FIRST ISRAEL FUND INC, N-30D, 2000-11-30

FIRST ISRAEL FUND INC
N-30D, 2000-11-30

Previous: SENTIGEN HOLDING CORP, 4, 2000-11-30

Next: KANSAS TAX EXEMPT TRUST SERIES 36, 24F-2NT, 2000-11-30

<PAGE>

[PHOTO]

The First Israel
Fund, Inc.
-------------------------
ANNUAL REPORT
SEPTEMBER 30, 2000
<PAGE>

CONTENTS
<TABLE>
<S> <C>
Letter to Shareholders ...................................................... 1
Portfolio Summary ........................................................... 6
Schedule of Investments ..................................................... 7
Statement of Assets and Liabilities ......................................... 10
Statement of Operations ..................................................... 11
Statement of Changes in Net Assets .......................................... 12
Statement of Cash Flows ..................................................... 13
Financial Highlights ........................................................ 14
Notes to Financial Statements ............................................... 15
Report of Independent Accountants ........................................... 21
Results of Annual Meeting of Shareholders ................................... 22
Tax Information ............................................................. 22
Description of InvestLink-SM- Program ....................................... 23
</TABLE>

PICTURED ON THE COVER IS THE CITADEL MUSEUM LOCATED IN JERUSALEM, ISRAEL.
--------------------------------------------------------------------------------
<PAGE>

LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------

November 6, 2000

DEAR SHAREHOLDER:

I am writing to report on the activities of The First Israel Fund, Inc. (the
"Fund") for the fiscal year ended September 30, 2000.

At September 30, 2000, total net assets of the Fund were approximately $99.0
million. The Fund's investments in securities listed and trading on the Tel Aviv
Stock Exchange ("TASE") were $54.7 million, with another $28.8 million in the
Israeli and Israel-related companies listed and trading in the United States.
Combined, these totaled $83.5 million, as compared to approximately $66.7
million on September 30, 1999. The Fund also held investments valued at
approximately $16.4 million in unlisted securities, as compared to approximately
$8.9 million on September 30, 1999. In percentage terms, at September 30, 2000,
84.3% 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 16.6% 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
September 30, 2000, NAV per share was $23.24 (net of dividends and distributions
paid of $1.87 per share), as compared to $17.18 at September 30, 1999. The
Fund's common stock closed on the New York Stock Exchange ("NYSE") on September
30, 2000 at $18.5625 per share, representing a discount of 20.1% 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
securities, including securities of private equity funds that invest primarily
in the emerging markets.

PERFORMANCE: ABSOLUTELY HIGH, RELATIVELY LOW

The Fund modestly outperformed the broad-based local index of the Israeli equity
market, the TA100, during the fiscal year, rising by 50.6%, based on NAV and
assuming reinvestment of dividends and distributions, versus the TA100's 48.6%.
The Fund performed poorly, however, compared to the Morgan Stanley Capital
International Israel Index (the "Index"),* which rose by 112.4% on the strength
of a few NASDAQ-listed technology stocks.

Perhaps the most prominent of these was Check Point Software Technologies Ltd.
("Check Point"), whose weighting in the Index is extremely high. Although the
Fund held Check Point shares (it was the Fund's tenth-largest holding and
accounted for 2.9% of the portfolio at September 30), valuation concerns and my
desire to prudently diversify the portfolio kept me from purchasing more than I
did. The same was true for Teva Pharmaceutical Industries Ltd. ("Teva"). Despite
the fact that we have liked Teva enough to maintain it as one of the Fund's top
positions for several years running (it was the Fund's largest holding and
accounted for 7.5% of the portfolio at September 30), I felt we could not own it
in the same proportion as the benchmark.

As noted in previous reports, I find the Index's composition to be quite
frustrating because it gives a prohibitively high weighting to stocks like Check
Point, yet does not contain other NASDAQ-listed stocks that are equally viable
candidates

--------------------------------------------------------------------------------
1

<PAGE>

LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------

for inclusion. (Some of these other stocks, by the way, performed very poorly
in the Fund's fiscal year, in line with the collapse in tech stocks globally).
The result is an index that is, for all intents and purposes, an unrealistic
basis for constructing a portfolio aiming to give broadly diversified exposure
to the Israeli economy.

An additional problem presented by the benchmark was the timing of the Index's
implementation of changes in 1999 that added stocks like Check Point to the
Index at particularly high weightings. If I had chosen to structure the Fund to
reflect the Index's updated composition, I would have had to sell many
securities, which would have generated unusually high transaction costs and
raised tax issues for shareholders.

THE INVESTMENT ENVIRONMENT: ECONOMY PERFORMS WELL AS PEACE PROCESS STUTTERS

As we began the fiscal year, the peace process appeared to be gathering more
positive momentum whilst the economy looked set for near-term recovery and
confidence was high amongst the business community.

Things seemed on track as we moved into the first half of calendar 2000.
Inflation was very low; the shekel was strong; interest rates were coming down;
inflows of foreign capital were rising; and the peace process was, again,
gathering positive momentum.

INFLATION. Inflation appeared to be very much under control and was expected to
come in well below the government's target rate of 3-4% for 2000. This
encouraged the Bank of Israel to cut short-term interest rates by 30 basis
points (bp) to 8.6%, with further cuts of 50-100 bp anticipated by year-end.
(Inflation-adjusted rates still are extremely high, however.)

STRONG SHEKEL. High real (i.e., inflation-adjusted) interest rates, healthy
export growth and a weak euro helped to boost the shekel during a period in
which political tensions normally would have caused it to weaken.

CAPITAL INFLOWS. Year-to-date foreign investments in Israel totaled $6.5 billion
through August, compared to $3.3 billion in the same period of 1999. Foreign
direct investment alone accounted for $2.5 billion and should remain vibrant in
the coming years.

In contrast to the economy, financial markets were extremely volatile. In March,
for example, the technology-heavy NASDAQ began to correct sharply, as investors
questioned the lofty valuations for stocks in the aggregate technology, media
and telecommunications sectors. In sympathy, most NASDAQ-listed Israeli tech
stocks began what turned into a steep decline. This major derating process
continued through most of the second calendar quarter and resulted in a high
level of volatility that persists as I write.

Israeli equities treaded water during most of the third quarter (corresponding
to the last three months of the Fund's fiscal year). In recent weeks, however,
the market has collapsed, experiencing a monthly decline in October that was its
largest in years due to the apparent total breakdown in the peace process and
the onset of renewed violence in Israel.

--------------------------------------------------------------------------------
2

<PAGE>

LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------

PORTFOLIO STRATEGY/STRUCTURE: BUYING HIGH-QUALITY NAMES ON WEAKNESS, STICKING
WITH TECH AND FINANCIAL COMPANIES

TOP 10 HOLDINGS, BY ISSUER*

<TABLE>
<CAPTION>
% OF
HOLDING SECTOR NET ASSETS
------- ------ ----------
<S> <C> <C>
1. Teva Pharm. Pharmaceuticals 7.5
2. Bezeq Telecommunications 5.9
3. Koor Industries Conglomerates 5.1
4. Gilat Satellite Telecommunications 3.8
5. Advent Israel Venture Capital 3.5
6. Bank Leumi Banking 3.3
7. IDB Holding Conglomerates 3.3
8. Bank Hapoalim Banking 3.1
9. ABS GE Capital
Giza Fund Venture Capital 3.0
10. Check Point Computer Data Secty. 2.9
----
Total 41.4
====
</TABLE>

---------------
* Company names and sectors are abbreviations of those found in the chart on
page 6.

SECTOR ALLOCATION
(& of net assets)

[EDGAR REPRESENTATION OF GRAPHIC PIE CHART]

<TABLE>
<S> <C>
Cash & Other Assets* 24.18
Venture Capital 11.49
Telecom. 12.75
Pharm. 9.50
Mortgage Banking 4.72
Inv. & Holding Cos. 7.81
Insurance 3.44
Industrial Technology 3.72
Food & Beverages 4.14
Conglomerates 10.97
Banking 7.28
</TABLE>

----------------
* Cash and Other Assets includes sectors below 3.0% of net assets.

Given the uncertainty implied by market developments in the last few months, I
have elected to maintain a sensibly cautious stance within the Fund. As long as
the current hostilities do not deteriorate into full-scale war--which I do not
expect at this point--then I will look to pick up high-quality stocks during
periods of market weakness. Indeed, I have already begun to do this in a small
way.

In addition, I intend to stick with my past strategy of investing in tech via a
combination of NASDAQ-listed issues (which I am de-emphasizing in the current
environment) and carefully chosen holdings in private equities. I continue to do
the latter principally by taking positions in private equity funds, which
provide the Fund with broad diversification and limit the impact of any single
or small group of companies.

I note here that the Fund's strategy of investing in private equity offerings
has been successful on a long-term basis. These vehicles typically are not
available to individual investors, meaning that the Fund's access to them is a
benefit of its closed-end structure. Usually, we have exposure to more than 100
such opportunities at any one time, and at very low valuations compared to
publicly traded technology companies, especially those included in the Index.
Owning private equities is thus a demonstrable competitive advantage and entails
relatively lower risk for investors.

Regarding our exposure to the financial sector, I am frankly disappointed
because, after performing solidly in 1999, these stocks haven't lived up to
expectations in 2000. This was largely due both to the recession that prevailed
through the first half and high interest rates, which kept people out of the
housing market. Both hurt the mortgage banks I have long tended to favor. Should
real interest rates return to a falling trend and the broad economic recovery
persists, I would expect to see improving returns among financial names in 2001.

--------------------------------------------------------------------------------
3

<PAGE>

LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------

OUTLOOK: OPTIMISTIC

I'm optimistic about the prospects for Israeli equities in the medium term.

In the near term, though, the deterioration in the peace process clearly is a
major source of concern. Prime Minister Barak faces a series of challenges and
his minority-coalition government is very insecure. The monetary authorities
likely will adopt a cautious approach for the time being, and sentiment among
domestic consumers and businesses is poor. Given so much uncertainty, I
anticipate that Israeli stocks will trade in a sideways and potentially volatile
fashion until conditions become clearer.

As for the Israeli economy, it has demonstrated surprising strength thus far
this year and appears ready to accelerate in 2001. Underlying fundamentals look
reasonable and corporate earnings are good, and GDP growth should reach 5% or so
in 2000. The latter, incidentally, is well above the 2% annualized rate of GDP
growth projected at this time last year.

Reflecting the impact of higher oil prices, increasing domestic demand and
rising import prices, I expect inflation to reach the 2.5-3.5% range for the
year 2001, up from what should be less than 1% in 2000. Still, this remains very
low and could be sustainable for some time.

Hence, additional interest-rate cuts should be in the offing. Real rates would
have been expected to gradually fall to 5% by the end of 2001 from the current
rate of approximately 8%, but this will likely not occur until there is more
visibility on the peace front. I see a continuation of capital flows from abroad
to Israel despite the tensions in the coming year, although likely at a lower
rate than previously forecast.

In conclusion, therefore, the powerful macroeconomic environment enjoyed for
most of the year is likely to change, but it should not dramatically weaken
unless the political situation significantly deteriorates from here. Risk
aversion should remain high until the political problems are resolved. Such
resolution seems improbable in the near term, although the odds of a dramatic
escalation in tensions appear low. Accordingly, I believe that the correct
strategy for the Fund is to look to add to stakes in high-quality,
domestic-focused companies and take a highly selective approach to private
equity.

Respectfully,

/s/ Richard W. Watt

Richard W. Watt
President and Chief Investment Officer **

<PAGE>

LETTER TO SHAREHOLDERS
--------------------------------------------------------------------------------

FROM CREDIT SUISSE ASSET MANAGEMENT, LLC:

We wish to remind shareholders whose shares are registered in their own name
that they automatically participate in the Fund's dividend reinvestment program
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 is described on pages 23
through 25 of this report.

--------------------------------------------------------------------------------
* The Morgan Stanley Capital International Israel Index is an unmanaged index
(with no defined investment objective) of Israeli equities that includes
reinvestment of dividends, and is the exclusive property of Morgan Stanley
Capital International Inc.

** Richard W. Watt, who is a Managing Director of Credit Suisse Asset
Management, LLC ("CSAM"), is primarily responsible for management of the Fund's
assets. 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. 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 is also President, Chief Investment Officer and a
Director of The Chile Fund, Inc. and The Emerging Markets Telecommunications
Fund, Inc. He is President and a Director of The Brazilian Equity Fund, Inc. and
The Latin America Equity Fund, Inc. and is Chief Investment Officer of The
Portugal Fund, Inc.

--------------------------------------------------------------------------------
5

<PAGE>

--------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.

PORTFOLIO SUMMARY - AS OF SEPTEMBER 30, 2000 (UNAUDITED)
--------------------------------------------------------------------------------

SECTOR ALLOCATION
--------------------------------------------------------------------------------

[EDGAR REPRESENTATION OF BAR CHART]

<TABLE>
<CAPTION>
AS A PERCENT OF NET ASSETS September 30, 2000 September 30, 1999
<S> <C> <C>
Banking 7.28% 9.11%
Computer Data Security 2.86% 0.00%
Computer Software 2.50% 0.85%
Conglomerates 10.97% 19.95%
Food & Beverages 4.14% 6.58%
Industrial Technology 3.72% 2.59%
Insurance 3.44% 3.80%
Investment & Holding Companies 7.81% 5.54%
Mortgage Banking 4.72% 7.69%
Pharmaceuticals 9.50% 7.18%
Telecommunications 12.75% 8.96%
Venture Capital 11.49% 6.27%
Other 19.73% 20.06%
Cash & Other Assets (0.91%) 1.42%
</TABLE>

TOP 10 HOLDINGS, BY ISSUER
--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
Percent of
Holding Sector Net Assets
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1. Teva Pharmaceutical Industries Ltd. Pharmaceuticals 7.5
---------------------------------------------------------------------------------------------------------------------------
2. Bezeq Israeli Telecommunication Corporation Ltd. Telecommunications 5.9
---------------------------------------------------------------------------------------------------------------------------
3. Koor Industries Ltd. Conglomerates 5.1
---------------------------------------------------------------------------------------------------------------------------
4. Gilat Satellite Networks Ltd. Telecommunications 3.8
---------------------------------------------------------------------------------------------------------------------------
5. Advent Israel (Bermuda) L.P. Venture Capital 3.5
---------------------------------------------------------------------------------------------------------------------------
6. Bank Leumi Le-Israel Ltd. Banking 3.3
---------------------------------------------------------------------------------------------------------------------------
7. IDB Holding Corporation Ltd. Conglomerates 3.3
---------------------------------------------------------------------------------------------------------------------------
8. Bank Hapoalim Ltd. Banking 3.1
---------------------------------------------------------------------------------------------------------------------------
9. ABS GE Capital Giza Fund, L.P. Venture Capital 3.0
---------------------------------------------------------------------------------------------------------------------------
10. Check Point Software Technologies Ltd. Computer Data Security 2.9
---------------------------------------------------------------------------------------------------------------------------
</TABLE>

--------------------------------------------------------------------------------
6
<PAGE>

------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2000
------------------------------------------------------------------------------

No. of Value
Description Shares (Note A)
------------------------------------------------------------------------------
EQUITY OR EQUITY-LINKED SECURITIES-100.91%
ISRAEL-98.68%

AEROSPACE/DEFENSE EQUIPMENT-1.07%
Elbit Systems Ltd. ................. 72,913 $ 1,058,183
-----------

BANKING-7.28%
Bank Hapoalim Ltd. .................. 994,400 3,049,427
Bank Leumi Le-Israel Ltd. ........... 1,469,800 3,301,936
United Mizrahi Bank Ltd. ............ 260,687 848,658
-----------
7,200,021
-----------

BUILDING PRODUCTS-1.34%
Industrial Buildings
Corporation Ltd. ................... 276,896 478,237
Property & Building
Corporation Ltd. ................... 8,525 847,173
-----------
1,325,410
-----------

CABLE TELEVISION-1.11%
Matav-Cable Systems Media Ltd. ...... 54,654 1,101,501
-----------

CHEMICALS-2.28%
Israel Chemicals Ltd. ............... 1,841,202 2,251,629
-----------

COMPUTER DATA SECURITY-2.86%
Check Point Software
Technologies Ltd.+ ................. 18,000 2,835,000
-----------

COMPUTER SOFTWARE-2.50%
Formula Systems (1985) Ltd.+ ........ 20,500 869,110
Fundtech Ltd.+ ...................... 23,900 570,240
Magic Software
Enterprises Ltd.+ .................. 122,400 933,300
Tecnomatix
Technologies Ltd.+ ................. 8,000 100,500
-----------
2,473,150
-----------

CONGLOMERATES-10.97%
Discount Investment Corporation ..... 6,000 $ 343,091
Elco Holdings Ltd. .................. 2,372 22,254
IDB Development
Corporation Ltd.+ .................. 49,005 2,195,713
IDB Holding Corporation Ltd. ........ 80,004 3,272,521
Koor Industries Ltd. ................ 50,616 5,018,833
-----------
10,852,412
-----------

ELECTRONICS-2.28%
Electronics for Imaging, Inc.+ ...... 20,000 505,000
Galileo Technology Ltd.+ ............ 55,200 1,752,600
-----------
2,257,600
-----------

ELECTRONICS/ELECTRICAL EQUIPMENT-1.94%
Elco Industries Ltd. ................ 39,270 331,707
Electra Consumer
Products Ltd. ...................... 60,658 844,147
Electra (Israel) Ltd. ............... 8,642 741,786
-----------
1,917,640
-----------

ENERGY SERVICES-1.07%
Delek Group Ltd. .................... 14,636 1,060,957
-----------

FINANCIAL SERVICES-2.40%
F.I.B.I. Holdings Ltd. .............. 178,433 1,763,046
Gachelet Investments Ltd. ........... 9,819 609,783
-----------
2,372,829
-----------

FOOD & BEVERAGES-4.14%
Elite Industries Ltd ................ 104,293 1,127,940
Jaf-Ora Ltd. ........................ 405,208 1,125,802
Mayanot Eden Ltd. ................... 69,893 739,749
Osem Investment Ltd. ................ 62,068 422,939
Supersol Ltd. ....................... 187,843 684,806
-----------
4,101,236
-----------

FOOD - RETAIL-1.92%
Blue Square-Israel Ltd. ADR ......... 169,200 1,903,500
-----------

------------------------------------------------------------------------------
7

<PAGE>

No. of Value
Description Shares (Note A)
------------------------------------------------------------------------------

INDUSTRIAL TECHNOLOGY-3.72%
Cubital, Ltd.*+ ..................... 329,278 $ 0
Orbotech, Ltd.+ ..................... 29,287 1,601,633
Scitex Corporation Ltd.+ ............ 168,200 2,081,475
-----------
3,683,108
-----------

INFORMATION TECHNOLOGY-0.62%
Formula Ventures L.P.++# ............ 564,984 615,488
-----------

INSURANCE-3.44%
Clal Insurance Enterprise
Holdings Ltd. ...................... 58,631 901,903
Harel Insurance Investments Ltd. .... 30,629 2,504,181
-----------
3,406,084
-----------

INTERNET SOFTWARE-0.55%
Aladdin Knowledge Systems+ .......... 26,000 188,500
Commtouch Software Ltd.+ 18,800 356,025
-----------
544,525
-----------

INVESTMENT & HOLDING COMPANIES-5.58%
Ampal-American Israel Corp.,
Class A+ ........................... 124,900 1,639,312
Makhteshim-Agan
Industries Ltd.+ ................... 880,991 2,066,738
Oren Semiconductor, Inc.,
Series K*+ ......................... 29,951 65,892
Oren Semiconductor, Inc.,
Series L*+ ......................... 30,843 67,855
Oren Semiconductor, Inc.,
Series O, Units*+(1) ............... 46,035 101,277
Polaris Fund II LLC++# .............. 885,000 1,390,348
The Renaissance Fund LDC+++ ......... 60 194,557
-----------
5,525,979
-----------

METAL PRODUCTS-0.49%
Caniel-Israel Can
Company Ltd.+ ...................... 5,122 17,247
Klil Industries Ltd.,(Shares 5) ..... 18,654 278,136
Ofer Development &
Investments Ltd.+ .................. 46,000 186,446
-----------
481,829
-----------

MORTGAGE BANKING-4.72%
Discount Mortgage Bank Ltd.+ ........ 12,865 $ 1,084,765
Israel Discount Bank Ltd.+ .......... 1,015,467 1,139,120
Mishkan-Hapoalim Mortgage
Bank Ltd. .......................... 5,892 1,212,370
Tefahot Israel Mortgage Bank Ltd. ... 172,496 1,231,563
-----------
4,667,818
-----------

PACKAGING-0.02%
Caniel Packaging Industries+ ........ 5,122 21,511
-----------

PHARMACEUTICALS-9.50%
Agis Industries (1983) Ltd.+ ........ 159,403 1,558,774
Peptor Ltd.*+ ....................... 56,000 392,000
Teva Pharmaceutical
Industries Ltd. ADR ................ 101,820 7,451,951
-----------
9,402,725
-----------

REAL ESTATE & CONSTRUCTION-1.18%
Azorim-Investment, Development &
Construction Company Ltd. .......... 100,630 1,162,847
-----------

TELECOMMUNICATIONS-12.75%
Bezeq Israeli Telecommunication
Corporation Ltd. ................... 969,401 5,832,306
ECI Telecom Ltd. .................... 92,526 2,833,609
Geotek Communications, Inc.+ ........ 18,595 19
Geotek Communications,
Inc., Convertible Preferred
Series M, 8.50%*+ .................. 100 0
Geotek Communications,
Inc., Convertible
Preferred Series N*+(2) ............ 595 0
Gilat Satellite Networks Ltd.+ ...... 49,200 3,782,250
Nexus Telocation Systems Ltd.+ ...... 68,933 150,791
Terayon Communication
Systems, Inc.+ ..................... 624 21,177
-----------
12,620,152
-----------

------------------------------------------------------------------------------
8

<PAGE>

No. of Value
Description Shares (Note A)
------------------------------------------------------------------------------

TEXTILES-0.43%
Macpell Industries Ltd.+ ............ 116,079 $ 429,815
-----------

TRADING COMPANIES-0.36%
Rapac Electronics Ltd. .............. 31,801 355,946
-----------

VENTURE CAPITAL-11.49%
ABS GE Capital
Giza Fund, L.P.++# ................. 1,056,713 2,924,590
Advent Israel (Bermuda) L.P.+++ ..... 1,682,293 3,476,074
Concord Ventures II Fund L.P.+++# ... 500,000 458,484
Giza GE Venture Fund III L.P.+++# ... 400,000 385,961
K.T. Concord Venture Fund
L.P.+++ ............................ 1,000,000 1,583,874
SVE Star Ventures
Enterprises No. II*+ ............... 5 2,067,387
Walden-Israel Ventures, L.P.++ ...... 500,000 476,639
-----------
11,373,009
-----------

WIRELESS EQUIPMENT-0.04%
Ceragon Networks Ltd.+ .............. 1,600 43,000
-----------

WOOD & PAPER PRODUCTS-0.63%
American Israeli Paper Mills Ltd. ... 9,001 622,941
-----------

TOTAL ISRAEL (Cost $67,330,210) ..... 97,667,845
-----------

GLOBAL-2.23%

INVESTMENT & HOLDING COMPANIES-2.23%
Emerging Markets Ventures I
L.P.+++# (Cost $1,677,023) ......... 1,606,685 $ 2,210,655
-----------

TOTAL INVESTMENTS-100.91%
(Cost $69,007,233) (Notes A,D) ..... 99,878,500
-----------

LIABILITIES IN EXCESS OF CASH AND
OTHER ASSETS-(0.91)% ............... (899,148)
-----------

NET ASSETS-100.00% .................. $98,979,352
-----------
-----------
------------------------------------------------------------------------------
* Not readily marketable security.
++ Restricted security, not readily marketable (See Note F).
+ Security is non-income producing.
# As of September 30, 2000, the Fund committed to investing an
additional $435,016, $115,000, $193,287, $1,500,000, $850,000 and
$815,818 of capital in Formula Ventures L.P., Polaris Fund II LLC, ABS
GE Capital Giza Fund, L.P., Concord Ventures II Fund L.P., Giza GE
Venture Fund III L.P. and Emerging Markets Ventures I L.P.,
respectively.
(1) With an additional 46,035 warrants attached, expiring 12/31/49, with no
market value.
(2) With an additional 595 warrants attached, expiring 06/20/01, with no
market value.
ADR American Depositary Receipts.

------------------------------------------------------------------------------
9

See accompanying notes to financial statements.

<PAGE>

------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES - SEPTEMBER 30, 2000
------------------------------------------------------------------------------

<S> <C>
ASSETS

Investments, at value (Cost $69,007,233) (Note A) ............... $99,878,500
Receivables:
Dividends .................................................... 44,607
Investments sold ............................................. 31,193
Prepaid expenses ................................................ 19,622
-----------
Total Assets .................................................... $99,973,922
-----------

LIABILITIES

Due to custodian (Note A) ....................................... 551,406
Payables:
Investment advisory fee (Note B) ............................. 224,186
Administration fees (Note B) ................................. 11,652
Other accrued expenses ....................................... 207,326
-----------
Total Liabilities ............................................... 994,570
-----------
NET ASSETS (applicable to 4,259,295 shares of common stock
outstanding) (Note C) .......................................... $98,979,352
===========
NET ASSET VALUE PER SHARE ($98,979,352 DIVIDED BY 4,259,295) .... $23.24
===========

NET ASSETS CONSIST OF

Capital stock, $0.001 par value; 4,259,295 shares issued
and outstanding (100,000,000 shares authorized) ............... $ 4,259
Paid-in capital ................................................ 56,344,872
Undistributed net investment income ............................ 241,868
Accumulated net realized gain on investments and foreign
currency related transactions ................................. 11,516,847
Net unrealized appreciation in value of investments and
translation of other assets and liabilities denominated
in foreign currency ........................................... 30,871,506
-----------
Net assets applicable to shares outstanding ..................... $98,979,352
===========

</TABLE>

------------------------------------------------------------------------------
10 See accompanying notes to financial statements.

<PAGE>

------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF OPERATIONS - FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------

<S> <C>
INVESTMENT INCOME

Income (Note A):
Dividends .................................................... $ 2,214,433
Interest ..................................................... 160,036
Less: Foreign taxes withheld ................................. (623,034)
-----------
Total Investment Income ...................................... 1,751,435
-----------

Expenses:
Investment advisory fees (Note B) ............................ 1,180,247
Audit and legal fees ......................................... 185,886
Custodian fees ............................................... 161,132
Administration fees (Note B) ................................. 113,285
Printing ..................................................... 87,288
Consulting fees .............................................. 84,135
Accounting fees .............................................. 75,000
Directors' fees .............................................. 61,529
Transfer agent fees .......................................... 41,243
NYSE listing fees ............................................ 16,197
Insurance .................................................... 8,380
Other ........................................................ 20,365
-----------
Total Expenses ............................................... 2,034,687
Less: Fee waivers (Note B) ................................... (210,534)
-----------
Net Expenses ............................................... 1,824,153
-----------
Net Investment Loss .......................................... (72,718)
-----------

NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS AND
FOREIGN CURRENCY RELATED TRANSACTIONS

Net realized gain/(loss) from:
Investments (net of Israeli capital gains taxes of
$149,519) (Note A) .......................................... 14,609,469
Foreign currency related transactions ........................ (82,513)
Net change in unrealized appreciation in value of
investments and translation of other assets and
liabilities denominated in foreign currency .................... 19,449,665
-----------
Net realized and unrealized gain on investments and
foreign currency related transactions .......................... 33,976,621
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ............ $33,903,903
===========

</TABLE>

------------------------------------------------------------------------------
See accompanying notes to financial statements. 11

<PAGE>

------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CHANGES IN NET ASSETS
------------------------------------------------------------------------------

For the Fiscal Years Ended
September 30,
--------------------------
2000 1999
--------------------------
<S> <C> <C>
INCREASE IN NET ASSETS

Operations:
Net investment loss ........................... $ (72,718) $ (94,515)
Net realized gain on investments and
foreign currency related transactions ........ 14,526,956 4,585,962
Net change in unrealized
appreciation/(depreciation) in value
of investments and translation of other
assets and liabilities denominated
in foreign currency .......................... 19,449,665 11,510,531
----------- -----------
Net increase in net assets resulting
from operations ............................ 33,903,903 16,001,978
----------- -----------
Dividends and distributions to shareholders:
Net investment income ......................... (1,799,488) (1,105,935)
Net realized gain on investments .............. (6,407,933) (5,958,298)
----------- -----------
Total dividends and distributions
to shareholders ............................ (8,207,421) (7,064,233)
----------- -----------
Capital share transactions:
Cost of 204,100 and 548,900 shares
repurchased, respectively (Note G) ........... (3,400,538) (7,627,236)
----------- -----------
Total increase in net assets ................ 22,295,944 1,310,509
----------- -----------
NET ASSETS

Beginning of year ................................ 76,683,408 75,372,899
----------- -----------
End of year ...................................... $98,979,352* $76,683,408
=========== ===========

</TABLE>

--------------------------
* Includes undistributed net investment income of $241,868.

------------------------------------------------------------------------------
12 See accompanying notes to financial statements.

<PAGE>

------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.
STATEMENT OF CASH FLOWS - FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2000
------------------------------------------------------------------------------

<S> <C> <C>
INCREASE/(DECREASE) IN CASH FROM

Operating Activities:
Investment income received .................... $ 1,793,702
Operating expenses paid ....................... (1,860,454)
-----------
Net decrease in cash from operating activities ... $ (66,752)
Investing Activities:
Purchases of long-term portfolio investments .. (23,541,833)
Proceeds from disposition and maturity
of long-term portfolio investments ........... 33,224,699
-----------
Net increase in cash from investing activities ... 9,682,866

Financing Activities:
Cash paid for shares repurchased ................ (3,400,538)
Cash dividends and distributions paid ........... (8,207,421)
-----------
Net decrease in cash from financing activities ... (11,607,959)
-----------
Net decrease in cash ............................. (1,991,845)
Cash at beginning of year ........................ 1,440,439
-----------
Cash at end of year (Note A) ..................... $ (551,406)
============

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 ................................. $ 33,903,903
Adjustments:
Decrease in dividends and interest
receivable ................................... $ 42,267
Decrease in accrued expenses .................. (34,364)
Increase in prepaid expenses .................. (1,937)
Net realized and unrealized gain on
investments and foreign currency
related transactions ......................... (33,976,621)
------------
Total adjustments ................................ (33,970,655)
------------
NET DECREASE IN CASH FROM OPERATING ACTIVITIES ... $ (66,752)
============

</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 Period
October 29,
1992*
For the Fiscal Years Ended September 30, through
--------------------------------------------------------------------------- September 30,
2000 1999 1998 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PER SHARE OPERATING
PERFORMANCE

Net asset value, beginning of period ..... $ 17.18 $ 15.04 $ 18.41 $ 13.10 $ 13.20 $ 11.74 $ 15.83 $ 13.74**
------- ------- ------- ------- ------- ------- ------- -------
Net investment income/(loss) ............. (0.02)+ (0.02)+ 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 ................... 7.80 3.21 (2.97) 6.20 (0.01) 1.56 (3.27) 2.16
------- ------- ------- ------- ------- ------- ------- -------
Net increase/(decrease) in net assets
resulting from operations .............. 7.78 3.19 (2.90) 6.55 (0.10) 1.46 (3.55) 2.09
------- ------- ------- ------- ------- ------- ------- -------
Dividends and distributions to shareholders:
Net investment income .................. (0.41) (0.21) -- -- -- -- -- --
Net realized gain on investments and
foreign currency related transactions. (1.46) (1.20) (0.47) (1.24) -- -- (0.43) --
In excess of net realized gains ........ -- -- -- -- -- -- (0.11) --
------- ------- ------- ------- ------- ------- ------- -------
Total dividends and distributions
to shareholders ........................ (1.87) (1.41) (0.47) (1.24) -- -- (0.54) --
------- ------- ------- ------- ------- ------- ------- -------
Anti-dilutive impact due to capital
shares repurchased ..................... 0.15 0.36 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Net asset value, end of period .......... $23.24 $17.18 $15.04 $18.41 $13.10 $13.20 $11.74 $15.83
======= ======= ======= ======= ======= ======= ======= =======
Market value, end of period .............. $18.563 $14.000 $11.813 $14.938 $11.250 $12.000 $13.250 $17.375
======= ======= ======= ======= ======= ======= ======= =======
Total investment return (a) .............. 47.61% 32.61% (18.05)% 44.36% (6.25)% (9.43)% (21.26)% 24.58%
======= ======= ======= ======= ======= ======= ======= =======
RATIOS/SUPPLEMENTAL DATA

Net assets, end of period (000 omitted) .. $98,979 $76,683 $75,373 $92,298 $65,649 $66,150 $58,855 $79,274
Ratio of expenses to average net assets (c) 2.05% 2.05% 2.06% 2.26% 2.23% 2.57% 2.64% 2.41%(b)
Ratio of expenses to average net assets,
excluding fee waivers .................. 2.28% 2.30% 2.31% 2.30% -- -- -- --
Ratio of net investment income/(loss) to
average net assets ..................... (0.08)% (0.12)% 0.42% 2.20% (0.68)% (0.91)% (2.08)% (0.50)%(b)
Portfolio turnover rate 27.06% 18.65% 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.

(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.
--------------------------------------------------------------------------------

14 See accompanying notes to financial statements.
<PAGE>

--------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.

NOTES TO FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

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
accounting principles generally accepted in the United States 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 shall be valued at the closing price on the
exchange or market on which the security is primarily traded ("Primary Market").
If the security did not trade on the Primary Market, it shall be valued at the
closing price on another exchange where it trades. If there are no such sale
prices, the value shall be the most recent bid, and if there is no bid, the
security shall be valued at the most recent asked. If no pricing service is
available and there are more than two dealers, the value shall be the mean of
the highest bid and the lowest ask. If there is only one dealer, then the value
shall be the mean if bid and ask are available, otherwise the value shall be the
bid. 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 not
readily marketable securities. At September 30, 2000, the Fund held 16.58% of
its net assets in securities valued in good faith by the Board of Directors with
an aggregate cost of $11,311,209 and fair value of $16,411,081. Amounts realized
from the disposition of fair-valued securities could be significantly different
from current carrying values. 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 September 30, 2000, the
interest rate was 5.86% 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

--------------------------------------------------------------------------------

15
<PAGE>

--------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

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%. For the fiscal year ended September 30, 2000, the Fund incurred $149,519 in
Israeli capital gains taxes.

FOREIGN CURRENCY TRANSLATIONS: The books and records of the Fund are maintained
in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on
the following basis:

(I) market value of investment securities, assets and liabilities at the
current rate of exchange; and

(II) purchases and sales of investment securities, income and expenses at
the relevant rates of exchange prevailing on the respective dates of
such transactions.

The Fund does not isolate that portion of gains and losses 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 transaction 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 carryforwards, 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.

At September 30, 2000, the Fund reclassified within the composition of net
assets permanent book/tax differences from accumulated net realized gain on
investments and foreign currency related transactions of $3,068,084 related to
gains from the sale of Passive Foreign Investment Companies and $82,513 related
to foreign currency losses to undistributed net investment income.

--------------------------------------------------------------------------------

16
<PAGE>

--------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.

NOTES TO FINANCIAL STATEMENTS (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, LLC ("CSAM") serves as the Fund's investment
adviser with respect to all investments. Effective July 1, 2000, CSAM agreed to
revise its method of calculating the investment advisory fee to be based on the
lesser of the average weekly stock market price or average weekly net assets.
Such fee is based on the calculation used prior to July 1, 2000, substituting
the above-mentioned revision in place of average weekly net assets. Prior to
July 1, 2000, CSAM received as compensation for its advisory services from the
Fund, an annual fee, calculated weekly and paid quarterly, equal to 1.30% of the
Fund's average weekly 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 fiscal year ended September 30, 2000,
CSAM earned $1,180,247 for advisory services, of which CSAM waived $210,534.
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 fiscal year ended September 30, 2000, CSAM was reimbursed $15,130 for
administrative services rendered to the Fund.

Analyst Exchange and Trading Services, Ltd. ("Analyst I.M.S.") serves as the
Fund's investment sub-adviser. Effective July 1, 2000, Analyst I.M.S. agreed to
revise its method of calculating the investment sub-advisory fee to be based on
the lesser of the average weekly stock market price or average weekly net
assets. Such fee is

--------------------------------------------------------------------------------

17
<PAGE>

--------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

based on the calculation used prior to July 1, 2000, substituting the
above-mentioned revision in place of average weekly net assets. Prior to July 1,
2000, 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 0.30% 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 $25,000 annually to cover expenses incurred in the execution of sub-advisory
services. For the fiscal year ended September 30, 2000, Analyst I.M.S. earned
$321,409 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 fiscal year ended September 30, 2000, such commissions amounted
to approximately $12,900.

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 fiscal year ended
September 30, 2000, BSFM earned $98,155 for administrative services.

On May 8, 2000, the Fund's Board of Directors unanimously approved a proposal by
the Independent Directors (as defined under the Investment Company Act of 1940,
as amended), to partially compensate Independent Directors in shares of the
Fund. Under this policy, such Directors would receive fifty percent (50%) of
their annual retainer in the form of shares purchased by the Fund in the open
market.

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 4,259,295 shares outstanding at September 30, 2000,
CSAM owned 7,169 shares.

NOTE D. INVESTMENT IN SECURITIES
For U.S. federal income tax purposes, the cost of securities owned at September
30, 2000 was $69,221,722. Accordingly, the net unrealized appreciation of
investments (including investments denominated in foreign currency) of
$30,656,778, was composed of gross appreciation of $35,169,280, for those
investments having an excess of value over cost and gross depreciation of
$4,512,502, for those investments having an excess of cost over value.

For the fiscal year ended September 30, 2000, purchases and sales of securities,
other than short-term investments, were $23,536,129 and $29,124,149,
respectively.

NOTE E. CREDIT FACILITY
The Fund, together with other funds advised by CSAM established a $350 million
committed, unsecured, line of credit facility ("Credit Facility") with Deutsche
Bank AG as administrative agent, State Street Bank and Trust Company as
operations agent, Bank of Nova Scotia as syndication agent as well as certain
other lenders for temporary or emergency purposes. Under the terms of the Credit
Facility, the Funds with access to the Credit Facility pay an aggregate
commitment fee at a rate of 0.075% per annum on the average daily balance of the
Credit Facility that is undisbursed and uncanceled during the preceding quarter
allocated among the participating funds in such manner as is determined by the
governing Boards of the various funds. In addition, the participating funds will
pay interest on borrowing at the Federal Funds rate plus 0.50%. At September 30,
2000 and during the fiscal year ended September 30, 2000, the Fund had no
borrowings under the Credit Facility.

--------------------------------------------------------------------------------

18
<PAGE>

--------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.

NOTES TO FINANCIAL STATEMENTS (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 units/shares held, the acquisition dates, aggregate
costs, fair value as of September 30, 2000, value per unit/share of such
securities and percent of net assets which the securities comprise.

Advent Israel (Bermuda) L.P. ........ 1,682,293 06/16/93 - 01/16/98 1,291,345 3,476,074 2.07 3.51
--------- --------- ---------- ----

Concord Ventures II Fund L.P. ....... 240,000 3/29/00 244,076 220,072 0.92 0.22
60,000 06/09/00 60,000 55,018 0.92 0.06
200,000 07/28/00 200,000 183,394 0.92 0.18
--------- --------- ---------- ----
500,000 504,076 458,484 0.46
--------- --------- ---------- ----

Emerging Markets Ventures I L.P. .... 1,067,844 01/22/98 - 08/24/99 1,117,991 1,469,257 1.38 1.49
183,217 10/01/99 184,330 252,091 1.38 0.25
172,407 12/21/99 190,372 237,216 1.38 0.24
183,217 03/24/00 184,330 252,091 1.38 0.25
--------- --------- ---------- ----
1,606,685 1,677,023 2,210,655 2.23
--------- --------- ---------- ----

Formula Ventures L.P. ............... 350,000 08/06/99 355,672 381,287 1.09 0.38
70,000 03/23/00 68,418 76,257 1.09 0.08
144,984 04/18/00 141,708 157,944 1.09 0.16
--------- --------- ---------- ----
564,984 565,798 615,488 0.62
--------- --------- ---------- ----

Giza GE Venture Fund III L.P. ....... 50,000 1/31/00 50,000 48,245 0.96 0.05
75,000 3/24/00 75,000 72,368 0.96 0.07
125,000 3/23/00 125,000 120,613 0.96 0.12
150,000 06/14/00 150,000 144,735 0.96 0.15
--------- --------- ---------- ----
400,000 400,000 385,961 0.39
--------- --------- ---------- ----
</TABLE>

--------------------------------------------------------------------------------

19
<PAGE>

--------------------------------------------------------------------------------
THE FIRST ISRAEL FUND, INC.

NOTES TO FINANCIAL STATEMENTS (CONTINUED)
--------------------------------------------------------------------------------

NOTE F. RESTRICTED SECURITIES

<TABLE>
<CAPTION>
NUMBER FAIR PERCENT
OF UNITS/ VALUE AT VALUE PER OF NET
SECURITY SHARES ACQUISITION DATES COST 09/30/2000 UNIT/SHARE ASSETS
-------- --------- ------------------- --------- ----------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
K.T. Concord Venture Fund L.P. ..... 650,000 12/08/97 - 08/25/99 $588,722 $1,029,518 $ 1.58 1.04
150,000 10/12/99 144,000 237,581 1.58 0.24
50,000 02/28/00 48,000 79,194 1.58 0.08
100,000 06/14/00 98,423 158,387 1.58 0.16
50,000 09/29/00 50,000 79,194 1.58 0.08
--------- -------- ---------- ----
1,000,000 929,145 1,583,874 1.60
--------- -------- ---------- ----
Polaris Fund II LLC ................. 625,000 10/31/96 - 06/09/99 506,805 981,884 1.57 0.99
125,000 10/15/99 108,989 196,377 1.57 0.20
75,000 05/10/00 70,009 117,826 1.57 0.12
60,000 07/13/00 53,138 94,261 1.57 0.09
--------- -------- ---------- ----
885,000 738,941 1,390,348 1.40
--------- -------- ---------- ----
The Renaissance Fund LDC ............ 60 03/30/94 - 03/21/97 417,336 194,557 3,243.16 0.20
--------- -------- ---------- ----
Walden-Israel Ventures, L.P. ........ 500,000 09/28/93 - 05/16/97 440,869 476,639 0.95 0.48
--------- -------- ---------- ----
</TABLE>

The Fund may incur certain costs in connection with the disposition of the above
securities.

NOTE G. SHARE REPURCHASE PROGRAM
On October 21, 1998, the Fund announced that its Board of Directors had
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 were 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 is subject to review by the
Board of Directors of the Fund. For the fiscal year ended September 30, 2000,
the Fund repurchased 204,100 (4.07% of shares outstanding at inception of the
repurchase program) of its shares for a total cost of $3,400,538 at a weighted
average discount of 16.13% from net asset value. The discount of individual
repurchases ranged from 11.84% - 19.36%. From October 21, 1998 through September
30, 1999, the Fund repurchased 548,900 (10.95% of shares outstanding at
inception of the repurchase program) of its shares for a total cost of
$7,627,236 at a weighted average discount of 18.29% from net asset value. The
discount of individual repurchases ranged from 15.15% - 22.30%.

--------------------------------------------------------------------------------

20
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Shareholders and Board of Directors
of The First Israel Fund, Inc.:

In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets, of cash flows and the financial highlights present
fairly, in all material respects, the financial position of The First Israel
Fund, Inc. (the "Fund") at September 30, 2000, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the years (or
periods) presented, in conformity with accounting principles generally accepted
in the United States of America. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at
September 30, 2000 by correspondence with the custodian and issuers, provide a
reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Two Commerce Square
Philadelphia, Pennsylvania
November 14, 2000

--------------------------------------------------------------------------------

21
<PAGE>

RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED)

On January 27, 2000, 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 two 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 2,272,485 27,670 2,118,040
William W. Priest, Jr. 2,271,957 28,198 2,118,040
</TABLE>

In addition to the directors re-elected at the meeting, George W. Landau,
Jonathan W. Lubell, Steven N. Rappaport and Richard W. Watt 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, 2000.

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN NON-VOTES
--------- ------- ------- ---------
<S> <C> <C> <C> <C>
2,257,869 26,351 15,935 2,118,040
</TABLE>

TAX INFORMATION (UNAUDITED)

The Fund is required by Subchapter M of the Internal Revenue Code of 1986, as
amended, to advise its shareholders within 60 days of the Fund's fiscal year end
(September 30, 2000) as to the U.S. federal tax status of dividends and
distributions received by the Fund's shareholders in respect of such fiscal
year. Of the $1.87 per share distribution paid in respect of such fiscal year,
$0.41 per share was derived from net investment income, $0.09 per share was
derived from net realized short-term capital gains and $1.37 per share was
derived from net realized long-term capital gains. There were no distributions
which would qualify for the dividend received deduction available to corporate
shareholders.

The Fund does not intend to make an election under Section 853 to pass through
foreign taxes paid by the Fund to its shareholders. This information is given to
meet certain requirements of the Internal Revenue Code of 1986, as amended.
Shareholders should refer to their Form 1099-DIV to determine the amount
includable on their respective tax returns for 2000.

Because the Fund's fiscal year is not the calendar year, another notification
will be sent in respect of calendar year 2000. The notification will reflect the
amount, if any, that calendar year 2000 taxpayers will report on their U.S.
federal income tax returns. Such notification will be mailed with Form 1099-DIV
in January 2001.

Foreign shareholders will generally be subject to U.S. withholding tax on the
amount of their distribution. They will generally not be entitled to a foreign
tax credit or deduction for the withholding taxes paid by the Fund.

In general, distributions received by tax-exempt recipients (e.g., IRAs and
Keoghs) need not be reported as taxable income for U.S. federal income tax
purposes. However, some retirement trusts (e.g., corporate, Keogh and 403(b)(7)
plans) may need this information for their annual information reporting.

Shareholders are advised to consult their own tax advisors with respect to the
tax consequences of their investment in the Fund.

--------------------------------------------------------------------------------

22
<PAGE>

DESCRIPTION OF INVESTLINK-SM-* PROGRAM (UNAUDITED)

The InvestLink-SM- Program is sponsored and administered by EquiServe, L.P., not
by The First Israel Fund, Inc. (the "Fund"). EquiServe, L.P. 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 the Fund's 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 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.

EquiServe, L.P., as Program Administrator, administers the Program for
participants, keeps records, sends statements of account to participants and
performs other duties relating to the Program. Each participant in the Program
will receive a statement of his account following each purchase of Shares. The
statements will also show the amount of dividends credited to such

--------------------------------------------------------------------------------

23
<PAGE>

DESCRIPTION OF INVESTLINK-SM-* PROGRAM (UNAUDITED) (CONTINUED)

participant's account (if applicable), as well as the fees paid by the
participant. In addition, each participant will receive copies of the Fund's
annual and semi-annual reports to shareholders, proxy statements and, if
applicable, dividend income information for tax reporting purposes.

If the Fund is paying dividends on the Shares, a participant will receive
dividends through the Program for all Shares held on the dividend record date on
the basis of full and fractional Shares held in his account, and for all other
Shares of the Fund registered in his name. The Program Administrator will send
checks to the participants for the amounts of their dividends that are not to be
automatically reinvested at no cost to the participants.

Shares of the Fund purchased under the Program will be registered in the name of
the accounts of the respective participants. Unless requested, the Fund will not
issue to participants certificates for Shares of the Fund purchased under the
Program. The Program Administrator will hold the Shares in book-entry form until
a Program participant chooses to withdraw his Shares or terminate his
participation in the Program. The number of Shares purchased for a participant's
account under the Program will be shown on his statement of account. This
feature protects against loss, theft or destruction of stock certificates.

A participant may withdraw all or a portion of the Shares from his Program
account by notifying the Program Administrator. After receipt of a participant's
request, the Program Administrator will issue to such participant certificates
for the whole Shares of the Fund so withdrawn or, if requested by the
participant, sell the Shares for him and send him the proceeds, less applicable
brokerage commissions, fees, and transfer taxes, if any. If a participant
withdraws all full and fractional Shares in his Program account, his
participation in the Program will be terminated by the Program Administrator. In
no case will certificates for fractional Shares be issued. The Program
Administrator will convert any fractional Shares held by a participant at the
time of his withdrawal to cash.

Participation in any rights offering, dividend distribution or stock split will
be based upon both the Shares of the Fund registered in participants' names and
the Shares (including fractional Shares) credited to participants' Program
accounts. Any stock dividend or Shares resulting from stock splits with respect
to Shares of the Fund, both full and fractional, which participants hold in
their Program accounts and with respect to all Shares registered in their names
will be automatically credited to their accounts.

All Shares of the Fund (including any fractional share) credited to his account
under the Program will be voted as the participant directs. The participants
will be sent the proxy materials for the annual meetings of shareholders. When a
participant returns an executed proxy, all of such Shares will be voted as
indicated. A participant may also elect to vote his Shares in person at the
Shareholders' meeting.

A participant will receive tax information annually for his personal records and
to help him prepare his U.S. federal income tax return. The automatic
reinvestment of dividends does not relieve him of any income tax which may be
payable on dividends. For further information as to tax consequences of
participation in the Program, participants should consult with their own tax
advisors.

The Program Administrator in administering the Program will not be liable for
any act done in good faith or for any good faith omission to act. However, the
Program Administrator will be liable for loss or damage due to error caused by
its negligence, bad faith or willful misconduct. Shares held in custody by the
Program Administrator are not subject to protection under the Securities
Investors Protection Act of 1970.

--------------------------------------------------------------------------------

24
<PAGE>

DESCRIPTION OF INVESTLINK-SM-* PROGRAM (UNAUDITED) (CONTINUED)

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: EquiServe, L.P.,
InvestLink Program, P.O. Box 8040, Boston, MA 02266-8040.

------------------------------------------------------------
* InvestLink is a service mark of EquiServe, L.P.

--------------------------------------------------------------------------------

25
<PAGE>

SUMMARY OF GENERAL INFORMATION (UNAUDITED)

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, LLC ("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 September 30, 2000, CSAM-Americas
managed approximately $68.2 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 GROUP OF FUNDS

LITERATURE REQUEST--Call today for free descriptive information on the
closed-end funds listed below at 1-800-293-1232 or visit our website on the
Internet: http://www.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 Telecommunications Fund, Inc. (ETF)
The Latin America Equity Fund, Inc. (LAQ)

FIXED INCOME
Credit Suisse Asset Management Income Fund, Inc. (CIK)
Credit Suisse Asset Management Strategic Global Income Fund, Inc. (CGF)

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

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

Robert M. Rizza Treasurer

INVESTMENT ADVISER

Credit Suisse Asset Management, LLC
466 Lexington Avenue
New York, NY 10017

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

EquiServe, L.P.
P.O. Box 1865
Mail Stop 45-02-62
Boston, MA 02105

INDEPENDENT ACCOUNTANTS

PricewaterhouseCoopers LLP
Two Commerce Square
Philadelphia, PA 19103

LEGAL COUNSEL

Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, NY 10036

This report, including the financial statements herein, is sent
to the shareholders of the Fund for their information. It is not
a prospectus, circular or representation intended for use in the ISL
purchase or sale of shares of the Fund or of any securities LISTED
mentioned in this report. NYSE
--------------------------------------------------------------------------------
3917-AR-00