLINE.
- --------------------------------------------------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS
May 11, 1999
DEAR SHAREHOLDER:
I am pleased to report on the activities of The First Israel Fund, Inc. (the
"Fund") for the six months ended March 31, 1999.
At March 31, 1999, total net assets of the Fund were approximately $77.2
million. The Fund's investments in securities listed and trading on the Tel Aviv
Stock Exchange ("TASE") were $53.7 million, with another $14.2 million in the
Israeli and Israel-related companies listed and trading in the United States.
Combined, these totaled $67.9 million, as compared to approximately $61.8
million on September 30, 1998. The Fund also held investments valued at
approximately $7.2 million in unlisted securities, as compared to approximately
$7.4 million on September 30, 1998. In percentage terms, at March 31, 1999,
87.9% of the Fund's net assets was invested in Israeli and Israel-related
companies listed and trading on the TASE and in the United States and 9.4% in
unlisted securities.
The Fund successfully completed its initial public offering on October 29, 1992
and began operations with a net asset value ("NAV") of $13.74 per share. At
March 31, 1999, NAV per share was $16.21 (net of dividends and distributions
paid of $1.41 per share), as compared to $15.04 at September 30, 1998. The
Fund's common stock closed on the New York Stock Exchange on March 31, 1999 at
$13.00 per share, representing a discount of 19.8% to the Fund's NAV.
According to its charter, the Fund's investment objective is long-term capital
appreciation via investment primarily in equity securities of Israeli companies.
These securities may be listed on the TASE or elsewhere, notably New York and
NASDAQ. Up to 30% of the Fund's total assets may be invested in illiquid equity
securities, including securities of private equity funds that invest primarily
in the emerging markets.
PERFORMANCE
For its performance during calendar 1998, the Fund achieved the top ranking
among closed-end funds focusing on the Middle East as determined by the Lipper
International Closed-End Fund Service. During the six months ended March 31,
1999, the Fund's total return, based on NAV and assuming reinvestment of
dividends and distributions, was 20.6%, versus 21.8% for the Morgan Stanley
Capital International Israel Index (the "Index"). I attribute the Fund's modest
underperformance to the Index benchmark in the six-month period to three
factors:
- - There was little revaluation among the Fund's several private equity holdings,
which currently account for around 9% of total assets. The ability to invest
in such less-liquid securities, which is one of the advantages of the closed-
end fund structure, has positively contributed to the Fund's return over the
last few years. The entities in which we have invested are all doing well, and
I am confident that the Fund will continue to benefit from doing so well into
the future.
- - The share price of PEC Israel Economic Corporation ("PEC") (a conglomerate
that accounts for about 7% of the Fund's net assets and is its second-largest
holding) stagnated during a time when the Israeli market performed very well.
In the first quarter of 1999, PEC's controlling shareholder made a bid to
acquire the company at a price that is, by our reckoning and the calculation
of an independent auditor, some 50% below its fair market value.
- --------------------------------------------------------------------------------
1
<PAGE>
LETTER TO SHAREHOLDERS
If the stock had moved only in line with the market, the Fund's return might
have gained an additional 70-80 basis points. At our own estimate of PEC's
fair market value, the gain could have been as much as 300 basis points.
As a result of the extraordinary discrepancy between the bid price and what we
believe the company is worth, the Fund has initiated a lawsuit against PEC and
its controlling shareholders. I want you to know that we are doing all we can
to maximize the value of the Fund's PEC shares and will keep you advised as
events progress.
- - The Fund continued to favor smaller companies during a period in which larger
Israeli companies generally outperformed. This was partially because investor
inflows from dedicated emerging market funds--which increased beginning in
early 1999--tended to initially focus on larger companies.
INVESTMENT PERSPECTIVE
There was a collective sigh of relief, even jubilation, in Israel when the bell
was struck signaling the end of the first quarter of 1999 and the TASE
officially recorded a gain of 16.4% in U.S. dollar terms.
Following a tumultuous 12-month period in which the TASE was whipsawed by one
emerging market calamity after another, it appears that the Israeli stock market
may now be on the mend.
Why did the market perform well during the quarter?
- - WALL STREET. NASDAQ, on which many Israeli technology stocks are listed,
boomed by 12.3% during the first quarter, providing a much-needed financial
and psychological boost to a sector that has seen more than its share of
volatility over the past year.
- - HIGHER TOLERANCE FOR RISK. Investors worldwide demonstrated an increasing
appetite for risk, one absent since last summer's multiple emerging market
meltdowns.
- - INTEREST RATE CUTS. Israeli interest rates were cut (to 13% on February
22nd), as January's 0.5% decline in inflation was better than expected.
- - LOW VALUATIONS. Blue-chips were cheap, especially domestically focused
stocks, and benefited from expectations of further cuts in interest rates.
As always, there are a few rocks in the road ready to trip the unwary. Among
these are interest rates that are still high (about 6%) when adjusted for
inflation, and low participation by local investors, the major source of market
liquidity.
- --------------------------------------------------------------------------------
2
<PAGE>
LETTER TO SHAREHOLDERS
THE PORTFOLIO: STRATEGY AND STRUCTURE
TOP 10 HOLDINGS, BY ISSUER*
<TABLE>
<CAPTION>
% OF
HOLDING SECTOR NET ASSETS
-------------- ------------------ -------------
<S> <C> <C> <C>
1. Bank Hapoalim Banking 7.5
2. PEC Israel Conglomerates 7.1
3. Koor
Industries Conglomerates 6.5
4. Bezeq Telecommunications 5.1
5. Bank Leumi Banking 4.9
6. Teva Pharm. Pharmaceuticals 4.8
7. Israel
Chemicals Chemicals 4.6
8. ECI Telecom Telecommunications 4.2
9. Israel
Discount Bank Mortgage Banking 2.8
10. IDB Holding Conglomerates 2.8
</TABLE>
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
SECTOR ALLOCATION
(% OF NET ASSETS)
<S> <C>
Banking 13.23%
Chemicals 4.93%
Conglomerates 19.19%
Financial Services 3.15%
Food & Beverages 5.26%
Insurance 3.61%
Inv. & Holding Cos. 5.89%
Mortgage Banking 7.35%
Pharm. 6.78%
Telecom. 9.54%
Venture Capital 5.35%
Cash & Other Assets 2.73%
Other* 12.99%
</TABLE>
- --------------
*Company names are abbreviations of those
found in the chart on page 7.
- ------------------
* Other includes sectors below 2.5% of net assets.
The general lack of involvement in the Israeli equity market by local investors
these days is good, in the sense that it keeps bargains on the table long enough
to cherry-pick from among the best.
I therefore increased exposure to banks (E.G., Bank Hapoalim Ltd.) during the
first quarter, in recognition of their potential share appreciation should
domestic interest rates continue to fall. I also bought more of certain
pharmaceutical stocks (E.G., Agis Industries (1983) Ltd.) and companies that
derive substantial earnings from exports (E.G., Israel Chemicals Ltd.). The
latter are desirable because export earnings are an excellent hedge against
currency volatility, which is not an unusual condition for the shekel.
Beyond what I've described, there are several other blue-chip companies whose
valuations are languishing unjustifiably. These offer significant upside
potential, in my view, as Israel re-emerges from the economic funk that has
weighed upon it the past 12 months or so.
BEZEQ ISRAELI TELECOMMUNICATION CORPORATION LTD.
One blue-chip that I especially like is Bezeq Israeli Telecommunication
Corporation Ltd. ("Bezeq"), Israel's dominant telecommunications provider.
Bezeq's stock is valued at a steep discount to its European counterparts,
principally on concerns surrounding the opening of the Israeli domestic market
to competition in June. Investors have also been wary of a one-time charge
against 1999 earnings resulting from a recent change in Israeli phone tariffs
(I.E., service rates).
I believe that neither of these is reason enough to value Bezeq's shares so
cheaply, and the company thus remains one of the Fund's largest positions.
- --------------------------------------------------------------------------------
3
<PAGE>
LETTER TO SHAREHOLDERS
A key factor supporting my bullishness is the company's entrenched franchise.
Bezeq is likely to retain its market dominance and, perhaps, even improve upon
it, because would-be competitors face very significant barriers to entry. Among
the most notable are Israeli tariffs, which are very low by European standards
and, thus, somewhat reduce the attractiveness of being in this market; and the
regulatory requirement that new entrants must build their own telecommunications
infrastructures, since they will not be allowed to access the market via Bezeq's
existing network.
A few other positives about Bezeq:
- - The new tariff structure will make the company's post-1999 earnings growth
much more stable and transparent.
- - It has implemented a very successful restructuring program. The resulting
savings should enhance profitability in 2000 and beyond.
- - It has made some very intelligent investments in digital broadcasting,
Internet connectivity and other high-growth telecommunications service sectors
that should prove quite lucrative in the long term.
ELITE INDUSTRIES LTD.
On a wholly different front, I also like Elite Industries Ltd. ("Elite"). Elite
is Israel's largest food manufacturer, with core interests in coffee,
confections and salty snacks. It offers an appealing combination of export
earnings, operational restructuring and low valuation.
EXPORT EARNINGS. Unlike its principal domestic competitor, Osem Investment Ltd.
("Osem"), which focuses solely on the local market, Elite has successfully
expanded into Europe, from which it derives some 40% of sales. As we have seen
lately, Israeli companies that stick to their home court have been battered by
fears about the health of the local economy. The fact that Elite does
substantial business outside Israel appears to have escaped many investors.
RESTRUCTURING. Elite has also benefited from a massive restructuring effort.
Management recently shed the company's least profitable European operations,
while retaining those that have shown exceptional results. Sales in Poland and
Romania, for example, grew by 400% in 1998 alone.
The company has additionally made operational changes that should pay off down
the road, such as the merger of several distribution centers into one. It has
also consolidated manufacturing and discontinued many unprofitable product
lines, while initiating a strategic alliance with PepsiCo. The latter enables it
to compete effectively in the highly profitable salty foods sector against
market leader Osem.
LOW VALUATION. Despite its superior financials, better margins and much greater
growth potential (I.E., in Europe), Elite trades at a large discount to Osem. I
do not expect this discount to last long, as investors should re-evaluate the
prospects of well-positioned companies like Elite and re-rate them accordingly.
- --------------------------------------------------------------------------------
4
<PAGE>
LETTER TO SHAREHOLDERS
OUTLOOK
I'm generally optimistic about Israel's investment environment, as the market
remains undervalued and individual stocks are cheap. The national elections set
to occur as I write are serving as a short-term damper on the market, but this
effect should not last long. Although economic growth is likely to be anemic
(about 1.5%), so too will inflation (perhaps 4%), thus allowing real interest
rates to fall. The latter would provide a major boost to the prospects for full-
scale economic recovery.
I do have some concerns, however, particularly the volatility among Israeli
high-technology stocks listed on NASDAQ. This group has been in a
feast-or-famine cycle as of late, in which wild price swings are the norm. In
recognition of this volatility, I reduced the Fund's exposure to NASDAQ-listed
Israeli technology stocks in 1998 and await some settling of fortunes before
returning to them in a meaningful way.
My present focus is on banks, particularly mortgage banks, whose valuations are
cheaper than those of the major commercial banks and have performed well for the
Fund in the past. I'm also closely evaluating the abundant opportunities in
blue-chip domestic stocks, especially those in the potentially high-growth
health care and telecommunications sectors.
Looking somewhat further ahead, I'm seeing the beginning of a general unraveling
of Israel's often complex corporate structures. Currently, most Israeli
corporations are more tightly held than those in Japan, with giant family-
controlled conglomerates intermixed with large government-owned enterprises.
As ownership structures become more simplified, I believe we'll see the
emergence of more companies trading with greater liquidity and fewer controls
applied within them. The end result will be greater transparency in their
operations and the creation of value, as investors weigh in on the side of those
companies they can better comprehend.
On a final note, I have been repurchasing the Fund's shares in accordance with
the wishes of the Fund's independent directors. In doing so, I have been very
careful to prudently buy shares at a wide discount to net asset value, mindful
that NAV will benefit as a result. I have repurchased approximately 250,000
shares in this manner so far, and intend to continue to do so going forward.
Respectfully,
[/S/ RICHARD W. WATT]
Richard W. Watt
President and Chief Investment Officer*
- --------------------------------------------------------------------------------
5
<PAGE>
LETTER TO SHAREHOLDERS
FROM CREDIT SUISSE ASSET MANAGEMENT:
I. Effective January 12, 1999, the Fund's investment adviser, BEA Associates,
changed its name to Credit Suisse Asset Management ("CSAM"). In making the
announcement, the firm said that it expected the new name to enhance its
recognition as a global asset manager. CSAM is the investment division of
Credit Suisse Group, one of the world's largest financial organizations,
with $600 billion in assets under management.
II. We wish to remind shareholders whose shares are registered in their own
name that they automatically participate in the Fund's dividend
reinvestment program which is known as the InvestLink-SM- Program (the
"Program"). The Program 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 the Fund's Transfer Agent for details about
participating in the Program. The Program also provides for additional
share purchases. The Program is described on pages 22 through 24 of this
report.
III. Many services provided to the Fund and its shareholders by CSAM and the
Fund's service providers rely on the functioning of their respective
computer systems. Many computer systems cannot distinguish the year 2000
from the year 1900, with resulting potential difficulty in performing
various calculations (the "Year 2000 Issue"). The Year 2000 Issue could
potentially have an adverse impact on the handling of security trades, the
payment of interest and dividends, pricing, account services and other
Fund operations.
CSAM recognizes the importance of the Year 2000 Issue and is taking
appropriate steps necessary in preparation for the year 2000. At this
time, there can be no assurance that these steps will be sufficient to
avoid any adverse impact on the Fund, nor can there be any assurance that
the Year 2000 Issue will not have an adverse effect on the Fund's
investments or on global markets or economies, generally.
CSAM anticipates that its systems will be adapted in time for the year
2000. CSAM is seeking assurances that comparable steps are being taken by
the Fund's other major service providers. CSAM will be monitoring the Year
2000 Issue in an effort to ensure appropriate preparation.
- --------------------------------------------------------------------------------
* Richard W. Watt, who is a Managing Director of Credit Suisse Asset Management
("CSAM"), is primarily responsible for management of the Fund's assets. Mr. Watt
has served the Fund in such capacity since January 1, 1997. He joined CSAM 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 fund focusing on smaller Latin American 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 President, Chief Investment Officer and a Director of the
Fund. He also is President, Chief Investment Officer and a Director 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, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
SECTOR ALLOCATION
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS
<S> <C> <C>
3/31/99 9/30/98
Banking 13.23 8.07
Building Products 2.17 3.79
Chemicals 4.93 1.96
Conglomerates 19.19 16.94
Electronics/Electrical Equipment 2.45 2.64
Financial Services 3.15 3.49
Food & Beverages 5.26 4.26
Insurance 3.61 3.43
Investment & Holding Companies 5.89 5.27
Mortgage Banking 7.35 8.38
Pharmaceuticals 6.78 5.44
Telecommunications 9.54 12.24
Venture Capital 5.35 5.78
Other 8.37 10.08
Cash & Other Assets 2.73 8.23
</TABLE>
TOP 10 HOLDINGS, BY ISSUER
<TABLE>
<CAPTION>
Percent of Net
Holding Sector Assets
<C> <S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
1. Bank Hapoalim Ltd. Banking 7.5
- ---------------------------------------------------------------------------------------------------------
2. PEC Israel Economic Corporation Conglomerates 7.1
- ---------------------------------------------------------------------------------------------------------
3. Koor Industries Ltd. Conglomerates 6.5
- ---------------------------------------------------------------------------------------------------------
4. Bezeq Israeli Telecommunication Corporation Ltd. Telecommunications 5.1
- ---------------------------------------------------------------------------------------------------------
5. Bank Leumi Le-Israel Ltd. Banking 4.9
- ---------------------------------------------------------------------------------------------------------
6. Teva Pharmaceutical Industries Ltd. Pharmaceuticals 4.8
- ---------------------------------------------------------------------------------------------------------
7. Israel Chemicals Ltd. Chemicals 4.6
- ---------------------------------------------------------------------------------------------------------
8. ECI Telecom Ltd. Telecommunications 4.2
- ---------------------------------------------------------------------------------------------------------
9. Israel Discount Bank Ltd. Mortgage Banking 2.8
- ---------------------------------------------------------------------------------------------------------
10. IDB Holding Corporation Ltd. Conglomerates 2.8
- ---------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
7
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS - MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
No. of Value
Description Shares (Note A)
<S> <C> <C>
- --------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-97.27%
ISRAEL-96.11%
AEROSPACE/DEFENSE EQUIPMENT-1.35%
Elbit Systems Ltd....................... 72,913 $ 1,046,141
-----------
BANKING-13.23%
Bank Hapoalim Ltd....................... 2,455,858 5,767,014
Bank Leumi Le-Israel Ltd................ 2,111,132 3,746,951
United Mizrahi Bank Ltd................. 325,972 702,355
-----------
10,216,320
-----------
BUILDING PRODUCTS-2.17%
Industrial Buildings Corporation Ltd.... 528,896 760,161
Property & Building Corporation Ltd..... 9,601 912,763
-----------
1,672,924
-----------
CHEMICALS-4.93%
Dead Sea Bromine Ltd.................... 40,662 272,527
Israel Chemicals Ltd.................... 3,211,202 3,531,246
-----------
3,803,773
-----------
COMPUTER SOFTWARE-1.09%
Tecnomatix Technologies Ltd.+........... 63,802 845,376
-----------
CONGLOMERATES-19.19%
Clal (Israel) Ltd....................... 19,780 544,030
Discount Investment Corporation......... 21,000 737,098
Elron Electronic Industries Ltd......... 0 6
IDB Development Corporation Ltd......... 36,000 947,251
IDB Holding Corporation Ltd............. 87,245 2,144,033
Koor Industries Ltd..................... 44,816 4,750,262
<CAPTION>
Par (000)
-------------
<S> <C> <C>
Koor Industries Ltd., Convertible Note,
1.75%, 01/31/00*....................... NIS 600 234,806
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
CONGLOMERATES (CONTINUED)
PEC Israel Economic Corporation+........ 181,210 $ 5,458,951
-----------
14,816,437
-----------
ELECTRONICS/ELECTRICAL EQUIPMENT-2.45%
Elco Industries Ltd..................... 39,270 337,282
Electra Consumer Products Ltd........... 132,158 1,092,432
Electra (Israel) Ltd.................... 8,642 429,043
Electronics Line (EL) Ltd............... 22,434 30,629
-----------
1,889,386
-----------
ENERGY SERVICES-1.26%
Delek Israel Fuel Corporation Ltd....... 16,773 503,374
Superbowl Acquisition LDC+++............ 36 467,244
-----------
970,618
-----------
FINANCIAL SERVICES-3.15%
F.I.B.I. Holdings Ltd................... 252,960 1,984,246
Gachelet Investments Ltd................ 9,819 365,608
Taya Investments Ltd.+.................. 35,572 81,148
-----------
2,431,002
-----------
FOOD & BEVERAGES-5.26%
Elite Industries Ltd., (Shares 5)+...... 28,148 1,120,067
Jaf-Ora Ltd............................. 405,208 804,683
Mayanot Eden Ltd........................ 149,750 678,401
Osem Investment Ltd..................... 91,641 486,811
Supersol Ltd............................ 369,828 973,111
-----------
4,063,073
-----------
INDUSTRIAL TECHNOLOGY-1.00%
Cubital, Ltd.*+......................... 329,278 0
Orbotech Ltd.+.......................... 15,750 773,719
-----------
773,719
-----------
INSURANCE-3.61%
Clal Insurance Enterprise Holdings
Ltd.................................... 101,300 1,101,388
</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>
INSURANCE (CONTINUED)
Harel Insurance Investments Ltd.,
(Shares 5)............................. 34,129 $ 1,688,429
-----------
2,789,817
-----------
INVESTMENT & HOLDING COMPANIES-4.73%
Dankner Investments Ltd.+............... 84,364 544,488
Makhteshim-Agan Industries Ltd.+........ 880,990 1,998,821
Oren Semiconductor, Inc., Series K*+.... 299,513 95,844
Oren Semiconductor, Inc., Series L*+.... 308,432 98,698
Polaris Fund II LLC+++#................. 500,000 468,604
The Renaissance Fund LDC+++............. 60 446,141
-----------
3,652,596
-----------
METAL PRODUCTS-0.85%
Caniel-Israel Can Company Ltd........... 5,122 27,972
Klil Industries Ltd., (Shares 5)+....... 18,654 406,088
Ofer Development & Investments Ltd...... 68,640 221,843
-----------
655,903
-----------
MORTGAGE BANKING-7.35%
Discount Mortgage Bank Ltd.+............ 17,493 1,033,470
Israel Discount Bank Ltd.+.............. 2,090,467 2,158,705
Mishkan-Hapoalim Mortgage Bank Ltd.+.... 5,892 1,123,261
Tefahot Israel Mortgage Bank Ltd........ 2,327 1,360,906
-----------
5,676,342
-----------
PHARMACEUTICALS-6.78%
Agis Industries (1983) Ltd.+............ 201,716 1,141,647
Peptor Ltd.*+........................... 56,000 392,000
Teva Pharmaceutical Industries Ltd.
ADR.................................... 78,010 3,700,599
-----------
5,234,246
-----------
<CAPTION>
No. of Value
Description Shares (Note A)
- --------------------------------------------------------------------
<S> <C> <C>
REAL ESTATE & CONSTRUCTION-1.21%
Azorim Investment Development &
Construction Company Ltd............... 98,130 $ 935,383
-----------
TELECOMMUNICATIONS-9.54%
Bezeq Israeli Telecommunication
Corporation Ltd.+...................... 949,401 3,914,497
ECI Telecom Ltd......................... 91,926 3,217,410
Geotek Communications, Inc.+............ 18,595 335
Geotek Communications, Inc., Convertible
Preferred Series M, 8.50%*............. 100 0
Geotek Communications, Inc., Convertible
Preferred Series N*+(1)................ 595 0
Nexus Telecommunication Systems Ltd.+... 68,933 176,641
Terayon Communication Systems, Inc.+.... 1,504 60,160
-----------
7,369,043
-----------
TEXTILES-0.23%
Macpell Industries Ltd.................. 116,079 177,209
-----------
TRADING COMPANIES-0.27%
Rapac Electronics Ltd................... 34,806 211,680
-----------
VENTURE CAPITAL-5.35%
ABS GE Capital Giza Fund L.P.+++#....... 313,279 344,105
Advent Israel (Bermuda) L.P.+++......... 1,682,293 1,970,201
K.T. Concord Venture Fund LP+++#........ 500,000 454,758
SVE STAR Ventures
Enterprises No. II*+................... 5 724,010
Walden-Israel Ventures, L.P.+++......... 500,000 638,340
-----------
4,131,414
-----------
WOOD & PAPER PRODUCTS-1.11%
American Israeli Paper Mills Ltd........ 19,263 860,692
-----------
TOTAL ISRAEL (Cost $62,844,549)........................ 74,223,094
-----------
</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>
GLOBAL-1.16%
INVESTMENT & HOLDING COMPANIES-1.16%
Emerging Markets Ventures, L.P.+++#
(Cost $1,017,582)...................... 1,000,665 $ 893,872
-----------
TOTAL INVESTMENTS-97.27%
(Cost $63,862,131) (Notes A,D)........................ 75,116,966
CASH AND OTHER ASSETS IN EXCESS OF LIABILITIES-2.73%...
2,107,518
-----------
NET ASSETS-100.00%..................................... $77,224,484
-----------
-----------
- ---------------------------------------------------------
* Not readily marketable security.
+ Security is non-income producing.
++ Restricted security, not readily marketable (See Note
F).
# As of March 31, 1999, the Fund committed to investing
an additional $936,721, $1,482,418, $500,000 and
$500,000 of capital in ABS GE Capital Giza Fund L.P.,
Emerging Markets Ventures, L.P., K.T. Concord Venture
Fund LP and Polaris Fund II LLC.
(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, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments, at value (Cost $63,862,131)
(Note A)............................... $75,116,966
Cash (Note A)........................... 3,931,693
Receivables:
Dividends............................. 63,305
Interest.............................. 547
Note.................................. 23,563
Prepaid expenses........................ 23,610
-----------
Total Assets............................ 79,159,684
-----------
LIABILITIES
Payables:
Capital shares repurchased (Note G)... 1,521,185
Investment advisory fee (Note B)...... 197,959
Israeli capital gains tax (Note A).... 28,096
Administration fees (Note B).......... 17,920
Other accrued expenses................ 170,040
-----------
Total Liabilities....................... 1,935,200
-----------
NET ASSETS (applicable to 4,763,495
shares of common stock outstanding)
(Note C)............................... $77,224,484
-----------
-----------
NET ASSET VALUE PER SHARE ($77,224,484
DIVIDED BY 4,763,495)................. $16.21
-----------
-----------
NET ASSETS CONSIST OF
Capital stock, $0.001 par value;
4,763,495 shares issued and outstanding
(100,000,000 shares authorized)........ $ 4,764
Paid-in capital......................... 64,252,827
Undistributed net investment income..... 1,521,531
Accumulated net realized gain on
investments and foreign currency
related transactions................... 218,476
Net unrealized appreciation in value of
investments and translation of other
assets and liabilities denominated in
foreign currency....................... 11,226,886
-----------
Net assets applicable to shares
outstanding............................ $77,224,484
-----------
-----------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED MARCH 31, 1999 (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
INVESTMENT INCOME
Income (Note A):
Dividends............................. $ 1,249,892
Interest.............................. 140,597
Less: Foreign taxes withheld.......... (298,127)
-----------
Total Investment Income............... 1,092,362
-----------
Expenses:
Investment advisory fees (Note B)..... 493,648
Custodian fees........................ 64,987
Audit and legal fees.................. 59,897
Printing.............................. 49,991
Administration fees (Note B).......... 43,888
Accounting fees....................... 37,623
Directors' fees....................... 20,034
Transfer agent fees................... 16,004
NYSE listing fees..................... 8,063
Insurance............................. 7,774
Other................................. 11,196
Israeli capital gains tax (Note A).... 28,096
-----------
Total Expenses........................ 841,201
Less: Fee waivers (Note B)............ (90,551)
-----------
Net Expenses........................ 750,650
-----------
Net Investment Income................. 341,712
-----------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS AND FOREIGN CURRENCY
RELATED TRANSACTIONS
Net realized gain/(loss) from:
Investments........................... 483,394
Foreign currency related
transactions......................... (105,550)
Net change in unrealized depreciation in
value of investments and translation of
other assets and liabilities
denominated in foreign currency........ 11,315,576
-----------
Net realized and unrealized gain on
investments and foreign currency
related transactions................... 11,693,420
-----------
NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS........................ $12,035,132
-----------
-----------
</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
Months Ended For the Fiscal
March 31, Year Ended
1999 September 30,
(unaudited) 1998
<S> <C> <C>
------------------------------
INCREASE/(DECREASE) IN NET ASSETS
Operations:
Net investment income................. $ 341,712 $ 354,296
Net realized gain on investments and
foreign currency related
transactions......................... 377,844 6,122,784
Net change in unrealized
appreciation/(depreciation) in value
of investments and translation of
other assets and liabilities
denominated in foreign currency...... 11,315,576 (21,046,316)
------------- --------------
Net increase/(decrease) in net
assets resulting from operations... 12,035,132 (14,569,236)
------------- --------------
Dividends and distributions to
shareholders:
Net investment income................. (1,052,119) --
Net realized gain on investments...... (6,012,114) (2,355,778)
------------- --------------
Total dividends and distributions to
shareholders....................... (7,064,233) (2,355,778)
------------- --------------
Capital share transactions (Note C):
Cost of 248,800 shares repurchased
(Note G)............................. (3,119,314) --
------------- --------------
Total increase/(decrease) in net
assets............................. 1,851,585 (16,925,014)
------------- --------------
NET ASSETS
Beginning of period..................... 75,372,899 92,297,913
------------- --------------
End of period (including undistributed
net investment income of $1,521,531 and
$2,231,938, respectively).............. $ 77,224,484 $ 75,372,899
------------- --------------
------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
13
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Contained below is per share operating performance data for a share of common
stock outstanding, total investment return, ratios to average net assets and
other supplemental data for each 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 Six Period
Months October 29,
Ended 1992*
March 31, For the Fiscal Years Ended September 30, through
1999 -------------------------------------------------------------- September
(unaudited)+ 1998 1997 1996 1995 1994 30, 1993
<S> <C> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------------
PER SHARE OPERATING
PERFORMANCE
Net asset value, beginning of
period........................ $15.04 $18.41 $13.10 $13.20 $11.74 $15.83 $13.74**
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net investment income/(loss)... 0.07 0.07 0.35 (0.09) (0.10) (0.28) (0.07)
Net realized and unrealized
gain/(loss) on investments and
foreign currency related
transactions.................. 2.51++ (2.97) 6.20 (0.01) 1.56 (3.27) 2.16
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net increase/(decrease) in net
assets resulting from
operations.................... 2.58 (2.90) 6.55 (0.10) 1.46 (3.55) 2.09
------------ ---------- ---------- ---------- ---------- ---------- ------------
Dividends and distributions to
shareholders:
Net investment income........ (0.21) -- -- -- -- -- --
Net realized gains on
investments and foreign
currency related
transactions................ (1.20) (0.47) (1.24) -- -- (0.43) --
In excess of net realized
gains....................... -- -- -- -- -- (0.11) --
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total dividends and
distributions to
shareholders.................. (1.41) (0.47) (1.24) -- -- (0.54) --
------------ ---------- ---------- ---------- ---------- ---------- ------------
Net asset value, end of
period........................ $16.21 $15.04 $18.41 $13.10 $13.20 $11.74 $15.83
------------ ---------- ---------- ---------- ---------- ---------- ------------
------------ ---------- ---------- ---------- ---------- ---------- ------------
Market value, end of period.... $13.000 $11.813 $14.938 $11.250 $12.000 $13.250 $17.375
------------ ---------- ---------- ---------- ---------- ---------- ------------
------------ ---------- ---------- ---------- ---------- ---------- ------------
Total investment return(a)..... 23.13% (18.05)% 44.36% (6.25)% (9.43)% (21.26)% 24.58%
------------ ---------- ---------- ---------- ---------- ---------- ------------
------------ ---------- ---------- ---------- ---------- ---------- ------------
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period
(000 omitted)................. $77,224 $75,373 $92,298 $65,649 $66,150 $58,855 $79,274
Ratio of expenses to average
net assets(c)................. 2.08%(b) 2.06% 2.26% 2.23% 2.57% 2.64% 2.41%(b)
Ratio of expenses to average
net assets, excluding fee
waivers....................... 2.33%(b) 2.31% 2.30% -- -- -- --
Ratio of net investment
income/(loss) to average net
assets........................ 0.95%(b) 0.42% 2.20% (0.68)% (0.91)% (2.08)% (0.50)%(b)
Portfolio turnover rate........ 11.37% 29.11% 16.98% 21.68% 22.17% 17.07% 34.80%
</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.
+ Based on average shares outstanding except for dividends and
distributions to shareholders which are based on actual dividends and
distributions paid.
++ Includes a $0.15 per share increase to the Fund's net asset value per
share resulting from the anti-dilutive impact of shares repurchased
pursuant to the Fund's share repurchase program for the six months
ended March 31, 1999.
(a) Total investment return at market value is based on the changes in
market price of a share during the period and assumes reinvestment of
dividends and distributions, if any, at actual prices pursuant to the
Fund's dividend reinvestment program. Total investment return does not
reflect brokerage commissions or initial underwriting discounts and
has not been annualized.
(b) Annualized.
(c) Ratios reflect actual expenses incurred by the Fund. Amounts are net
of fee waivers.
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
14
<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, 1999, the Fund held 9.36%
of its net assets in securities valued in good faith by the Board of Directors
with an aggregate cost of $8,571,826 and fair value of $7,228,623. The net asset
value per share of the Fund is calculated on each business day, with the
exception of those days on which the New York Stock Exchange is closed.
CASH: Deposits held at Brown Brothers Harriman & Co., the Fund's custodian, in a
variable rate account are classified as cash. At March 31, 1999, the interest
rate was 4.25% 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
- --------------------------------------------------------------------------------
15
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
appreciation on unlisted Israeli debt obligations. At March 31, 1999, the Fund
had deferred $28,096 in Israeli capital gains taxes on unlisted Israeli debt
obligations.
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 or losses from valuing foreign currency denominated assets
and liabilities at period end exchange rates are reflected as a component of net
unrealized appreciation/depreciation in value of investments and translation of
other assets and liabilities denominated in foreign 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.
Included in undistributed net investment income is a dividend received from one
of the Fund's investment partnerships. This dividend was received as marketable
equity securities and will be presented as undistributed net investment income
until the securities are sold.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
OTHER: 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 illiquid equity securities, including securities of private equity
funds (whether in corporate or partnership form) that invest primarily in the
emerging markets. When investing through another investment fund, the Fund will
bear its proportionate share of the expenses incurred by that fund, including
management fees. Such securities are expected to be illiquid which may involve a
high degree of business and financial risk and may result in substantial losses.
Because of the current absence of any liquid trading market for these
investments, the Fund may take longer to liquidate these positions than would be
the case for publicly traded securities. Although these securities may be resold
in privately negotiated transactions, the prices realized on such sales could be
substantially less than those originally paid by the Fund or the current
carrying values. 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.
In addition, the Board of Directors has approved to remove the limitation set
forth in the Fund's prospectus requiring that the portion of the Fund's
investments not invested in Israeli securities be invested in securities of
companies that are substantially involved in or with Israel ("Israeli-Related
Securities").
NOTE B. AGREEMENTS
Credit Suisse Asset Management ("CSAM"), formerly BEA Associates, serves as the
Fund's investment adviser with respect to all investments. As compensation for
its advisory services, CSAM 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. CSAM has
agreed to waive the advisory fee previously payable to the Fund's investment
sub-adviser. For the six months ended March 31, 1999, CSAM earned $493,648 for
advisory services, of which CSAM waived $90,551. CSAM also provides certain
administrative services to the Fund and is reimbursed by the Fund for costs
incurred on behalf of the Fund (up to $20,000 per annum). For the six months
ended March 31, 1999, CSAM was reimbursed $4,232 for administrative services
rendered to the Fund.
Analyst I.M.S. Investment Management Services, Ltd. ("Analyst I.M.S.") serves as
the Fund's investment sub-adviser. Prior to February 10, 1999, Analyst I.M.S.
was paid a fee, out of the advisory fee payable to CSAM, computed weekly and
paid quarterly at an annual rate of 0.20% of the Fund's average weekly net
assets. In addition, CSAM paid Analyst I.M.S., out of its advisory fee, a
reimbursement for any Israeli Value Added taxes (currently 17%) and $12,500
annually to cover expenses incurred in the execution of sub-advisory services.
Effective February 10, 1999, and pursuant to the sub-advisory agreement, Analyst
I.M.S. is paid a fee, out of the advisory fee payable to CSAM, computed
- --------------------------------------------------------------------------------
17
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
weekly and paid quarterly at an annual rate of 0.30% of the Fund's average
weekly net assets. In addition, CSAM pays Analyst I.M.S., out of its advisory
fee, a reimbursement for any Israeli Value Added taxes (currently 17%) and
$25,000 annually to cover expenses incurred in the execution of sub-advisory
services. For the six months ended March 31, 1999, Analyst I.M.S. earned
$103,396 for sub-advisory services.
Analyst I.M.S. has certain commercial arrangements with banks and brokers in
Israel from which they receive a portion of the commission on trades executed in
Israel. For the six months ended March 31, 1999, such commissions amounted to
approximately $11,000.
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, 1999, BSFM earned $39,656 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 4,763,495 shares outstanding at March 31, 1999, CSAM
owned 7,169 shares.
NOTE D. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at March 31,
1999 was $64,639,511. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of
$10,477,455, was composed of gross appreciation of $14,906,957, for those
investments having an excess of value over cost and gross depreciation of
$4,429,502, for those investments having an excess of cost over value.
For the six months ended March 31, 1999, purchases and sales of securities,
other than short-term investments, were $7,730,920 and $13,288,209,
respectively.
NOTE E. CREDIT AGREEMENT
The Fund, along with 10 other U.S. regulated investment companies for which CSAM
serves as investment adviser, has a credit agreement with BankBoston, N.A. The
agreement provides that each fund is permitted to borrow an amount equal to the
lesser of $25,000,000 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 11
funds exceed $25,000,000. 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 and at March
31, 1999.
- --------------------------------------------------------------------------------
18
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
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 cost,
fair value as of March 31, 1999, per share value of such securities and
percentage of net assets which the securities comprise.
<TABLE>
<CAPTION>
PERCENT
NUMBER FAIR VALUE OF
OF ACQUISITION AT VALUE PER NET
SECURITY SHARES DATE COST 03/31/99 SHARE ASSETS
- --------------------------------------- -------- ---------- ------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ABS GE Capital Giza Fund L.P........... 50,544 02/03/98 $50,544 $ 55,517 $ 1.10 0.07
ABS GE Capital Giza Fund L.P........... 87,203 04/22/98 87,203 95,784 1.10 0.13
ABS GE Capital Giza Fund L.P........... 175,532 05/20/98 175,532 192,804 1.10 0.25
Advent Israel (Bermuda) L.P............ 650,000 06/16/93 520,340 761,241 1.17 0.99
Advent Israel (Bermuda) L.P............ 350,000 06/10/96 344,798 409,899 1.17 0.53
Advent Israel (Bermuda) L.P............ 682,293 01/16/98 770,950 799,061 1.17 1.03
Emerging Markets Ventures, L.P......... 10,667 01/22/98 10,868 9,529 0.89 0.01
Emerging Markets Ventures, L.P......... 469,493 05/05/98 478,366 419,388 0.89 0.55
Emerging Markets Ventures, L.P......... 231,739 07/07/98 236,119 207,007 0.89 0.27
Emerging Markets Ventures, L.P......... 183,217 10/27/98 186,680 163,664 0.89 0.21
Emerging Markets Ventures, L.P......... 105,549 02/26/99 105,549 94,284 0.89 0.12
K.T. Concord Venture Fund LP........... 250,000 12/08/97 242,295 227,379 0.91 0.29
K.T. Concord Venture Fund LP........... 100,000 12/28/98 100,000 90,952 0.91 0.12
K.T. Concord Venture Fund LP........... 150,000 03/12/99 150,000 136,427 0.91 0.18
Polaris Fund II LLC.................... 250,000 10/31/96 236,352 234,302 0.94 0.31
Polaris Fund II LLC.................... 125,000 03/04/98 120,160 117,151 0.94 0.15
Polaris Fund II LLC.................... 125,000 10/08/98 125,000 117,151 0.94 0.15
Superbowl Acquisition LDC.............. 36 10/10/94 332,140 467,244 12,979.00 0.61
The Renaissance Fund LDC............... 26 03/30/94 285,039 193,328 7,436.92 0.25
The Renaissance Fund LDC............... 14 02/24/95 143,408 104,099 7,436.92 0.13
The Renaissance Fund LDC............... 11 03/13/96 113,958 81,793 7,436.92 0.11
The Renaissance Fund LDC............... 7 06/13/96 68,374 52,050 7,436.92 0.07
The Renaissance Fund LDC............... 2 03/21/97 23,876 14,871 7,436.92 0.02
Walden-Israel Ventures, L.P............ 45,000 09/28/93 27,924 57,451 1.28 0.07
Walden-Israel Ventures, L.P............ 80,000 11/30/93 73,836 102,134 1.28 0.13
Walden-Israel Ventures, L.P............ 125,000 05/24/95 115,368 159,585 1.28 0.21
Walden-Israel Ventures, L.P............ 125,000 08/08/96 115,368 159,585 1.28 0.21
Walden-Israel Ventures, L.P............ 125,000 05/16/97 115,368 159,585 1.28 0.21
</TABLE>
The Fund may incur certain costs in connection with the disposition of the above
securities.
- --------------------------------------------------------------------------------
19
<PAGE>
- --------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
- --------------------------------------------------------------------------------
NOTE G. SHARE REPURCHASE PROGRAM
On October 21, 1998, the Fund announced that its Board of Directors has
authorized the repurchase by the Fund of up to 15% of the Fund's outstanding
common stock, for purposes of enhancing shareholder value. The Fund's Board has
authorized management of the Fund to repurchase such shares in open market
transactions at prevailing market prices from time to time and in a manner
consistent with the Fund continuing to seek to achieve its investment
objectives. The Board's actions were taken in light of the significant discounts
at which the Fund's shares recently have been trading. It is intended both to
provide additional liquidity to those shareholders that elect to sell their
shares and to enhance the net asset value of the shares held by those
shareholders that maintain their investment. The repurchase program will be
subject to review by the Board of Directors of the Fund. From October 21, 1998
through March 31, 1999, the Fund repurchased 248,800 of its shares for a total
of $3,119,314 at a weighted average discount of 19.38% from net asset value. The
discount of individual repurchases ranged from 17.26% - 21.98%.
- --------------------------------------------------------------------------------
20
<PAGE>
RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)
On February 9, 1999, 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>
Jonathan W. Lubell 2,865,858 709,468 1,436,969
Steven N. Rappaport 3,414,236 161,090 1,436,969
Richard W. Watt 2,882,426 692,900 1,436,969
</TABLE>
In addition to the directors re-elected at the meeting, Dr. Enrique R. Arzac,
Peter A. Gordon, George W. Landau and William W. Priest, Jr. continue to serve
as directors of the Fund.
(2) To ratify the selection of PricewaterhouseCoopers LLP as independent public
accountants for the fiscal year ending September 30, 1999.
<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
3,471,537 76,567 27,222 1,436,969
</TABLE>
(3) To approve or reject the shareholder proposal recommending that the Fund be
converted into an open-end investment company.
<TABLE>
<CAPTION>
BROKER
FOR AGAINST ABSTAIN NON-VOTES NON-VOTES
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
1,311,159 589,821 69,967 1,604,379 1,436,969
</TABLE>
The above resolution was approved. Since the resolution was in the form of a
recommendation only, it did not require for its passage the vote generally
required under the Fund's charter (75% of outstanding shares) to open-end the
Fund.
On October 21, 1998, the Board of Directors authorized the repurchase by the
Fund of up to 15% of the Fund's outstanding common stock, for the purpose of
enhancing shareholder value. This program is currently being implemented. The
Board of Directors considered the proposal at its subsequent meeting and
unanimously voted not to implement the recommendation at this time.
- --------------------------------------------------------------------------------
21
<PAGE>
DESCRIPTION OF INVESTLINK-SM-* PROGRAM
The InvestLink-SM- Program is sponsored and administered by BankBoston, N.A.,
not by The First Israel Fund, Inc. (the "Fund"). BankBoston, N.A. will act as
program administrator (the "Program Administrator") of the InvestLink-SM-
Program (the "Program"). The purpose of the Program is to provide interested
investors with a simple and convenient way to invest funds and reinvest
dividends in shares of the Fund's common stock ("Shares") at prevailing prices,
with reduced brokerage commissions and fees.
An interested investor may join the Program at any time. Purchases of Shares
with funds from a participant's cash payment or automatic account deduction will
begin on the next day on which funds are invested. If a participant selects the
dividend reinvestment option, automatic investment of dividends generally will
begin with the next dividend payable after the Program Administrator receives
his enrollment form. Once in the Program, a person will remain a participant
until he terminates his participation or sells all Shares held in his Program
account, or his account is terminated by the Program Administrator. A
participant may change his investment options at any time by requesting a new
enrollment form and returning it to the Program Administrator.
A participant will be assessed certain charges in connection with his
participation in the Program. First-time investors will be subject to an initial
service charge which will be deducted from their initial cash deposit. All
optional cash deposit investments will be subject to a service charge. Sales
processed through the Program will have a service fee deducted from the net
proceeds, after brokerage commissions. In addition to the transaction charges
outlined above, participants will be assessed per share processing fees (which
include brokerage commissions.) Participants will not be charged any fee for
reinvesting dividends.
The number of Shares to be purchased for a participant depends on the amount of
his dividends, cash payments or bank account or payroll deductions, less
applicable fees and commissions, and the purchase price of the Shares. The
Program Administrator uses dividends and funds of participants to purchase
Shares of Company Common Stock in the open market. Such purchases will be made
by participating brokers as agent for the participants using normal cash
settlement practices. All Shares purchased through the Program will be allocated
to participants as of the settlement date, which is usually three business days
from the the purchase date. In all cases, transaction processing will occur
within 30 days of the receipt of funds, except where temporary curtailment or
suspension of purchases is necessary to comply with applicable provisions of the
Federal Securities laws, or when unusual market conditions make prudent
investment impracticable. In the event the Program Administrator is unable to
purchase Shares within 30 days of the receipt of funds, such funds will be
returned to the participants.
The average price of all Shares purchased by the Program Administrator with all
funds received during the time period from two business days preceding any
investment date up to the second business day preceding the next investment date
shall be the price per share allocable to a participant in connection with the
Shares purchased for his account with his funds or dividends received by the
Program Administrator during such time period. The average price of all Shares
sold by the Program Administrator pursuant to sell orders received during such
time period shall be the price per share allocable to a participant in
connection with the Shares sold for his account pursuant to his sell orders
received by the Program Administrator during such time period.
BankBoston, N.A., as Program Administrator, administers the Program for
participants, keeps records, sends statements of account to participants
- --------------------------------------------------------------------------------
22
<PAGE>
DESCRIPTION OF INVESTLINK-SM-* PROGRAM (CONTINUED)
and performs other duties relating to the Program. Each participant in the
Program will receive a statement of his account following each purchase of
Shares. The statements will also show the amount of dividends credited to such
participant's account (if applicable), as well as the fees paid by the
participant. In addition, each participant will receive copies of the Fund's
Annual Report to shareholders, proxy statements and, if applicable, dividend
income information for tax reporting purposes.
If the Fund is paying dividends on the Shares, a participant will receive
dividends through the Program for all Shares held on the dividend record date on
the basis of full and fractional Shares held in his account, and for all other
Shares of the Fund registered in his name. The Program Administrator will send
checks to the participants for the amounts of their dividends that are not to be
automatically reinvested at no cost to the participants.
Shares of the Fund purchased under the Program will be registered in the name of
the accounts of the respective participants. Unless requested, the Fund will not
issue to participants certificates for Shares of the Fund purchased under the
Program. The Program Administrator will hold the Shares in book-entry form until
a Program participant chooses to withdraw his Shares or terminate his
participation in the Program. The number of Shares purchased for a participant's
account under the Program will be shown on his statement of account. This
feature protects against loss, theft or destruction of stock certificates.
A participant may withdraw all or a portion of the Shares from his Program
account by notifying the Program Administrator. After receipt of a participant's
request, the Program Administrator will issue to such participant certificates
for the whole Shares of the Fund so withdrawn or, if requested by the
participant, sell the Shares for him and send him the proceeds, less applicable
brokerage commissions, fees, and transfer taxes, if any. If a participant
withdraws all full and fractional Shares in his Program account, his
participation in the Program will be terminated by the Program Administrator. In
no case will certificates for fractional Shares be issued. The Program
Administrator will convert any fractional Shares held by a participant at the
time of his withdrawal to cash.
Participation in any rights offering, dividend distribution or stock split will
be based upon both the Shares of the Fund registered in participants' names and
the Shares (including fractional Shares) credited to participants' Program
accounts. Any stock dividend or Shares resulting from stock splits with respect
to Shares of the Fund, both full and fractional, which participants hold in
their Program accounts and with respect to all Shares registered in their names
will be automatically credited to their accounts.
All Shares of the Fund (including any fractional share) credited to his account
under the Program will be voted as the participant directs. The participants
will be sent the proxy materials for the annual meetings of shareholders. When a
participant returns an executed proxy, all of such Shares will be voted as
indicated. A participant may also elect to vote his Shares in person at the
Shareholders' meeting.
A participant will receive tax information annually for his personal records and
to help him prepare his U.S. federal income tax return. The automatic
reinvestment of dividends does not relieve him of any income tax which may be
payable on dividends. For further information as to tax consequences of
participation in the Program, participants should consult with their own tax
advisors.
The Program Administrator in administering the Program will not be liable for
any act done in good faith or for any good faith omission to act. However, the
Program Administrator will be liable for loss or damage due to error caused by
its negligence, bad faith or
- --------------------------------------------------------------------------------
23
<PAGE>
DESCRIPTION OF INVESTLINK-SM-* PROGRAM (CONTINUED)
willful misconduct. Shares held in custody by the Program Administrator are not
subject to protection under the Securities Investors Protection Act of 1970.
The participant should recognize that neither the Fund nor the Program
Administrator can provide any assurance of a profit or protection against loss
on any Shares purchased under the Program. A participant's investment in Shares
held in his Program account is no different than his investment in directly held
Shares in this regard. The participant bears the risk of loss and the benefits
of gain from market price changes with respect to all of his Shares. Neither the
Fund nor the Program Administrator can guarantee that Shares purchased under the
Program will, at any particular time, be worth more or less than their purchase
price. Each participant must make an independent investment decision based on
his own judgment and research.
While the Program Administrator hopes to continue the Program indefinitely, the
Program Administrator reserves the right to suspend or terminate the Program at
any time. It also reserves the right to make modifications to the Program.
Participants will be notified of any such suspension, termination or
modification in accordance with the terms and conditions of the Program. The
Program Administrator also reserves the right to terminate any participant's
participation in the Program at any time. Any question of interpretation arising
under the Program will be determined in good faith by the Program Administrator
and any such good faith determination will be final.
Any interested investor may participate in the Program. To participate in the
Program, an investor who is not already a registered owner of the Shares must
make an initial investment of at least $250.00. All other cash payments or bank
account deductions must be at least $100.00, up to a maximum of $100,000.00
annually. An interested investor may join the Program by reading the Program
description, completing and signing the enrollment form and returning it to the
Program Administrator. The enrollment form and information relating to the
Program (including the terms and conditions) may be obtained by calling the
Program Administrator at one of the following telephone numbers: First Time
Investors--(800) 969-3321; Current Shareholders--(800) 730-6001. All
correspondence regarding the Program should be directed to: BankBoston, N.A.,
InvestLink Program, P.O. Box 8040, Boston, MA 02266-8040.
- --------------
*InvestLink is a service mark of Boston EquiServe Limited Partnership.
- --------------------------------------------------------------------------------
24
<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 Credit Suisse Asset Management ("CSAM"). CSAM 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. CSAM 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, 1999, CSAM-Americas
managed approximately $36.9 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 CSAM CLOSED-END FUNDS
LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds listed below at 1-800-293-1232 or visit our website on the
Internet: http://www.cefsource.com.
CLOSED-END FUNDS
SINGLE COUNTRY
The Brazilian Equity Fund, Inc. (BZL)
The Chile Fund, Inc. (CH)
The Indonesia Fund, Inc. (IF)
The Portugal Fund, Inc. (PGF)
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
Credit Suisse Asset Management Income Fund, Inc. (FBF)
Credit Suisse Asset Management Strategic Global Income Fund, Inc. (FBI)
Notice is hereby given in accordance with Section 23(c) of the Investment
Company Act of 1940, as amended, that The First Israel Fund, Inc. may from
time to time purchase shares of its capital stock in the open market.
- --------------------------------------------------------------------------------
<PAGE>
DIRECTORS AND CORPORATE OFFICERS
Dr. Enrique R. Arzac Director
Peter A. Gordon Director
George W. Landau Director
Jonathan W. Lubell Director
Steven N. Rappaport Director
William W. Priest, Jr. Chairman of the Board of Directors
Richard W. Watt President, Chief Investment Officer
and Director
Hal Liebes Senior Vice President
Michael A. Pignataro Chief Financial Officer and
Secretary
Rocco A. Del Guercio Vice President
INVESTMENT ADVISER
Credit Suisse Asset Management
One Citicorp Center
153 East 53rd Street
New York, NY 10022
ADMINISTRATOR
Bear Stearns Funds Management Inc.
575 Lexington Avenue
New York, NY 10022
CUSTODIAN
Brown Brothers Harriman & Co.
40 Water Street
Boston, MA 02109
SHAREHOLDER SERVICING AGENT
BankBoston, N.A.
P.O. Box 1865
Mail Stop 45-02-62
Boston, MA 02105-1865
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP
2400 Eleven Penn Center
Philadelphia, PA 19103
LEGAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, NY 10022
<TABLE>
<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>
- --------------------------------------------------------------------------------
3917-SAR-99
