-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, O83NPCtCZE6UVnaGMesLNMb8ijuuvIieXNuROlm1fD6Nrl4p/SYEVHEQsZeOetd8 fIT4YuV57uokXRe7V16p8g== 0001047469-06-011540.txt : 20060905 0001047469-06-011540.hdr.sgml : 20060904 20060905152806 ACCESSION NUMBER: 0001047469-06-011540 CONFORMED SUBMISSION TYPE: N-CSRS PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20060630 FILED AS OF DATE: 20060905 DATE AS OF CHANGE: 20060905 EFFECTIVENESS DATE: 20060905 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FIRST ISRAEL FUND INC CENTRAL INDEX KEY: 0000865277 IRS NUMBER: 061302759 STATE OF INCORPORATION: MD FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: N-CSRS SEC ACT: 1940 Act SEC FILE NUMBER: 811-06120 FILM NUMBER: 061073922 BUSINESS ADDRESS: STREET 1: C/O CREDIT SUISSE ASSET MGMT, LLC STREET 2: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 BUSINESS PHONE: 2128753500 MAIL ADDRESS: STREET 1: CREDIT SUISSE ASSET MGMT, LLC STREET 2: 466 LEXINGTON AVENUE CITY: NEW YORK STATE: NY ZIP: 10017 FORMER COMPANY: FORMER CONFORMED NAME: ISRAEL CAPITAL FUND INC DATE OF NAME CHANGE: 19900826 N-CSRS 1 a2172614zn-csrs.txt N-CSRS UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-CSR CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES Investment Company Act File No. 811-06120 THE FIRST ISRAEL FUND, INC. (Exact Name of Registrant as Specified in Charter) 466 Lexington Avenue, New York, New York 10017-3140 (Address of Principal Executive Offices) (Zip Code) J. Kevin Gao, Esq. The First Israel Fund, Inc. 466 Lexington Avenue New York, New York 10017-3140 Registrant's telephone number, including area code:(212) 875-3500 Date of fiscal year end: December 31 Date of reporting period: January 1, 2006 to June 30, 2006 ITEM 1. REPORTS TO STOCKHOLDERS. THE FIRST ISRAEL FUND, INC. SEMI-ANNUAL REPORT JUNE 30, 2006 (UNAUDITED) [AMERICAN STOCK EXCHANGE(R) LOGO] LISTED ISL ISL-SAR-0606 CONTENTS Letter to Shareholders 1 Portfolio Summary 4 Schedule of Investments 5 Statement of Assets and Liabilities 8 Statement of Operations 9 Statement of Changes in Net Assets 10 Statement of Cash Flows 11 Financial Highlights 12 Notes to Financial Statements 14 Results of Annual Meeting of Shareholders 21 Privacy Policy Notice 22 Description of InvestLink(SM) Program 23 Proxy Voting and Portfolio Holdings Information 26
LETTER TO SHAREHOLDERS August 2, 2006 DEAR SHAREHOLDER: For the six month period ended June 30, 2006, The First Israel Fund, Inc. (the "Fund") had a loss of 0.40%, based on net asset value, vs. a same-period loss of 14.7% for the Morgan Stanley Capital International Israel Index* (the "MSCI Index") and a gain in the Tel Aviv 100 Index** of 0.1%. Based on market price, the Fund had a loss of 4.02% for the period. FUND NOW TRADING ON AMEX Effective May 11, 2006, the Fund is listed on, and has commenced trading on, the American Stock Exchange, LLC ("AMEX"). The Fund opted to make the move based on listing costs. The Fund estimates that the Fund's annual listing fees will decline substantially. The Fund continues to trade under the same ticker symbol (ISL). At June 30, 2006, total net assets of the Fund were approximately $74.0 million. The Fund's investments in securities listed and trading on the Tel Aviv Stock Exchange ("TASE") were $44.4 million, with another $16.5 million in Israeli and Israeli-related companies listed and trading in the United States. Combined, these totalled $60.9 million, as compared with $63.9 million on December 31, 2005. The Fund also held investments valued at approximately $6.7 million in unlisted securities, as compared to approximately $7.2 million on December 31, 2005. In percentage terms, at June 30, 2006, 91.4% of the Fund's net assets were invested in Israeli and Israeli-related companies, of which 82.3% were listed and trading on the TASE and in the United States and 9.1% were in unlisted securities. The Fund's investment objective is long-term capital appreciation via investment primarily in equity securities of Israeli companies. These securities may be listed on the TASE or elsewhere, notably the NYSE and NASDAQ. Up to 30% of the Fund's total assets may be invested in illiquid securities, including securities of private equity funds that invest primarily in emerging markets. PERFORMANCE On an absolute basis, the top performing components of the Fund during the period were mainly in the broad industrials sector which also included real estate related companies. Relative to the MSCI Index, by far the most dominant contribution was as a result of the Fund's underweight position in the index heavyweight Teva Pharmaceutical Industries Ltd. (9.2% of the Fund's net assets as of June 30, 2006). The Fund's underweight in Check Point Software Technologies Ltd. (4.9% of the Fund's net assets as of June 30, 2006) also contributed as did gains in a number of small holdings in Industrial stocks which are not represented in the MSCI Index. As it relates to the Fund's private equity holdings, we continue to see improvements in the valuations of investments of the various limited partnerships in which the Fund is invested. It should be noted that the valuation of portfolio holdings of illiquid securities typically lag price recovery in the public markets because improvements in the valuation of illiquid holdings generally result from financing rounds at improved valuations, public offerings or the sale of an investment. Write-downs, on the other hand, reflect the investment manager's judgment that events have taken place which impact the future realization of value for an investment. 1 As we noted previously, the last two years have seen an improvement in the performance of Israel's technology sector from the 1999 post-bubble valuations. In the period of January through June 2006, the Fund received distributions from limited partnerships totalling approximately $1,592,000, from six different realizations. During this period, the Fund also funded capital commitments of approximately $465,000, at valuations significantly below the pre-bubble period. The unfunded commitments of the Fund totalled $1.9 million at June 30, 2006, compared with $2.4 million at the end of 2005. THE MARKET The early period of 2006 saw a supportive environment for emerging markets as a whole with strong inflows into the asset class. This was particularly prevalent in the so called " BRIC " group, Brazil, Russia, India and China. However, during this period the Israeli market lagged, largely reflecting a rise in political risk with Hamas being victorious in the Palestinian Authority's January parliamentary elections and the hospitalization of Prime Minister Sharon leading to Israeli elections on March 28th. In spite of the lack of participation of the Israeli market in the general emerging market euphoria earlier in the year, the market was influenced by the emerging market sell off starting in mid-May 2006. The broad emerging market sell off was attributed to a number of factors, including stubborn U.S. inflation, the expectation of higher interest rates both in the U.S. and Japan and higher oil prices. The domestic economic news was largely positive with a number of upward revisions to growth statistics. In the first quarter 2006, GDP growth reached 6.6% with strong areas particularly in industrial exports, tourist services and private consumption. There were also ongoing signs of recovery in residential construction. In spite of the strong growth numbers, the strengthening of the shekel, together with the expectation of easing inflationary pressures, allowed the Bank of Israel to refrain from further interest rate increases, keeping the benchmark interest rate on hold at 5.25%. PORTFOLIO The slight fall in the Fund's NAV during the first half of the year could be attributed to gains in the industrials and real estate sectors which were negated by share price falls elsewhere, particularly in the health care and technology sectors. During the earlier part of the year, investments in commercial banks were decreased slightly and the proceeds invested in Clal Industries (0.9% of the Fund's net assets as of June 30, 2006). Also during the period, investments in the insurance and real estate sectors were reduced. OUTLOOK At the time of writing, events and the hostilities in Lebanon are ongoing and unresolved. The military conflict will likely impact a number of areas such as tax revenue, government expenditure, and tourism and business and consumer confidence. The extent of the economic impact will probably be dependent on the duration of the conflict and the nature of the resolution. So far, the situation has had a limited impact on the Israeli stock market, although we believe that this is in part a result of the heavyweight global companies in the MSCI index. Away from the political situation, the moderation of inflationary pressures and currency stability could allow ongoing economic growth in our view, thus potentially benefiting the domestically orientated Israeli companies. Elsewhere, we feel that the global environment will continue to influence Israel's leading global companies. 2 As always, we will remain focused on close analysis of the Fund's current holdings and potential future investments. Respectfully, /s/ Neil Gregson - ---------------------------------------- Neil Gregson Chief Investment Officer*** /s/ Steven B. Plump - ---------------------------------------- Steven B. Plump Chief Executive Officer and President**** INTERNATIONAL INVESTING ENTAILS SPECIAL RISK CONSIDERATIONS, INCLUDING CURRENCY FLUCTUATIONS, LOWER LIQUIDITY, ECONOMIC AND POLITICAL RISKS, AND DIFFERENCES IN ACCOUNTING METHODS. THERE ARE ALSO RISKS ASSOCIATED WITH INVESTING IN ISRAEL, INCLUDING THE RISK OF INVESTING IN A SINGLE-COUNTRY FUND AS WELL AS RISKS ASSOCIATED WITH INVESTING IN PRIVATE EQUITIES. IN ADDITION TO HISTORICAL INFORMATION, THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS, WHICH MAY CONCERN, AMONG OTHER THINGS, DOMESTIC AND FOREIGN MARKETS, INDUSTRY AND ECONOMIC TRENDS AND DEVELOPMENTS AND GOVERNMENT REGULATION AND THEIR POTENTIAL IMPACT ON THE FUND'S INVESTMENT PORTFOLIO. THESE STATEMENTS ARE SUBJECT TO RISKS AND UNCERTAINTIES AND ACTUAL TRENDS, DEVELOPMENTS AND REGULATIONS IN THE FUTURE AND THEIR IMPACT ON THE FUND COULD BE MATERIALLY DIFFERENT FROM THOSE PROJECTED, ANTICIPATED OR IMPLIED. THE FUND HAS NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS. * The Morgan Stanley Capital International Israel Index is an unmanaged index (with no defined investment objective) of Israeli equities that includes reinvestment of dividends (net of taxes), and is the exclusive property of Morgan Stanley Capital International Inc. Investors cannot invest directly in an index. ** The Tel Aviv 100 Index is an index of the 100 largest companies (i.e., in terms of market capitalization) listed on the Tel Aviv Stock Exchange. Investors cannot invest directly in an index. *** Neil Gregson, who is a Managing Director of Credit Suisse Asset Management Limited ("Credit Suisse Ltd."), is head of emerging market equities, based in London. Prior to assuming this role in 2003, he was chief investment officer for equities in Emerging Europe, the Middle East and Africa. Mr. Gregson joined Credit Suisse Ltd. in 1990 after working as an investment analyst in Johannesburg. Previously, he was a mining engineer with Anglo American Corporation in South Africa. Mr. Gregson holds a BSc (Hons.) in mining engineering from Nottingham University. He is also the Chief Investment Officer of The Emerging Markets Telecommunications Fund, Inc. **** Steven B. Plump is a Managing Director of Credit Suisse Asset Management, LLC ("Credit Suisse") and CEO/President of the Fund. He joined Warburg Pincus Asset Management ("WPAM") in 1995 and came to Credit Suisse in 1999 when it acquired WPAM. 3 THE FIRST ISRAEL FUND, INC. PORTFOLIO SUMMARY - AS OF JUNE 30, 2006 (UNAUDITED) SECTOR ALLOCATION [CHART] AS A PERCENT OF NET ASSETS
30-JUN-06 31-DEC-05 --------- --------- Chemicals 8.06% 8.11% Commercial Banks 15.53% 16.08% Communications Equipment 2.79% 3.57% Diversified Telecommunication Services 4.61% 4.96% Electric Equipment & Instruments 4.80% 4.39% Industrial Conglomerates 5.93% 4.20% Insurance 7.75% 8.06% Pharmaceuticals 12.28% 16.89% Semiconductor & Semiconductor Equipment 1.70% 1.57% Software 6.29% 6.36% Venture Capital 8.88% 9.56% Other Sectors 12.79% 11.93% Cash & Other Assets 8.59% 4.32%
TOP 10 HOLDINGS, BY ISSUER
PERCENT OF HOLDING SECTOR NET ASSETS - ------------------------------------------------------------------------------------------------------------ 1. Teva Pharmaceutical Industries Ltd. Pharmaceuticals 9.2 2. Harel Insurance Investments Ltd. Insurance 6.7 3. Bank Hapoalim Ltd. Commercial Banks 6.1 4. Bank Leumi Le-Israel Ltd. Commercial Banks 5.6 5. Israel Chemicals Ltd. Chemicals 5.3 6. Check Point Software Technologies Ltd. Software 4.9 7. Bezeq Israeli Telecommunication Corporation Ltd. Diversified Telecommunication Services 4.6 8. Perrigo Co. Pharmaceuticals 3.0 9. Makhteshim-Agan Industries Ltd. Chemicals 2.8 10. Israel Discount Bank Ltd. Commercial Banks 2.4
4 THE FIRST ISRAEL FUND, INC. SCHEDULE OF INVESTMENTS - JUNE 30, 2006 (UNAUDITED)
NO. OF DESCRIPTION SHARES VALUE - -------------------------------------------------------------------------------- EQUITY OR EQUITY-LINKED SECURITIES-91.41% ISRAEL-89.80% AEROSPACE & DEFENSE-0.83% Elbit Systems Ltd. 23,000 $ 617,081 ----------- AIRLINES-0.16% EL AL Israel Airlines+ 174,089 117,769 ----------- BUILDING PRODUCTS-0.59% Electra Consumer Products Ltd.+ 52,000 334,031 Klil Industries Ltd.+ 18,654 106,370 ----------- 440,401 ----------- CAPITAL MARKETS-1.06% IBI Investment House Ltd. 82,000 785,039 ----------- CHEMICALS-8.06% Israel Chemicals Ltd. 960,000 3,902,446 Makhteshim-Agan Industries Ltd. 385,001 2,056,864 ----------- 5,959,310 ----------- COMMERCIAL BANKS-15.53% Bank Hapoalim Ltd. 1,035,000 4,511,263 Bank Leumi Le-Israel Ltd. 1,140,000 4,135,476 F.I.B.I. Holdings Ltd.+ 27,500 434,472 Israel Discount Bank Ltd., Class A+ 1,035,000 1,811,854 United Mizrahi Bank Ltd.+ 100,000 593,608 ----------- 11,486,673 ----------- COMMUNICATIONS EQUIPMENT-2.79% AudioCodes Ltd.+ 35,000 381,500 ECI Telecom Ltd.+ 45,564 367,246 NICE Systems Ltd., ADR+ 24,200 680,988 RADWARE Ltd.+ 49,300 633,012 ----------- 2,062,746 ----------- CONSTRUCTION & ENGINEERING-1.31% Housing & Construction Holdings Ltd.+ 1,000,000 966,451 -----------
NO. OF DESCRIPTION SHARES/UNITS VALUE - -------------------------------------------------------------------------------- DIVERSIFIED FINANCIAL SERVICES-0.91% Ampal-American Israel Corp., Class A+ 135,000 $ 675,000 ----------- DIVERSIFIED TELECOMMUNICATION SERVICES-4.61% Bezeq Israeli Telecommunication Corporation Ltd. 2,900,000 3,407,970 ----------- ELECTRICAL EQUIPMENT & INSTRUMENTS-4.80% Electra (Israel) Ltd.+ 8,109 845,692 Nisko Industries (1992) Ltd.+ 32,500 177,040 Orbotech, Ltd.+ 66,755 1,530,692 Rapac Electronics Ltd. 116,278 460,264 Rapac Technologies (2000) Ltd. 29,500 211,296 Telsys Ltd. 50,000 326,816 ----------- 3,551,800 ----------- FOOD & STAPLES RETAILING-0.60% Blue Square Chain Investments & Properties Ltd.+ 11,605 106,916 Gan Shmuel Food Industries 16,940 63,991 Supersol Ltd.+ 100,000 277,178 ----------- 448,085 ----------- HOUSEHOLD DURABLES-1.41% Elco Holdings Ltd. 97,391 1,044,372 ----------- HOUSEHOLD PRODUCTS-0.56% Albad Massuot Yitzhak Ltd.+ 50,000 411,832 ----------- INDUSTRIAL CONGLOMERATES-5.93% Clal Industries Ltd. 140,000 698,799 Discount Investment Corporation 33,500 783,978 IDB Development Corporation Ltd. 44,001 1,301,284 IDB Holding Corporation Ltd. 42,251 984,130 Koor Industries Ltd.+ 8,500 447,426 Macpell Industries Ltd.+ 116,074 171,361 ----------- 4,386,978 -----------
See accompanying notes to financial statements. 5
NO. OF DESCRIPTION SHARES/UNITS VALUE - -------------------------------------------------------------------------------- INSURANCE-7.75% Clal Insurance Enterprise Holdings Ltd. 40,000 $ 791,055 Harel Insurance Investments Ltd. 115,000 4,939,409 ----------- 5,730,464 ----------- INTERNET SOFTWARE & SERVICES-0.52% Aladdin Knowledge Systems+ 18,800 382,580 ----------- INVESTMENT & HOLDING COMPANIES-0.04% The Renaissance Fund LDC+~ 60 30,261 ----------- MACHINERY-0.51% Plasson Ltd. 17,500 374,800 ----------- PAPER & FOREST PRODUCTS-0.41% American Israeli Paper Mills Ltd. 6,089 302,200 ----------- PHARMACEUTICALS-12.28% DeveloGen AG+* 497 105,265 Perrigo Co. 134,000 2,209,603 Teva Pharmaceutical Industries Ltd., ADR 214,300 6,769,737 ----------- 9,084,605 ----------- REAL ESTATE MANAGEMENT & DEVELOPMENT-1.52% Elbit Medical Imaging Ltd.+ 3,001 64,856 Industrial Buildings Corporation Ltd. 140,001 227,895 Property & Building Corporation Ltd. 7,083 831,937 ----------- 1,124,688 ----------- ROAD & RAIL-0.72% Dan Vehicle & Transportation 100,000 533,776 ----------- SEMICONDUCTOR & SEMICONDUCTOR EQUIPMENT-1.70% Camtek Ltd.+ 29,400 173,754 DSP Group Inc.+ 43,500 1,080,975 ----------- 1,254,729 ----------- SOFTWARE-6.29% Check Point Software Technologies Ltd.+ 208,100 $ 3,658,398 ECtel Ltd.+ 1,124 4,946 Formula Systems (1985) Ltd.+ 72,500 800,991 MIND C.T.I. Ltd.+ 72,200 186,276 ----------- 4,650,611 ----------- THRIFTS & MORTGAGE FINANCE-1.63% Discount Mortgage Bank Ltd.+ 9,500 1,208,654 ----------- VENTURE CAPITAL-7.28% ABS GE Capital Giza Fund, L.P.+~ 1,250,001 211,313 Advent Israel (Bermuda) L.P.+~ 1,682,293 69,859 BPA Israel Ventures LLC+~# 1,674,588 1,040,390 Concord Ventures II Fund L.P.+~# 1,920,000 556,418 Delta Fund I, L.P.+~# 232,940 131,729 Formula Ventures L.P.+~# 1,000,000 71,960 Giza GE Venture Fund III L.P.+~# 1,150,000 694,749 K.T. Concord Venture Fund L.P.+~ 1,000,000 383,265 Neurone Ventures II, L.P.+~# 573,684 237,651 Pitango Fund II LLC+~ 1,000,000 190,543 SVE Star Ventures Enterprises GmbH & Co. No. IX KG+~# 1,750,000 1,143,187 Walden-Israel Ventures, L.P.+~ 500,000 48,155 Walden-Israel Ventures III, L.P.+~# 953,563 601,440 ----------- 5,380,659 ----------- TOTAL ISRAEL (Cost $51,178,278) 66,419,534 ----------- GLOBAL-1.61% VENTURE CAPITAL-1.61% Emerging Markets Ventures I L.P. (Cost $1,279,008)+~# 2,237,292 1,193,416 ----------- TOTAL EQUITY OR EQUITY-LINKED SECURITIES (Cost $52,457,286) 67,612,950 -----------
See accompanying notes to financial statements. 6
PRINCIPAL AMOUNT DESCRIPTION (000'S) VALUE - -------------------------------------------------------------------------------- SHORT-TERM INVESTMENT-8.62% GRAND CAYMAN-8.62% Wachovia Bank, overnight deposit, 4.25%, 07/03/06** (Cost $6,372,000) $6,372 $ 6,372,000 ----------- TOTAL INVESTMENTS-100.03% (Cost $58,829,286) (Notes B,E,G ) 73,984,950 ----------- LIABILITIES IN EXCESS OF CASH AND OTHER ASSETS-(0.03)% (19,438) ----------- NET ASSETS-100.00% $73,965,512 ===========
+ Non-income producing security. ~ Restricted security, not readily marketable; security is valued at fair value as determined in good faith by, or under the direction of, the Board of Directors under procedures established by the Board of Directors. (See Notes B and H). # As of June 30, 2006, the aggregate amount of open commitments for the Fund is $1,944,558. (See Note H). * Not readily marketable security; security is valued at fair value as determined in good faith by, or under the direction of, the Board of Directors under procedures established by the Board of Directors. (See Note B). ** Variable rate account. Rate resets on a daily basis; amounts are available on the same business day. ADR American Depositary Receipts. See accompanying notes to financial statements. 7 THE FIRST ISRAEL FUND, INC. STATEMENT OF ASSETS AND LIABILITIES - JUNE 30, 2006 (UNAUDITED) ASSETS Investments, at value (Cost $58,829,286) (Notes B,E,G) $73,984,950 Cash 142,159 Receivables: Israeli tax refunds (Note B) 129,428 Dividends 71,004 Prepaid expenses 6,711 ----------- Total Assets 74,334,252 ----------- LIABILITIES Payables: Investment advisory fees (Note C) 182,361 Administration fees (Note C) 9,658 Directors' fees 27,842 Other accrued expenses 148,879 ----------- Total Liabilities 368,740 ----------- NET ASSETS (applicable to 4,259,295 shares of common stock outstanding) (Note D) $73,965,512 =========== NET ASSETS CONSIST OF Capital stock, $0.001 par value; 4,259,295 shares issued and outstanding (100,000,000 shares authorized) $ 4,259 Paid-in capital 54,350,291 Undistributed net investment income 661,321 Accumulated net realized gain on investments and foreign currency related transactions 3,790,729 Net unrealized appreciation in value of investments and translation of other assets and liabilities denominated in foreign currency 15,158,912 ----------- Net assets applicable to shares outstanding $73,965,512 =========== NET ASSET VALUE PER SHARE ($73,965,512 / 4,259,295) $ 17.37 =========== MARKET PRICE PER SHARE $ 15.04 ===========
See accompanying notes to financial statements. 8 THE FIRST ISRAEL FUND, INC. STATEMENT OF OPERATIONS - FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) INVESTMENT INCOME Income (Note B): Dividends $ 1,365,189 Interest 142,823 Less: Foreign taxes withheld (204,144) ----------- Total Investment Income 1,303,868 ----------- Expenses: Investment advisory fees (Note C) 466,474 Custodian fees 76,624 Directors' fees 40,101 Audit and tax fees 39,629 Administration fees (Note C) 32,136 Legal fees 31,718 Printing (Note C) 19,836 Accounting fees 14,876 Stock exchange listing fees 11,778 Shareholder servicing fees 11,132 Insurance 2,313 Miscellaneous 9,464 ----------- Total Expenses 756,081 Less: Fee waivers (Note C) (90,960) ----------- Net Expenses 665,121 ----------- Net Investment Income 638,747 ----------- NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS AND FOREIGN CURRENCY RELATED TRANSACTIONS Net realized gain/(loss) from: Investments 4,205,795 Foreign currency related transactions (4,528) Net change in unrealized appreciation in value of investments and translation of other assets and liabilities denominated in foreign currency (5,147,770) ----------- Net realized and unrealized loss on investments and foreign currency related transactions (946,503) ----------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (307,756) ===========
See accompanying notes to financial statements. 9 THE FIRST ISRAEL FUND, INC. STATEMENT OF CHANGES IN NET ASSETS
FOR THE SIX FOR THE THREE FOR THE FISCAL MONTHS ENDED MONTHS ENDED YEAR ENDED JUNE 30, 2006 DECEMBER 31, SEPTEMBER 30, (UNAUDITED) 2005 2005 ------------- ------------- -------------- INCREASE/(DECREASE) IN NET ASSETS Operations: Net investment income/(loss) $ 638,747 $ 31,819 $ (280,061) Net realized gain/(loss) on investments and foreign currency related transactions 4,201,267 (99,923) 7,285,762 Net change in unrealized appreciation in value of investments and translation of other assets and liabilities denominated in foreign currency (5,147,770) 3,281,357 10,095,852 ----------- ----------- ----------- Net increase/(decrease) in net assets resulting from operations (307,756) 3,213,253 17,101,553 ----------- ----------- ----------- Distributions to shareholders: Net realized gain on investments -- (6,814,872) -- ----------- ----------- ----------- Total increase/(decrease) in net assets (307,756) (3,601,619) 17,101,553 ----------- ----------- ----------- NET ASSETS Beginning of period 74,273,268 77,874,887 60,773,334 ----------- ----------- ----------- End of period $73,965,512* $74,273,268* $77,874,887 =========== =========== ===========
- ---------- * Includes undistributed net investment income of $661,321 and $22,574, respectively. See accompanying notes to financial statements. 10 THE FIRST ISRAEL FUND, INC. STATEMENT OF CASH FLOWS - FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED) INCREASE IN CASH FROM Operating Activities: Investment income received $ 1,198,813 Operating expenses paid (665,428) Purchases of long-term portfolio investments (4,655,583) Proceeds from disposition of long-term portfolio investments 7,202,200 Net sales of short-term portfolio investments 3,877,000 Cash distributions paid (6,814,872) ----------- Net increase in cash from operating activities $ 142,130 Cash at beginning of period 29 --------- Cash at end of period $ 142,159 ========= RECONCILIATION OF NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET INCREASE IN CASH FROM OPERATING ACTIVITIES Net decrease in net assets resulting from operations $(307,756) Adjustments: Increase in receivables $ (105,055) Increase in accrued expenses 3,942 Increase in prepaid expenses (4,249) Net realized gain from partnership distributions (915,437) Net increase in cash from investment transactions 7,339,054 Net realized and unrealized loss on investments and foreign currency related transactions 946,503 Cash distributions paid (6,814,872) ----------- Total adjustments 449,886 --------- NET INCREASE IN CASH FROM OPERATING ACTIVITIES $ 142,130 =========
See accompanying notes to financial statements. 11 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.
FOR THE SIX FOR THE THREE FOR THE FISCAL YEARS MONTHS ENDED MONTHS ENDED ENDED SEPTEMBER 30, JUNE 30, 2006 DECEMBER 31, -------------------- (UNAUDITED) 2005 2005 2004 ------------- ------------- ------- ------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $ 17.44 $ 18.28 $ 14.27 $ 12.35 ------- ------- ------- ------- Net investment income/(loss) 0.15 0.01 (0.07) (0.03) Net realized and unrealized gain/(loss) on investments and foreign currency related transactions (0.22) 0.75 4.08 1.95 ------- ------- ------- ------- Net increase/(decrease) in net assets resulting from operations (0.07) 0.76 4.01 1.92 ------- ------- ------- ------- Dividends and distributions to shareholders: Net investment income -- -- -- -- Net realized gain on investments and foreign currency related transactions -- (1.60) -- -- ------- ------- ------- ------- Total dividends and distributions to shareholders -- (1.60) -- -- ------- ------- ------- ------- Anti-dilutive impact due to capital shares repurchased -- -- -- -- ------- ------- ------- ------- Net asset value, end of period $ 17.37 $ 17.44 $ 18.28 $ 14.27 ======= ======= ======= ======= Market value, end of period $ 15.04 $ 15.67 $ 16.21 $ 12.09 ======= ======= ======= ======= Total investment return (a) (4.02)% 6.15% 34.08% 19.70% ======= ======= ======= ======= RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $73,966 $74,273 $77,875 $60,773 Ratio of expenses to average net assets (b) 1.76%(c) 1.65%(c) 2.10% 1.92% Ratio of expenses to average net assets, excluding fee waivers 2.00%(c) 1.87%(c) 2.33% 2.13% Ratio of net investment income/(loss) to average net assets (b) 1.69%(c) 0.16%(c) (0.39)% (0.19)% Portfolio turnover rate 6.74% 1.53% 10.65% 8.53%
+ Based on average shares outstanding. (a) Total investment return at market value is based on the changes in market price of a share during the period and assumes reinvestment of dividends and distributions, if any, at actual prices pursuant to the Fund's dividend reinvestment program. (b) Ratios reflect actual expenses incurred by the Fund. Amounts are net of fee waivers. (c) Annualized. See accompanying notes to financial statements. 12
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, ----------------------------------------------------------------------------------- 2003 2002 2001 2000 1999 1998 1997 1996 ------- ------- ------- ------- ------- ------- ------- ------- PER SHARE OPERATING PERFORMANCE Net asset value, beginning of period $ 9.50 $ 11.64 $ 23.24 $ 17.18 $ 15.04 $ 18.41 $ 13.10 $ 13.20 ------- ------- ------- ------- ------- ------- ------- ------- Net investment income/(loss) (0.22)+ (0.17)+ (0.06)+ (0.02)+ (0.02)+ 0.07 0.35 (0.09) Net realized and unrealized gain/(loss) on investments and foreign currency related transactions 3.42 (1.80) (8.39) 7.80 3.21 (2.97) 6.20 (0.01) ------- ------- ------- ------- ------- ------- ------- ------- Net increase/(decrease) in net assets resulting from operations 3.20 (1.97) (8.45) 7.78 3.19 (2.90) 6.55 (0.10) ------- ------- ------- ------- ------- ------- ------- ------- Dividends and distributions to shareholders: Net investment income -- -- (0.08) (0.41) (0.21) -- -- -- Net realized gain on investments and foreign currency related transactions (0.35) (0.17) (3.07) (1.46) (1.20) (0.47) (1.24) -- ------- ------- ------- ------- ------- ------- ------- ------- Total dividends and distributions to shareholders (0.35) (0.17) (3.15) (1.87) (1.41) (0.47) (1.24) -- ------- ------- ------- ------- ------- ------- ------- ------- Anti-dilutive impact due to capital shares repurchased -- -- -- 0.15 0.36 -- -- -- ------- ------- ------- ------- ------- ------- ------- ------- Net asset value, end of period $ 12.35 $ 9.50 $ 11.64 $ 23.24 $ 17.18 $ 15.04 $ 18.41 $ 13.10 ======= ======= ======= ======= ======= ======= ======= ======= Market value, end of period $ 10.10 $ 7.41 $ 9.60 $18.563 $14.000 $11.813 $14.938 $11.250 ======= ======= ======= ======= ======= ======= ======= ======= Total investment return (a) 40.57% (21.24)% (38.21)% 47.61% 32.61% (18.05)% 44.36% (6.25)% ======= ======= ======= ======= ======= ======= ======= ======= RATIOS/SUPPLEMENTAL DATA Net assets, end of period (000 omitted) $52,604 $40,457 $49,565 $98,979 $76,683 $75,373 $92,298 $65,649 Ratio of expenses to average net assets (b) 2.31% 2.08% 1.88% 2.05% 2.05% 2.06% 2.26% 2.23% Ratio of expenses to average net assets, excluding fee waivers 2.54% 2.30% 2.09% 2.28% 2.30% 2.31% 2.30% -- Ratio of net investment income/(loss) to average net assets (b) (2.01)% (1.44)% (0.39)% (0.08)% (0.12)% 0.42% 2.20% (0.68)% Portfolio turnover rate 2.94% 11.26% 21.11% 27.06% 18.65% 29.11% 16.98% 21.68%
13 THE FIRST ISRAEL FUND, INC. NOTES TO FINANCIAL STATEMENTS (UNAUDITED) NOTE A. ORGANIZATION The First Israel Fund, Inc. (the "Fund") was incorporated in Maryland on March 6, 1990 and commenced investment operations on October 29, 1992. The Fund is registered under the Investment Company Act of 1940, as amended, as a closed-end, non-diversified management investment company. On November 17, 2005, the Fund's Board of Directors approved a change in the Fund's fiscal year end from a twelve-month period ending September 30 to a twelve-month period ending December 31. NOTE B. SIGNIFICANT ACCOUNTING POLICIES USE OF ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. SECURITY VALUATION: The net asset value of the Fund is determined daily as of the close of regular trading on the New York Stock Exchange, Inc. (the "Exchange") on each day the Exchange is open for business. Equity investments are valued at market value, which is generally determined using the closing price on the exchange or market on which the security is primarily traded at the time of valuation (the "Valuation Time"). If no sales are reported, equity investments are generally valued at the most recent bid quotation as of the Valuation Time or at the lowest ask quotation in the case of a short sale of securities. Debt securities with a remaining maturity greater than 60 days are valued in accordance with the price supplied by a pricing service, which may use a matrix, formula or other objective method that takes into consideration market indices, yield curves and other specific adjustments. Debt obligations that will mature in 60 days or less are valued on the basis of amortized cost, which approximates market value, unless it is determined that this method would not represent fair value. Investments in mutual funds are valued at the mutual fund's closing net asset value per share on the day of valuation. Securities and other assets for which market quotations are not readily available, or whose values have been materially affected by events occurring before the Fund's Valuation Time, but after the close of the securities' primary market, are valued at fair value as determined in good faith by, or under the direction of, the Board of Directors under procedures established by the Board of Directors. The Fund may utilize a service provided by an independent third party which has been approved by the Board of Directors to fair value certain securities. When fair-value pricing is employed, the prices of securities used by a fund to calculate its net asset value may differ from quoted or published prices for the same securities. At June 30, 2006, the Fund held 9.07% of its net assets in securities valued at fair value as determined in good faith under procedures established by the Board of Directors with an aggregate cost of $12,572,936 and fair value of $6,709,601. The Fund's estimate of fair value assumes a willing buyer and a willing seller neither acting under the compulsion to buy or sell. Although these securities may be resold in privately negotiated transactions, the prices realized on such sales could differ from the prices originally paid by the Fund or the current carrying values, and the difference could be material. SHORT-TERM INVESTMENT: The Fund sweeps available cash into a short-term time deposit available through Brown Brothers Harriman & Co., the Fund's custodian. The short-term time deposit is a variable rate account classified as a short-term investment. INVESTMENT TRANSACTIONS AND INVESTMENT INCOME: Investment transactions are accounted for on a trade date basis. The cost of investments sold is determined 14 by use of the specific identification method for both financial reporting and U.S. income tax purposes. Interest income is accrued as earned; dividend income is recorded on the ex-dividend date. TAXES: No provision is made for U.S. income or excise taxes as it is the Fund's intention to continue to qualify as a regulated investment company and to make the requisite distributions to its shareholders sufficient to relieve it from all or substantially all U.S. income and excise taxes. Pursuant to a ruling the Fund received from the Israeli tax authorities, the Fund, subject to certain conditions, will not be subject to Israeli tax on capital gains derived from the sale of securities listed on the Tel Aviv Stock Exchange ("TASE"). Gains derived from Israeli securities not listed on TASE (unlisted securities) will be subject to a 25% Israeli tax provided the security is an approved investment. Generally, stock of corporations that produce a product or provide a service that support the infrastructure of Israel are considered approved investments. Any gains sourced to unlisted unapproved securities are subject to a 40% Israeli tax and an inflationary tax. For the six months ended June 30, 2006, the Fund did not incur any Israeli capital gains taxes. The Fund accrues any capital gains tax estimated to be payable as if the security had been sold at the time unrealized gains are recorded. Dividends derived from listed or approved Israeli securities are subject to a 15% withholding tax, while dividends from unlisted or unapproved securities are subject to a 25% withholding tax. The Fund accrued for a refund of a portion of these amounts withheld. Interest on debt obligations (whether listed or not) is subject to withholding tax of 25% to 35%. Withholding taxes are accrued when the related income is earned in an amount management believes is ultimately payable after any reclaims of taxes withheld. FOREIGN CURRENCY TRANSLATIONS: The books and records of the Fund are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars on the following basis: (I) market value of investment securities, assets and liabilities at the valuation date rate of exchange; and (II) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions. The Fund does not isolate that portion of gains and losses on investments in equity securities which is due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities. Accordingly, realized and unrealized foreign currency gains and losses with respect to such securities are included in the reported net realized and unrealized gains and losses on investment transactions balances. The Fund reports certain foreign currency related transactions and foreign taxes withheld on security transactions as components of realized gains for financial reporting purposes, whereas such foreign currency related transactions are treated as ordinary income for U.S. federal income tax purposes. Net unrealized currency gains or losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation/depreciation in value of investments, and translation of other assets and liabilities denominated in foreign currencies. Net realized foreign exchange gains or losses represent foreign exchange gains and losses from transactions in foreign currencies and forward foreign currency contracts, exchange gains or losses realized between the trade date and settlement date on security transactions, and the difference between the amounts of interest and 15 dividends recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received. DISTRIBUTIONS OF INCOME AND GAINS: The Fund distributes at least annually to shareholders substantially all of its net investment income and net realized short-term capital gains, if any. The Fund determines annually whether to distribute any net realized long-term capital gains in excess of net realized short-term capital losses, including capital loss carryovers, if any. An additional distribution may be made to the extent necessary to avoid the payment of a 4% U.S. federal excise tax. Dividends and distributions to shareholders are recorded by the Fund on the ex-dividend date. The character of distributions made during the year from net investment income or net realized gains may differ from their ultimate characterization for U.S. income tax purposes due to U.S. generally accepted accounting principles/tax differences in the character of income and expense recognition. PARTNERSHIP ACCOUNTING POLICY: The Fund records its pro-rata share of the income/(loss) and capital gains/(losses) allocated from underlying partnerships and adjusts the cost of underlying partnerships accordingly. These amounts are included in the Fund's Statement of Operations. OTHER: The Fund invests in securities of foreign countries and governments which involve certain risks in addition to those inherent in domestic investments. Such risks generally include, among others, currency risk (fluctuations in currency exchange rates), information risk (key information may be inaccurate or unavailable) and political risk (expropriation, nationalization or the imposition of capital or currency controls or punitive taxes). Other risks of investing in foreign securities include liquidity and valuation risks. Securities denominated in currencies other than U.S. dollars are subject to changes in value due to fluctuations in exchange rates. Investments in Israel may involve certain considerations and risks not typically associated with investments in the United States, including the possibility of future political and economic developments and the level of Israeli governmental supervision and regulation of its securities markets. The Israeli securities markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Fund may be inhibited. The Fund, subject to local investment limitations, may invest up to 30% of its assets (at the time of commitment) in illiquid equity securities, including securities of private equity funds (whether in corporate or partnership form) that invest primarily in emerging markets. When investing through another investment fund, the Fund will bear its proportionate share of the expenses incurred by that fund, including management fees. Such securities are expected to be illiquid, which may involve a high degree of business and financial risk and may result in substantial losses. Because of the current absence of any liquid trading market for these investments, the Fund may take longer to liquidate these positions than would be the case for publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized on such sales could be substantially less than those originally paid by the Fund or the current carrying values, and these differences could be material. Further, companies whose securities are not publicly traded may not be subject to the disclosures and other investor protection requirements applicable to companies whose securities are publicly traded. 16 The Board of Directors has removed the limitation set forth in the Fund's original prospectus requiring that the portion of the Fund's investments not invested in Israeli securities be invested in securities of companies that are substantially involved in or with Israel. However, the Fund has adopted a policy to invest under normal circumstances, at least 80% of the value of its assets in investments that are tied economically to Israel. NOTE C. AGREEMENTS Credit Suisse Asset Management, LLC ("Credit Suisse") serves as the Fund's investment adviser with respect to all investments. Credit Suisse is contractually entitled to receive as compensation for its advisory services from the Fund an annual fee, calculated weekly and paid quarterly, equal to 1.30% of the Fund's average weekly market value or net assets (whichever is lower) invested in listed securities (including securities traded over-the-counter in the United States) and 2.00% of the Fund's average weekly market value or net assets (whichever is lower) invested in unlisted securities. The aggregate fee may not exceed an annual rate of 1.40% of the Fund's average weekly market value or net assets (whichever is lower). Credit Suisse has agreed to waive the advisory fee previously payable to the Fund's former investment sub-adviser. For the six months ended June 30, 2006, Credit Suisse earned $466,474 for advisory services, of which Credit Suisse waived $90,960. Credit Suisse also provides certain administrative services to the Fund and is reimbursed by the Fund for costs incurred on behalf of the Fund (up to $20,000 per annum). For the six months ended June 30, 2006, Credit Suisse was reimbursed $5,701 for administrative services rendered to the Fund. Credit Suisse Asset Management Limited ("Credit Suisse Ltd.") an affiliate of Credit Suisse, is a sub-investment adviser to the Fund. Credit Suisse Ltd.'s sub-investment advisory fees are paid by Credit Suisse out of Credit Suisse's net investment advisory fee and not paid by the Fund. Analyst Exchange and Trading Services Ltd. ("Analyst I.M.S.") is also a sub-investment adviser to the Fund. Analyst I.M.S. is paid a fee, out of the advisory fee payable to Credit Suisse, calculated weekly and paid quarterly at an annual rate of 0.30% of the Fund's average weekly market value or net assets (whichever is lower). In addition, Credit Suisse pays Analyst I.M.S., out of its advisory fee, a reimbursement for any Israeli Value Added taxes (currently 16.5% and effective July 1, 2006, was reduced to 15.5%) and $25,000 annually to cover expenses incurred in the execution of sub-advisory services. For the six months ended June 30, 2006, Analyst I.M.S. earned $132,403 for sub-advisory services. Analyst I.M.S. has certain commercial arrangements with banks and brokers in Israel from which Analyst I.M.S. receives a portion of the commissions on the Fund's trades executed in Israel. For the six months ended June 30, 2006, such commissions amounted to approximately $2,900. Bear Stearns Funds Management Inc. ("BSFM") serves as the Fund's administrator. The Fund pays BSFM a monthly fee that is calculated weekly based on the Fund's average weekly net assets. For the six months ended June 30, 2006, BSFM earned $26,435 for administrative services. Merrill Corporation ("Merrill"), an affiliate of Credit Suisse, has been engaged by the Fund to provide certain financial printing services. For the six months ended June 30, 2006, Merrill was paid $31,233 for its services to the Fund. The Independent Directors receive fifty percent (50%) of their annual retainer in the form of shares purchased by the Fund's transfer agent in the open market. Directors as a group own less than 1% of the Fund's outstanding shares. 17 NOTE D. CAPITAL STOCK The authorized capital stock of the Fund is 100,000,000 shares of common stock, $0.001, par value. Of the 4,259,295 shares outstanding at June 30, 2006, Credit Suisse owned 7,169 shares. NOTE E. INVESTMENT IN SECURITIES For the six months ended June 30, 2006, purchases and sales of securities, other than short-term investments, were $4,646,786 and $5,603,650, respectively. NOTE F. CREDIT FACILITY The Fund, together with other funds/portfolios advised by Credit Suisse (collectively, the "Participating Funds"), participates in a $75 million committed, unsecured, line of credit facility ("Credit Facility") with Deutsche Bank, A.G., as administrative agent and syndication agent and State Street Bank and Trust Company, as operations agent, for temporary or emergency purposes. Under the terms of the Credit Facility, the Participating Funds pay an aggregate commitment fee at a rate of 0.10% per annum on the average unused amount of the Credit Facility, which is allocated among the Participating Funds in such manner as is determined by the governing Boards of the Participating Funds. In addition, the Participating Funds pay interest on borrowings at the Federal Funds rate plus 0.50%. During the six months ended June 30, 2006, the Fund had no borrowings under the Credit Facility. NOTE G. FEDERAL INCOME TAXES Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments of foreign currency transactions, losses deferred due to wash sales, and excise tax regulations. At June 30, 2006, the identified cost for federal income tax purposes, as well as the gross unrealized appreciation from investments for those securities having an excess of value over cost, gross unrealized depreciation from investments for those securities having an excess of cost over value and the net unrealized appreciation from investments were $58,919,360, $24,257,724, $(9,192,134) and $15,065,590, respectively. 18 NOTE H. RESTRICTED SECURITIES Certain of the Fund's investments are restricted as to resale and are valued at fair value as determined in good faith by, or under the direction of, the Board of Directors under procedures established by the Board of Directors in the absence of readily ascertainable market values.
NUMBER FAIR PERCENT OF VALUE AT VALUE PER OF NET DISTRIBUTIONS OPEN SECURITY UNITS/SHARES ACQUISITION DATE(S) COST 06/30/06 UNIT/SHARE ASSETS RECEIVED COMMITMENTS - -------- ------------ ------------------- ---------- ---------- ---------- ------- ------------- ----------- ABS GE Capital Giza Fund, L.P. 1,250,001 02/03/98 - 02/13/02 $1,009,773 $ 211,313 $0.17 0.29 $1,605,498 $ -- --------- ---------- ---------- ---- ---------- -------- Advent Israel (Bermuda) L.P. 1,682,293 06/16/93 - 01/16/98 1,835,405 69,859 0.04 0.09 3,851,769 -- --------- ---------- ---------- ---- ---------- -------- BPA Israel Ventures LLC 1,674,588 10/05/00 - 12/09/05 1,265,622 1,040,390 0.62 1.41 -- 625,412 --------- ---------- ---------- ---- ---------- -------- Concord Ventures II Fund L.P. 1,880,000 03/29/00 - 07/11/05 1,307,560 544,826 0.29 0.74 40,000 04/12/06 40,000 11,592 0.29 0.01 --------- ---------- ---------- ---- ---------- -------- 1,920,000 1,347,560 556,418 0.75 75,777 80,000 --------- ---------- ---------- ---- ---------- -------- Delta Fund I, L.P. 220,440 11/15/00 - 09/09/05 157,471 124,660 0.57 0.17 12,500 04/04/06 12,500 7,069 0.57 0.01 --------- ---------- ---------- ---- ---------- -------- 232,940 169,971 131,729 0.18 45,794 17,500 --------- ---------- ---------- ---- ---------- -------- Emerging Markets Ventures I L.P. 2,226,890 01/22/98 - 06/30/05 1,268,606 1,187,867 0.53 1.60 10,402 01/10/06 10,402 5,549 0.53 0.01 --------- ---------- ---------- ---- ---------- -------- 2,237,292 1,279,008 1,193,416 1.61 1,208,504 262,708 --------- ---------- ---------- ---- ---------- -------- Formula Ventures L.P. 1,000,000 08/06/99 - 06/14/04 228,948 71,960 0.07 0.10 275,968 -- --------- ---------- ---------- ---- ---------- -------- Giza GE Venture Fund III L.P. 1,125,000 1/31/00 - 08/10/05 776,083 679,646 0.60 0.92 25,000 03/02/06 24,679 15,103 0.60 0.02 --------- ---------- ---------- ---- ---------- -------- 1,150,000 800,762 694,749 0.94 118,145 100,000 --------- ---------- ---------- ---- ---------- -------- K.T. Concord Venture Fund L.P. 1,000,000 12/08/97 - 09/29/00 776,258 383,265 0.38 0.52 544,497 -- --------- ---------- ---------- ---- ---------- -------- Neurone Ventures II, L.P. 536,184 11/24/00 - 08/15/05 291,557 222,116 0.41 0.30 37,500 04/17/06 37,500 15,535 0.41 0.02 --------- ---------- ---------- ---- ---------- -------- 573,684 329,057 237,651 0.32 39,421 187,500 --------- ---------- ---------- ---- ---------- -------- Pitango Fund II LLC 1,000,000 10/31/96 - 08/01/01 536,638 190,543 0.19 0.26 1,115,588 -- --------- ---------- ---------- ---- ---------- -------- SVE Star Ventures Enterprises GmbH & Co. No. IX KG 1,500,000 12/21/00 - 03/30/05 1,177,189 979,875 0.65 1.32 250,000 05/04/06 250,000 163,312 0.65 0.22 --------- ---------- ---------- ---- ---------- -------- 1,750,000 1,427,189 1,143,187 1.54 -- 250,000 --------- ---------- ---------- ---- ---------- --------
19
NUMBER FAIR PERCENT OF VALUE AT VALUE PER OF NET DISTRIBUTIONS OPEN SECURITY UNITS/SHARES ACQUISITION DATE(S) COST 06/30/06 UNIT/SHARE ASSETS RECEIVED COMMITMENTS - -------- ------------ ------------------- ----------- ---------- ---------- ------- ------------- ----------- The Renaissance Fund LDC 60 03/30/94 - 03/21/97 $ 213,193 $ 30,261 $504.35 0.04 $ 567,308 $ -- ------- ----------- ---------- ---- ----------- ---------- Walden-Israel Ventures, L.P. 500,000 09/28/93 - 05/16/97 282,752 48,155 0.10 0.07 442,280 -- ------- ----------- ---------- ---- ----------- ---------- Walden-Israel Ventures III, L.P. 864,188 02/23/01 - 11/22/05 589,425 545,069 0.63 0.74 89,375 03/29/06 89,375 56,371 0.63 0.07 ------- ----------- ---------- ---- ----------- ---------- 953,563 678,800 601,440 0.81 728,770 421,438 ------- ----------- ---------- ---- ----------- ---------- Total $12,180,936 $6,604,336 8.93 $10,619,319 $1,944,558 =========== ========== ==== =========== ==========
The Fund may incur certain costs in connection with the disposition of the above securities. NOTE I. CONTINGENCIES In the normal course of business, the Fund may provide general indemnifications pursuant to certain contracts and organizational documents. The Fund's maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote. 20 RESULTS OF ANNUAL MEETING OF SHAREHOLDERS (UNAUDITED) On April 20, 2006, the Annual Meeting of Shareholders of the Fund (the "Meeting") was held and the following matter was voted upon: (1) To re-elect two directors (Mr. Arzac and Mr. Goldstein) and to elect two directors (Mr. Fox and Mr. Haber) to the Board of Directors of the Fund:
NAME OF DIRECTOR FOR WITHHELD - ---------------- --------- -------- Enrique R. Arzac (Class III) 3,499,783 70,272 Lawrence J. Fox (Class I) 3,497,575 72,480 Phillip Goldstein (Class I) 3,506,274 63,781 Lawrence D. Haber (Class III) 3,495,838 74,217
In addition to the directors elected at the Meeting, James J. Cattano and Steven N. Rappaport continue to serve as directors of the Fund. 21 IMPORTANT PRIVACY CHOICES FOR CONSUMERS (UNAUDITED) We are committed to maintaining the privacy of every current and prospective customer. We recognize that you entrust important personal information to us, and we wish to assure you that we take seriously our responsibilities in protecting and safeguarding this information. In connection with making available investment products and services to current and potential customers, we may obtain nonpublic personal information about you. This information may include your name, address, e-mail address, social security number, account number, assets, income, financial situation, transaction history and other personal information. We may collect nonpublic information about you from the following sources: - - Information we receive on applications, forms, questionnaires, web sites, agreements or in the course of establishing or maintaining a customer relationship; and - - Information about your transactions with us, our affiliates, or others. We do not disclose any nonpublic personal information about our customers or former customers to anyone, except with your consent or as otherwise permitted by law. In cases where we believe that additional products and services may be of interest to you, we may share the information described above with our affiliates. We may also disclose this information to firms that perform services on our behalf. These agents and service providers are required to treat the information confidentially and use it only for the purpose for which it is provided. We restrict access to nonpublic personal information about you to those employees, agents or other parties who need to know that information to provide products or services to you or in connection with your investments with or through us. We maintain physical, electronic and procedural safeguards that comply with federal standards to guard your nonpublic personal information. NOTE: THIS NOTICE IS PROVIDED TO CLIENTS AND PROSPECTIVE CLIENTS OF CREDIT SUISSE ASSET MANAGEMENT, LLC ("CREDIT SUISSE"), AND CREDIT SUISSE ASSET MANAGEMENT SECURITIES, INC., AND SHAREHOLDERS AND PROSPECTIVE SHAREHOLDERS IN CREDIT SUISSE SPONSORED AND ADVISED INVESTMENT COMPANIES, INCLUDING CREDIT SUISSE FUNDS, AND OTHER CONSUMERS AND CUSTOMERS, AS APPLICABLE. THIS NOTICE IS NOT INTENDED TO BE INCORPORATED IN ANY OFFERING MATERIALS BUT IS MERELY A STATEMENT OF OUR CURRENT PRIVACY POLICY, AND MAY BE AMENDED FROM TIME TO TIME UPON NOTICE TO YOU. THIS NOTICE IS DATED AS OF MAY 18, 2006. 22 DESCRIPTION OF INVESTLINK(SM) PROGRAM (UNAUDITED) The InvestLink(SM) Program is sponsored and administered by Computershare Trust Company N.A. ("Computershare"), not by the Fund. Computershare will act as program administrator (the "Program Administrator") of the InvestLink(SM) Program (the "Program"). The purpose of the Program is to provide existing shareholders with a simple and convenient way to invest additional funds and reinvest dividends in shares of the Fund's common stock ("Shares") at prevailing prices, with reduced brokerage commissions and fees. In order to participate in the Program, you must be a registered holder of at least one Share of stock of the Fund. Purchases of Shares with funds from a participant's cash payment or automatic account deduction will begin on the next day on which funds are invested. All cash payments must be drawn on a U.S. bank and payable in U.S. dollars. Checks must be made payable to Computershare. If a participant selects the dividend reinvestment option, automatic investment of dividends generally will begin with the next dividend payable after the Program Administrator receives his enrollment form. Once in the Program, a person will remain a participant until he terminates his participation or sells all Shares held in his Program account, or his account is terminated by the Program Administrator. A participant may change his investment options at any time by requesting a new enrollment form and returning it to the Program Administrator. A participant will be assessed certain charges in connection with his participation in the Program. All optional cash deposit investments will be subject to a service charge. Sales processed through the Program will have a service fee deducted from the net proceeds, after brokerage commissions. In addition to the transaction charges outlined above, participants will be assessed per share processing fees (which include brokerage commissions.) Participants will not be charged any fee for reinvesting dividends. The number of Shares to be purchased for a participant depends on the amount of his dividends, cash payments or bank account or payroll deductions, less applicable fees and commissions, and the purchase price of the Shares. The investment date for cash payments is the 25th day of each month (or the next trading day if the 25th is not a trading day). The investment date for dividend reinvestment is the dividend payment date. The Program Administrator uses dividends and funds of participants to purchase Shares of the Fund in the open market. Such purchases will be made by participating brokers as agent for the participants using normal cash settlement practices. All Shares purchased through the Program will be allocated to participants as of the settlement date, which is usually three business days from the purchase date. In all cases, transaction processing will occur within 30 days of the receipt of funds, except where temporary curtailment or suspension of purchases is necessary to comply with applicable provisions of the Federal Securities laws or when unusual market conditions make prudent investment impracticable. In the event the Program Administrator is unable to purchase Shares within 30 days of the receipt of funds, such funds will be returned to the participants. The average price of all Shares purchased by the Program Administrator with all funds received during the time period from two business days preceding any investment date up to the second business day preceding the next investment date shall be the price per share allocable to a participant in connection with the Shares purchased for his account with his funds or dividends received by the Program Administrator during such time period. The average price of all Shares sold by the Program Administrator pursuant to sell orders received during such time period shall be the price per share allocable to a participant in connection with the Shares sold for his account pursuant to his sell orders received by the Program Administrator during such time period. All sale 23 requests having an anticipated market value of $100,000.00 or more are expected to be submitted in written form. In addition, all sale requests received by the Program Administrator within thirty (30) days of an address change are expected to be submitted in written form. Computershare, as Program Administrator, administers the Program for participants, keeps records, sends statements of account to participants and performs other duties relating to the Program. Each participant in the Program will receive a statement of his account following each purchase of Shares. The statements will also show the amount of dividends credited to such participant's account (if applicable), as well as the fees paid by the participant. In addition, each participant will receive copies of the Fund's annual and semi-annual reports to shareholders, proxy statements and, if applicable, dividend income information for tax reporting purposes. If the Fund is paying dividends on the Shares, a participant will receive dividends through the Program for all Shares held on the dividend record date on the basis of full and fractional Shares held in his account, and for all other Shares of the Fund registered in his name. The Program Administrator will send checks to the participants for the amounts of their dividends that are not to be automatically reinvested at no cost to the participants. Shares of the Fund purchased under the Program will be registered in the name of the accounts of the respective participants. Unless requested, the Fund will not issue to participants certificates for Shares of the Fund purchased under the Program. The Program Administrator will hold the Shares in book-entry form until a Program participant chooses to withdraw his Shares or terminate his participation in the Program. The number of Shares purchased for a participant's account under the Program will be shown on his statement of account. This feature protects against loss, theft or destruction of stock certificates. A participant may withdraw all or a portion of the Shares from his Program account by notifying the Program Administrator. After receipt of a participant's request, the Program Administrator will issue to such participant certificates for the whole Shares of the Fund so withdrawn or, if requested by the participant, sell the Shares for him and send him the proceeds, less applicable brokerage commissions, fees, and transfer taxes, if any. If a participant withdraws all full and fractional Shares in his Program account, his participation in the Program will be terminated by the Program Administrator. In no case will certificates for fractional Shares be issued. The Program Administrator will convert any fractional Shares held by a participant at the time of his withdrawal to cash. Participation in any rights offering, dividend distribution or stock split will be based upon both the Shares of the Fund registered in participants' names and the Shares (including fractional Shares) credited to participants' Program accounts. Any stock dividend or Shares resulting from stock splits with respect to Shares of the Fund, both full and fractional, which participants hold in their Program accounts and with respect to all Shares registered in their names will be automatically credited to their accounts. All Shares of the Fund (including any fractional share) credited to his account under the Program will be voted as the participant directs. The participants will be sent the proxy materials for the annual meetings of shareholders. When a participant returns an executed proxy, all of such Shares will be voted as indicated. A participant may also elect to vote his Shares in person at the Shareholders' meeting. A participant will receive tax information annually for his personal records and to help him prepare his U.S. federal income tax return. The automatic reinvestment 24 of dividends does not relieve him of any income tax which may be payable on dividends. For further information as to tax consequences of participation in the Program, participants should consult with their own tax advisors. The Program Administrator in administering the Program will not be liable for any act done in good faith or for any good faith omission to act. However, the Program Administrator will be liable for loss or damage due to error caused by its negligence, bad faith or willful misconduct. Shares held in custody by the Program Administrator are not subject to protection under the Securities Investors Protection Act of 1970. The participant should recognize that neither the Fund nor the Program Administrator can provide any assurance of a profit or protection against loss on any Shares purchased under the Program. A participant's investment in Shares held in his Program account is no different than his investment in directly held Shares in this regard. The participant bears the risk of loss and the benefits of gain from market price changes with respect to all of his Shares. Neither the Fund nor the Program Administrator can guarantee that Shares purchased under the Program will, at any particular time, be worth more or less than their purchase price. Each participant must make an independent investment decision based on his own judgment and research. While the Program Administrator hopes to continue the Program indefinitely, the Program Administrator reserves the right to suspend or terminate the Program at any time. It also reserves the right to make modifications to the Program. Participants will be notified of any such suspension, termination or modification in accordance with the terms and conditions of the Program. The Program Administrator also reserves the right to terminate any participant's participation in the Program at any time. Any question of interpretation arising under the Program will be determined in good faith by the Program Administrator and any such good faith determination will be final. Any interested shareholder may participate in the Program. All other cash payments or bank account deductions must be at least $100.00, up to a maximum of $100,000.00 annually. An interested shareholder may join the Program by reading the Program description, completing and signing the enrollment form and returning it to the Program Administrator. The enrollment form and information relating to the Program (including the terms and conditions) may be obtained by calling the Program Administrator at one of the following telephone numbers: (800) 730-6001 (U.S. and Canada) or (781) 575-3100 (outside U.S. and Canada). All correspondence regarding the Program should be directed to: Computershare Trust Company, N.A., InvestLink(SM) Program, P.O. Box 43010, Providence, RI 02940-3010. InvestLink is a service mark of Computershare Trust Company, N.A. 25 PROXY VOTING AND PORTFOLIO HOLDINGS INFORMATION (UNAUDITED) Information regarding how the Fund voted proxies related to its portfolio securities during the 12-month period ended June 30, of each year, as well as the policies and procedures that the Fund uses to determine how to vote proxies relating to its securities are available: - By calling 1-800-293-1232; - On the Fund's website, www.credit-suisse.com/us - On the website of the Securities and Exchange Commission, http://www.sec.gov. The Fund files a complete schedule of its portfolio holdings for the first and third quarters of its fiscal year with the SEC on Form N-Q. The Fund's Forms N-Q are available on the SEC's website at http://www.sec.gov and may be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the SEC's Public Reference Room may be obtained by calling 1-202-551-8090. 26 OTHER FUNDS MANAGED BY CREDIT SUISSE ASSET MANAGEMENT, LLC CLOSED-END FUNDS SINGLE COUNTRY The Chile Fund, Inc. (CH) The Indonesia Fund, Inc. (IF) MULTIPLE COUNTRY The Latin America Equity Fund, Inc. (LAQ) The Emerging Markets Telecommunications Fund, Inc. (ETF) FIXED INCOME Credit Suisse Asset Management Income Fund, Inc. (CIK) Credit Suisse High Yield Bond Fund (DHY) LITERATURE REQUEST--Call today for free descriptive information on the closed-end funds listed above at 1-800-293-1232 or visit our website on the Internet: http://www.credit-suisse.com/us. OPEN-END FUNDS Credit Suisse Capital Appreciation Fund Credit Suisse Cash Reserve Fund Credit Suisse Commodity Return Strategy Fund Credit Suisse Emerging Markets Fund Credit Suisse Fixed Income Fund Credit Suisse Global Fixed Income Fund Credit Suisse Global Small Cap Fund Credit Suisse High Income Fund Credit Suisse International Focus Fund Credit Suisse Japan Equity Fund Credit Suisse Large Cap Blend Fund Credit Suisse Large Cap Value Fund Credit Suisse Mid-Cap Growth Fund Credit Suisse New York Municipal Fund Credit Suisse Short Duration Bond Fund Credit Suisse Small Cap Growth Fund Credit Suisse Small Cap Value Fund Credit Suisse Strategic Allocation Fund Fund shares are not deposits or other obligations of Credit Suisse Asset Management, LLC or any affiliate, are not FDIC-insured and are not guaranteed by Credit Suisse Asset Management, LLC or any affiliate. Fund investments are subject to investment risks, including loss of your investment. There are special risk considerations associated with international, global, emerging-market, small-company, private equity, high-yield debt, single-industry, single-country and other special, aggressive or concentrated investment strategies. Past performance cannot guarantee future results. More complete information about a fund, including charges and expenses, is provided in the Prospectus, which should be read carefully before investing. You may obtain copies by calling Credit Suisse Funds at 800-927-2874. Performance information current to the most recent month-end is available at www.credit-suisse.com/us. Credit Suisse Asset Management Securities, Inc., Distributor. 27 This page intentionally left blank. SUMMARY OF GENERAL INFORMATION (UNAUDITED) The Fund is a closed-end, non-diversified management investment company whose shares trade on the American Stock Exchange, LLC ("AMEX"). The Fund's AMEX trading symbol is ISL. Its investment objective is long-term capital appreciation through investments primarily in equity securities of Israeli companies. Credit Suisse Asset Management, LLC, the Fund's investment adviser, is part of the Asset Management business of Credit Suisse, a leading global financial services organization headquartered in Zurich, with offices focused on asset management in 18 countries. SHAREHOLDER INFORMATION The Fund's market price is published in: THE NEW YORK TIMES (daily) under the designation "FtIsrl" and THE WALL STREET JOURNAL (daily), and BARRON'S (each Monday) under the designation "FstIsrael." Weekly comparative net asset value (NAV) and market price information about the Fund's shares are published each Sunday in The New York Times and each Monday in The Wall Street Journal and Barron's, as well as other newspapers, in a table called "Closed-End Funds." Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that The First Israel Fund, Inc. may from time to time purchase shares of its capital stock in the open market. DIRECTORS AND CORPORATE OFFICERS Enrique R. Arzac Chairman of the Board of Directors James J. Cattano Director Lawrence J. Fox Director Phillip Goldstein Director George W. Landau Honorary Director Lawrence D. Haber Director Steven N. Rappaport Director Steven B. Plump Chief Executive Officer and President Neil Gregson Chief Investment Officer J. Kevin Gao Senior Vice President and Secretary Ajay Mehra Chief Legal Officer Emidio Morizio Chief Compliance Officer Michael A. Pignataro Chief Financial Officer Robert Rizza Treasurer John E. Smith, Jr. Assistant Treasurer Brooke Brown Assistant Secretary Karen Regan Assistant Secretary
INVESTMENT ADVISER Credit Suisse Asset Management, LLC 466 Lexington Avenue New York, NY 10017 INVESTMENT SUB-ADVISER Credit Suisse Asset Management Limited Beaufort House 15 St. Botolph Street London EC3A 7JJ, England INVESTMENT SUB-ADVISER Analyst Exchange and Trading Services Ltd. 46 Rothschild Boulevard Tel Aviv, 66883 Israel ADMINISTRATOR Bear Stearns Funds Management Inc. 383 Madison Avenue New York, NY 10179 CUSTODIAN Brown Brothers Harriman & Co. 40 Water Street Boston, MA 02109 SHAREHOLDER SERVICING AGENT Computershare Trust Company, N.A. P.O. Box 43010 Providence, RI 02940 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM PricewaterhouseCoopers LLP Two Commerce Square Philadelphia, PA 19103 LEGAL COUNSEL Willkie Farr & Gallagher LLP 787 Seventh Avenue New York, NY 10019 This report, including the financial statements herein, is sent to the shareholders of the Fund for their information. The financial information included herein is taken from the records of the Fund without examination by independent registered public accountants who do not express an opinion thereon. It is not a prospectus, circular or representation intended for use in the purchase or sale of shares of the Fund or of any securities mentioned in this report. [AMERICAN STOCK EXCHANGE(R) LOGO] LISTED ISL ISL-SAR-0606 ITEM 2. CODE OF ETHICS. This item is inapplicable to a semi-annual report on Form N-CSR. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. This item is inapplicable to a semi-annual report on Form N-CSR. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. This item is inapplicable to a semi-annual report on Form N-CSR. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS. This item is inapplicable to a semi-annual report on Form N-CSR. ITEM 6. SCHEDULE OF INVESTMENTS. Included as part of the report to shareholders filed under Item 1 of this Form. ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. This item is inapplicable to a semi-annual report on Form N-CSR. ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES. This item is inapplicable to a semi-annual report on Form N-CSR. ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS. None. ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant's board of directors since the registrant last provided disclosure in response to the requirements of Item 7(d)(2)(ii)(g) of Schedule 14A in its definitive proxy statement dated March 1, 2006. ITEM 11. CONTROLS AND PROCEDURES. (a) As of a date within 90 days from the filing date of this report, the principal executive officer and principal financial officer concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the "Act")) were effective based on their evaluation of the disclosure controls and procedures required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. (b) There were no changes in registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the registrant's last fiscal half-year that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 12. EXHIBITS. (a)(1) Not applicable. (a)(2) The certifications of the registrant as required by Rule 30a-2(a) under the Act are exhibits to this report. (a)(3) Not applicable. (b) The certifications of the registrant as required by Rule 30a-2(b) under the Act are an exhibit to this report. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. THE FIRST ISRAEL FUND, INC. /s/ Steven B. Plump ------------------------------------ Name: Steven B. Plump Title: Chief Executive Officer Date: September 5, 2006 Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. /s/ Steven B. Plump ------------------------------------ Name: Steven B. Plump Title: Chief Executive Officer Date: September 5, 2006 /s/ Michael A. Pignataro ------------------------------------ Name: Michael A. Pignataro Title: Chief Financial Officer Date: September 5, 2006 EX-99.CERT 2 a2172614zex-99_cert.txt EX 99.CERT EX-99.CERT EXHIBIT 12(a)(2) CERTIFICATIONS I, Michael A. Pignataro, certify that: 1. I have reviewed this report on Form N-CSR of The First Israel Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 5, 2006 /s/ Michael A. Pignataro - ------------------------------------- Michael A. Pignataro Chief Financial Officer I, Steven B. Plump, certify that: 1. I have reviewed this report on Form N-CSR of The First Israel Fund, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: September 5, 2006 /s/ Steven B. Plump - ------------------------------------- Steven B. Plump Chief Executive Officer EX-99.906CERT 3 a2172614zex-99_906cert.txt EX 99.906CERT EX-99.906CERT EXHIBIT 12(b) SECTION 906 CERTIFICATIONS SECTION 906 CERTIFICATION Steven B. Plump, Chief Executive Officer, and Michael A. Pignataro, Chief Financial Officer, of The First Israel Fund, Inc. (the "Fund"), each certify to his knowledge that: (1) The Fund's periodic report on Form N-CSR for the period ended June 30, 2006 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Fund. /s/ Steven B. Plump /s/ Michael A. Pignataro - ------------------------------------- ------------------------------------- Steven B. Plump Michael A. Pignataro Chief Executive Officer Chief Financial Officer September 5, 2006 September 5, 2006 A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Fund and will be retained by the Fund and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----