aberdeen first israel fund, inc. (isl)
TRANSCRIPT
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Aberdeen IsraelFund, Inc.Annual Report
December 31, 2010
10
Invests primarily in equity securities in Israel.
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Closed-end funds have a one-time initial public offering and then are subsequently traded on the secondary market through one of the stockexchanges. The investment return and principal value will fluctuate so that an investors shares may be worth more or less than the original cost. Sharof closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the funds portfolio. Past performance does not
guarantee future results. Foreign securities are more volatile, harder to price and less liquid than U.S. securities. These risks may be enhanced inemerging market countries. Concentrating investments in a single country, region or industry may subject a fund to greater price volatility and risof loss than more diverse funds. Aberdeen Asset Management Inc., 1735 Market Street, 32nd Floor, Philadelphia, PA 19103.
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
Our fund managers most useful toolNo. 3: A scooter
In Asian and emerging markets,we make sure we get there in person.Aberdeens Closed-End Funds
Before we make any investment, we always meet with themanagement of prospective companies for our portfolios.Most companies we see do not pass our rigorous duediligence process, on grounds of quality or price.
Today, Aberdeen manages eight closed-end funds listed onthe New York Stock Exchange. These funds investmentstrategies range from regional to country-specificinvestments.
If you would like to know more about our closed-end funds,visit Aberdeens Closed-End Fund Investor Center at:
www.aberdeen-asset.us/cef
Or, receive updates on our funds directly to your computerby registering for our e-mail services through our website orby e-mailing [email protected]
Our closed-end funds listed in the U.S. include: Aberdeen Asia-Pacific Income Fund, Inc. (FAX) Aberdeen Australia Equity Fund, Inc. (IAF) Aberdeen Chile Fund, Inc. (CH) Aberdeen Emerging Markets Telecommunications
and Infrastructure Fund, Inc. (ETF) Aberdeen Global Income Fund, Inc. (FCO) Aberdeen Indonesia Fund, Inc. (IF) Aberdeen Israel Fund, Inc. (ISL) Aberdeen Latin America Equity Fund, Inc. (LAQ)
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Aberdeen Israel Fund, Inc.
Dear Shareholder,
We present this Annual Report which covers the activities of Aberdeen
Israel Fund, Inc. (the Fund) for the twelve-month period ended
December 31, 2010. The Funds principal investment objective is toseek long-term capital appreciation by investing primarily in equity
securities of Israeli companies.
For the year ended December 31, 2010, the total return to shareholders
of the Fund based on the net asset value (NAV) of the Fund was 21.4%
versus a return of 22.9% for the Funds benchmark, the Tel Aviv 100
Index. Based on market price, the Funds shares gained 16.9% during
the period, assuming reinvestment of dividends and distributions.
Share Price PerformanceThe Funds share price increased 14.9% over the twelve months, from
$15.14 on December 31, 2009 to $17.40 on December 31, 2010. The
Funds share price on December 31, 2010 represented a discount of
11.3% to the NAV per share of $19.62 on that date, compared with a
discount of 7.9% to the NAV per share of $16.44 on December 31,
2009. As of February 10, 2011, the share price was $16.60, representing
a discount of 11.7% to the NAV per share of $18.81.
Market ReviewIsraeli equities had another positive year, shrugging off worries of
sovereign debt crises in Europe and tightening measures in China. In
particular, the third quarter announcement of a second round of
quantitative easing in the United States had a beneficial impact on
investor risk appetite.
Confidence in the Israeli economy was buoyed by the announcement
of further oil and gas discoveries in the Leviathan field off the coast of
Israel, which is expected to make Israel an energy independent state,
transforming the country into a net exporter of hydrocarbons. As a
result, the best performer in the Funds benchmark index was the
energy sector, although significant risks remain in both the
commercialization of the reserves and the undecided fiscal regime.
Meanwhile in May, Israel acceded from emerging market status to
become a developed market, though this had little impact on share
prices as it had been widely known for some time.
Economically, the country continues to recover from the credit crisisof 2008. GDP growth is expected to be in the region of 3.5% for 2011,
and is expected to improve in the years thereafter. The Bank of Israel
continues to pursue an inflation targeting policy, hiking rates to 2% by
the end of 2010 as inflation accelerated. This, combined with a large
current account surplus, has led the Shekel to continue to appreciate
though the Bank of Israel intervened to neutralize the currency.
Similarly, the central bank has been pro-actively trying to prevent the
formation of a housing bubble, introducing further regulations on
mortgage lending.
During the year, the Fund continued to be realigned with the Aberdee
investment philosophy. We sold a number of holdings which did n
adhere to Aberdeens investment philosophy and reinvested procee
into what we believe are solid, well run companies that provide go
value. There were two new notable additions during the year; Nest
subsidiary Osem, and software provider Retalix.
With regard to the Funds private equity holdings, the twelve mont
ended December 2010 have been a volatile period for Israe
technology sector. The values of the Funds underlying investmen
have decreased as a result of write-downs of investment values. Som
markdowns were the result of financings done at lower valuations
markdowns driven by valuation criteria. There was a slowdown
capital calls and an increase in distribution activities. For the period
January through December 2010, the Fund received distributions fro
limited partnerships totaling $163,473, compared to a total
$154,648 during the same period of 2009. The largest distribution
2010 came from Neurone Ventures II in the amount of $57,46
composed mainly of distribution proceeds from the sale of Voltaire a
3NOD. The investment pace of the Fund slowed with $52,063
capital calls made during this period compared to $118,750 during t
same period of the prior year. The unfunded commitments of the Fun
have decreased to $940,620 at December 31, 2010, compared wi
$992,682 at the end of 2009.
OutlookIn the short term, Israeli equities may rally further, driven by stron
fundamentals and continued flush liquidity. However, uncertainty an
volatility is likely to persist.
Whilst the economy in Israel remains robust, it will suffer if th
developed world recovery falters, particularly in the US. Continue
currency appreciation also brings the risk that the central bank w
introduce more aggressive forms of currency controls, which cou
potentially worsen the investment environment. On balance thoug
the investment manager believes the Funds holdings are genera
strong financially with robust business models.
Dividend Reinvestment and Direct Stock Purchase PlanAs part of a broad effort to enhance available services to Shareholde
we are pleased to announce the availability of a DividenReinvestment and Direct Stock Purchase Plan (the Plan) that
sponsored and administered by Computershare Trust Company, N.
(Computershare), the Funds transfer agent. For both purchases a
reinvestment purposes, shares will be purchased in the open market
the current share price and cannot be issued directly by the Fund.
The new Plan has similar features to the previous Dividen
Reinvestment Plan that was administered by Computershare, but
also offers some enhancements that enable new investors to purcha
Letter to ShareholdersFebruary 10, 2011
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2 Aberdeen Israel Fund, Inc.
initial shares through the Plan, authorize recurring monthly purchases
through the automatic investment feature and purchase shares over
the Internet at www.computershare.com/aberdeen or by check.
For more information about the Plan and a brochure that includes theterms and conditions of the Plan, please contact Computershare at
1-800-647-0584 or visit www.computershare.com/buyaberdeen.
Investor Relations InformationFor information about the Fund, daily updates of share price, NAV and
details of recent distributions, please contact Aberdeen by:
Calling toll free at 1-866-839-5205 in the United States,
Emailing [email protected], or
Visiting the website at www.aberdeenisl.com.
For additional information on the Aberdeen Closed-End Funds,
Aberdeen invites you to visit our recently redesigned website andClosed-End Investor Center at: www.aberdeen-asset.us/cef.
From the site you will also be able to review performance, download
literature and sign up for email services. The site houses most topical
information about the Aberdeen Closed-End Funds, including fact
sheets from Morningstar that are updated daily and monthly manager
reports. If you sign up for our email service online, we can ensure th
you are among the first to know about Aberdeens latest closed-en
fund news.
Included within this report is a reply card with postage paid envelopPlease complete and mail the card if you would like to be added to o
enhanced email service and receive future communications fro
Aberdeen.
Yours sincerely,
Christian PittardPresident
Letter to Shareholders (concluded)February 10, 2011
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Aberdeen Israel Fund, Inc.
Portfolio SummaryDecember 31, 2010 (unaudited)
Sector Allocation
Aerospace
&Defense
Che
mic
als
C
omm
ercial
Banks
Food&
Sta
ples
Retailin
g
Insuranc
e
Paper
&ForestPr
oducts
Pharm
aceuticals
Food
Produ
cts
SpecialtyRe
tail
Venture
Capit
al
Oth
erSectors
Software
Cash
&Oth
erAssets
Div
ersifie
d
Tele
communic
ation
Servic
es
0%
5%
10%
25%
20%
15%
AsaPercentofNetAss
ets
December 31, 2010 December 31, 2009
1.5%
3.0%
1.5%2.2%
5.5%4.7%
0.2% 0.2%
11.7%
2.6%
16.6%
0.6%
5.9%4.8%
9.9%
19.5%
15.4%
18.6%
18.2%
10.0%
4.9% 4.7%
1.6%
15.8%
0.0%
13.0%
3.9%
3.5%
Top 10 Holdings, by IssuerDecember 31, 2010 (unaudited)
Holding Sector Percent of Net Assets
1. Israel Chemicals Limited Chemicals 10.8%2. Check Point Software Technologies Limited Software 10.7%3. Bezeq Israeli Telecommunication Corp. Limited Diversified Telecommunication Services 10.0%4. Mizrahi Tefahot Bank Limited Commercial Banks 9.5%5. Teva Pharmaceutical Industries Limited Pharmaceuticals 8.9%6. Perrigo Co. Pharmaceuticals 6.9%7. Bank Leumi Le-Israel Commercial Banks 5.1%8. Harel Insurance Investments & Financial Services Limited Insurance 4.7%9. The Israel Corp. Limited Chemicals 3.9%
10. Golf & Co., Limited Specialty Retail 3.9%
Average Annual ReturnsDecember 31, 2010 (unaudited)
1 Year 3 Years 5 Years 10 Years
Net Asset Value (NAV) 21.37% 6.40% 11.27% 7.80%
Market Value 16.88% (1.75)% 10.98% 8.57%
Aberdeen Asset Management Investment Services Limited has agreed to voluntarily waive fees and/or reimburse expenses. This waiver may b
discontinued in the future. Without such waivers and/or reimbursed expenses, performance would be lower. Waivers and/or reimbursements a
subject to change and may be discontin ued at any time. Returns represent past performance. Total investment return at NAV is based on changes in th
NAV of Fund shares and assumes reinvestment of dividends and distributions, if any. Total investment return at market value is based on changes in th
market price at which the Funds shares traded on the stock exchange during the period and assumes reinvestment of dividends and distributions, if an
at actual prices pursuant to the Funds dividend reinvestment program. Because the Funds shares trade in the stock market based on investor deman
the Fund may trade at a price higher or lower than its NAV. Therefore, returns are calculated based on share price and NAV. Past performance is n
guarantee of future results. The current performance of the Fund may be lower or higher than the figures shown. The Funds yield, return, market pri
and NAV will fluctuate. Performance information current to the most recent month-end is available by calling 866-839-5205.
The annualized gross expense ratio is 1.91%. The annualized net expense ratio after fee waivers and/or expense reimbursements is 1.67%.
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6 Aberdeen Israel Fund, Inc.
Statement of Assets and LiabilitiesAs of December 31, 2010
Assets
Investments, at value (cost $55,351,307) $ 84,644,584
Cash (including $355,046 of foreign currencies with a cost of $346,808) 355,857
Israeli tax refunds receivable 415,190Dividends receivable 79,733
Prepaid expenses 9,366
Total assets 85,504,730
Liabilities
Dividends and distributions (Note 1) 1,289,925
Investment advisory fees payable (Note 2) 232,626
Administration fees payable (Note 2) 9,503
Accrued expenses and other liabilities 147,048
Total liabilities 1,679,102
Net Assets $83,825,628
Net Assets consist of
Capital stock, $0.001 par value (Note 5) $ 4,273
Paid-in capital 53,714,621
Undistributed net investment income 118,849
Accumulated net realized gain on investments and foreign currency related transactions 685,779
Net unrealized appreciation on investments and foreign currency translation 29,302,106
Net Assets applicable to shares outstanding $83,825,628
Net asset value per share, based on 4,272,691 shares issued and outstanding $ 19.62
See Notes to Financial Statements.
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8 Aberdeen Israel Fund, Inc.
Statement of Changes in Net Assets
For the For theYear Ended Year Ended
December 31, 2010 December 31, 2009
Increase/(Decrease) in Net Assets
Operations:
Net investment income $ 1,418,890 $ 128,107
Net realized gain/(loss) on investments and foreign currency related transactions 2,268,687 (3,406,949
Net change in unrealized appreciation on investments and foreign currency translations 11,181,735 35,128,440
Net increase in net assets resulting from operations 14,869,312 31,849,598
Dividends and distributions to shareholders from:
Net investment income (1,289,925)
Capital share transactions:
Issuance of 0 and 1,046 shares through the directors compensation plan (Note 2) 14,697
Total increase in net assets resulting from operations 13,579,387 31,864,295
Net Assets
Beginning of year 70,246,241 38,381,946
End of year* $83,825,628 $70,246,241
* Includes undistributed net investment income of $118,849 and accumulated net investment loss of $(60,165), respectively.
See Notes to Financial Statements.
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For the Fiscal Years Ended December 31,
2010 2009 2008 2007 2006
PER SHARE OPERATING PERFORMANCE
Net asset value, beginning of year $16.44 $8.99 $20.85 $18.51 $17.44Net investment income(a) 0.33 0.03 0.20 0.28 0.17
Net realized and unrealized gain/(loss) on investments and foreign currencyrelated transactions 3.15 7.42 (9.83) 4.26 2.25
Net increase/(decrease) in net assets resulting from operations 3.48 7.45 (9.63) 4.54 2.42
Dividends and distributions to shareholders:
Net investment income (0.30) (0.30) (0.38) (0.18
Net realized gain (1.93) (1.82) (1.17
Total dividends and distributions to shareholders (0.30) (2.23) (2.20) (1.35
Net asset value, end of period $19.62 $16.44 $8.99 $20.85 $18.5
Market value, end of period $17.40 $15.14 $8.02 $23.49 $18.65
Total Investment Return Based on:
Market value(b) 16.88% 88.78% (57.01%) 38.96% 27.77%
Net asset value 21.37% 82.87% (45.71%) 24.28% 13.94%
Ratio/Supplementary Data
Net assets, end of period (000 omitted) $83,826 $70,246 $38,382 $88,844 $78,85
Average net assets (000 omitted) $73,076 $53,545 $76,165 $88,234 $77,207
Ratio of expenses to average net assets(c) 1.67% 1.85% 1.73% 1.71% 1.73%
Ratio of expenses to average net assets, excluding fee waivers 1.91% 2.12% 2.02% 1.99% 1.97%
Ratio of net investment income to average net assets 1.94% 0.24% 1.14% 1.34% 0.95%
Portfolio turnover rate 11.59% 49.51% 19.43% 9.32% 9.82%
(a) Based on average shares outstanding.
(b) Total investment return is calculated assuming a purchase of common stock on the first day and a sale on the last day of each reporting perioDividends and distributions, if any, are assumed, for purposes of this calculation to be reinvested at prices obtained under the Funds dividereinvestment plan. Total investment return does not reflect brokerage commissions.
(c) Ratios reflect actual expenses incurred by the Fund. Amounts are net of fee waivers.
See Notes to Financial Statements.
Aberdeen Israel Fund, Inc.
Financial Highlights
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10 Aberdeen Israel Fund, Inc.
Aberdeen Israel Fund, Inc. (the Fund), formerly The First Israel Fund,
Inc., 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.
The Fund seeks long-term capital appreciation by investing primarily in
equity securities of Israeli companies.
The Board of Directors of the Fund (the Board) has removed the
limitation set forth in the Funds original prospectus requiring that the
portion of the Funds 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.
On March 29, 2010, the Board approved a name change for the Fundin order to align the Fund more closely with the investment adviser
and to differentiate the Fund in a competitive market with many known
brands. The Funds investment objective and NYSE Amex ticker symbol,
ISL, remain unchanged.
1. Significant Accounting PoliciesThe following is a summary of significant accounting policies followed
by the Fund in the preparation of its financial statements. The financial
statements of the Fund are prepared in accordance with accounting
principles generally accepted in the United States of America (GAAP).
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assetsand liabilities, disclosure of contingent assets and liabilities at the date
of the financial statements, and the reported amounts of income and
expenses for the period. Actual results could differ from those estimates.
The U.S. dollar is used as both the functional and reporting currency.
(a) Security Valuation:
Securities for which market quotations are readily available are valued
at current market value as of Valuation Time. Valuation Time is as of
the close of regular trading on the New York Stock Exchange (usually
4:00 p.m. Eastern Time). Equity securities are typically valued at the last
quoted sale price or, if there is no sale price, the last quoted bid price
provided by an independent pricing service approved by the Board.Securities traded on NASDAQ are valued at the NASDAQ official
closing price. Prices are taken from the primary market or exchange in
which each security trades. Investment companies are valued at net
asset value as reported by such company.
Most securities listed on a foreign exchange are valued either at fair
value (see description below) or at the last sale price at the close of the
exchange on which the security is principally traded. Foreign securities,
currencies, and other assets and liabilities denominated in foreign
currencies are translated into U.S. dollars at the exchange rate of said
currencies against the U.S. dollar, as of Valuation Time, as provided
an independent pricing service approved by the Board.
Debt and other fixed-income securities (other than short-ter
obligations) are valued at the last quoted bid price and/or by usingcombination of daily quotes and matrix evaluations provided by a
independent pricing service, the use of which has been approved by th
Board. In the event such quotes are not available from such pricing agent
then the security may be priced based on bid quotations fro
broker-dealers. Short-term debt securities of sufficient credit quality su
as commercial paper and U.S. Treasury Bills having a remaining matur
of 60 days or less at the time of purchase are valued at amortized cos
Securities for which market quotations are not readily available, or f
which an independent pricing service does not provide a value
provides a value that does not represent fair value in the judgment
the Funds investment adviser or designee, are valued at fair value und
procedures approved by the Board. In addition, fair val
determinations are required for securities whose value is affected by
significant event that materially affects the value of a domestic
foreign security which occurs subsequent to the time of the close of th
principal market on which such domestic or foreign security trades an
before the Valuation Time (i.e., a subsequent event). Typically, this w
involve events occurring after the close of a foreign market on which
security trades and before the next Valuation Time.
The Funds equity securities that are traded on a foreign exchange
market which closes prior to the Funds Valuation Time are fair value
by an independent pricing service. The fair value of each such securi
generally is calculated by applying a valuation factor provided by tindependent pricing service to the last sales price for that security. If t
pricing service is unable to provide a fair value for a security, the secur
will continue to be valued at the last sale price at the close of th
exchange on which it is principally traded, subject to adjustment by t
Funds Pricing Committee. When the fair value prices are utilized, t
value assigned to the foreign securities may not be the quoted
published prices of the securities on their primary markets.
The Fund values restricted securities at fair value. The Funds estima
of fair value assumes a willing buyer and a willing seller neither acti
under the compulsion to buy or sell. Although these securities may
resold in privately negotiated transactions, the prices realized on su
sales could differ from the prices originally paid by the Fund or th
current carrying values, and the difference could be material.
The Fund also invests in venture capital investments, which a
classified as Level 3 investments, as defined below. In determining t
fair value of such investments, management uses the market approa
which includes as the primary input the capital balance reporte
however adjustments to the reported capital balance may be ma
based on various factors, including, but not limited to, the attributes
the interest held, including the rights and obligations, and an
Notes to Financial StatementsDecember 31, 2010
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Aberdeen Israel Fund, Inc.
restrictions or illiquidity of such interests, and the fair value of these
venture capital investments.
For the year ended December 31, 2010, there have been no significant
changes to the valuation procedures approved by the Board.Equity securities are valued at the most recent sale price or official
closing price reported on the exchange (US or foreign) or over-the-counter
market on which they trade and are categorized as Level 1 securities.
Securities for which no sales are reported are valued at the calculated
bid. For certain international equity securities, in order to adjust for
events which may occur between the close of the foreign exchange
they are traded on and the close of the New York Stock Exchange, a fair
valuation model may be used (as described above). This fair valuation
model takes into account comparisons to the valuation of American
Depository Receipts (ADRs), exchange-traded funds, futures contracts
and certain indices and these securities are categorized as Level 2.
The Fund is required to disclose information regarding the fair value
measurement of its assets and liabilities. Fair value is defined as the
price that the Fund would receive upon selling an investment in a timely
transaction to an independent buyer in the principal or most
advantageous market of the investment. This disclosure requirement
establishes a three-tier hierarchy to maximize the use of observable
market data and minimize the use of unobservable inputs and to
establish classifications of fair value measurements for disclosure
purposes. Inputs refer broadly to the assumptions that market
participants would use in pricing the asset or liability, including
assumptions about risk, for example, the risk inherent in a particul
valuation technique used to measure fair value including such a prici
model and/or the risk inherent in the inputs to the valuation techniqu
Inputs may be observable or unobservable.
Observable inputs are inputs that reflect the assumptions mark
participants would use in pricing the asset or liability developed bas
on market data obtained from sources independent of the reportin
entity. Unobservable inputs are inputs that reflect the reporting entity
own assumptions about the assumptions market participants wou
use in pricing the asset or liability developed based on the be
information available in the circumstances.
The three-tier hierarchy of inputs is summarized in the three broa
Levels listed below.
Level 1 quoted prices in active markets for identical securities.
Level 2 other significant observable inputs (including quoted prices fsimilar securities, interest rates, prepayment speeds, credit risk, etc.
Level 3 significant unobservable inputs (including the Funds ow
assumptions in determining the fair value of investments, informatio
provided by the General Partner or investee companies such as public
traded prices, financial statements, capital statements, rece
transactions, and general market conditions).
The inputs or methodology used for valuing securities are not necessar
an indication of the risk associated with investing in those securities.
Notes to Financial Statements (continued)December 31, 2010
The following is a summary of the inputs used as of December 31, 2010 in valuing the Funds investments carried at value:
Balance as oInvestments, at value Level 1* Level 2* Level 3* 12/31/2010
Aerospace & Defense $ $1,235,802 $ $1,235,802
Chemicals 15,565,990 15,565,990
Commercial Banks 15,279,528 15,279,528
Diversified Telecommunication Services 8,432,105 8,432,105
Food & Staples Retailing 4,098,916 4,098,916
Food Products 2,164,730 2,164,730
Insurance 3,956,398 3,956,398
Machinery 172,582 172,582
Paper & Forest Products 1,307,438 1,307,438
Pharmaceuticals 7,497,337 5,773,408 13,270,745
Software 10,084,440 785,513 10,869,953
Specialty Retail 3,242,285 3,242,285
Venture Capital 2,982,112 2,982,112
Short-Term Investments 2,066,000 2,066,000
Total $17,581,777 $64,080,695 $2,982,112 $84,644,584
* For the year ended December 31, 2010, there have been no significant changes to the fair valuation methodologies. For the year end
December 31, 2010, there were no significant transfers in or out of Level 1, Level 2 and Level 3 fair value measurements.
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Aberdeen Israel Fund, Inc.
measurements for Level 2 and Level 3 positions. In addition, transfers
between all levels must be disclosed on a gross basis including the
reason(s) for the transfer(s). Purchases, sales, issuances and settlements
in the Level 3 rollforward must be disclosed on a gross basis. The
amendment is effective for interim and annual reporting periods
beginning after December 15, 2009, while disclosures about purchases,
sales, issuances, and settlements in the Level 3 rollforward of activity
is effective for interim and annual reporting periods beginning after
December 15, 2010. The Fund has adopted a policy of recognizing
significant transfers between Level 1 and Level 2 at the reporting period
end. A significant transfer is a transfer, in aggregate, whose value is
greater than 5% of the net assets of the Fund on the recognition date.
As of December 31, 2010, there have been no significant transfers
between Level 1, Level 2, or Level 3.
(g) Federal Income Taxes:The Fund intends to continue to qualify as a regulated investment
company by complying with the provisions available to certain
investment companies, as defined in Subchapter M of the Internal
Revenue Code, and to make distributions of net investment income
and net realized capital gains sufficient to relieve the Fund from all, or
substantially all, federal income taxes. Therefore, no federal income
tax provision is required.
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 listedon 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 year ended December 31, 2010, 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 20% withholding tax, while dividends from unlisted or unapprovedsecurities 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.
The Fund recognizes the tax benefits of uncertain tax positions only
where the position is more likely than not to be sustained assuming
examination by tax authorities. Management of the Fund has
concluded that there are no significant uncertain tax positions th
would require recognition in the financial statements. Since t
authorities can examine previously filed tax returns, the Funds U
federal tax returns for each of the four years in the period ende
December 31, 2010 are subject to such review.
(h) Partnership Accounting Policy:
The Fund records its pro-rata share of the income/(loss) and capit
gains/(losses) allocated from the underlying partnerships and adjus
the cost of the underlying partnerships accordingly. These amounts a
included in the Funds Statement of Operations.
2. AgreementsAberdeen Asset Management Investment Services Limited (AAMIS
serves as the Funds investment adviser with respect to
investments. The adviser is a direct wholly-owned subsidiary Aberdeen Asset Management PLC. AAMISL receives as compensatio
for its advisory services from the Fund, an annual fee, calculat
weekly and paid quarterly, equal to 1.30% of the first $50 million
the Funds average weekly market value or net assets (whichever
lower), 1.25% on amounts from $50-$100 million, 1.20% on amoun
from $100-$150 million, 1.15% on amounts from $150-$200 millio
and 1.05% for amounts above $200 million. AAMISL has agreed
waive a portion of its advisory fee. For the year ended December 3
2010, AAMISL earned $849,457 for advisory services to the Fund,
which AAMISL waived $178,376.
Analyst Exchange and Trading Services Ltd. (Analyst Exchange) is tsub-adviser to the Fund. Analyst Exchange is paid a fee, out of th
advisory fee payable to AAMISL, calculated weekly and paid quarter
at an annual rate of 0.30% of the Funds average weekly market val
or net assets (whichever was lower). In addition, Analyst Exchange
paid a reimbursement by AAMISL for any Israeli Value Added tax
(currently 15.5%) and $25,000 annually to cover expenses incurred
the execution of sub-advisory services. For the year ended December 3
2010, Analyst Exchange earned $253,541 for sub-advisory services
the Fund.
Analyst Exchange has certain commercial arrangements with ban
and brokers in Israel from which Analyst Exchange receives a portion the commissions on the Funds trades executed in Israel. For the ye
ended December 31, 2010, no such commissions were received.
BBH & Co. is the Administrator for the Fund and certain other fun
advised by AAMISL or its affiliates (collectively the Funds). The Fun
pay BBH & Co. monthly for administrative and fund accountin
services, at an annual rate of .06% of the Funds aggregate assets up
$500 million, .0525% for the next $500 million, and .0425% in exce
of $1 billion. Each Fund pays its pro rata portion of the fee based on
level of assets. For the year ended December 31, 2010, BBH & C
Notes to Financial Statements (continued)December 31, 2010
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14 Aberdeen Israel Fund, Inc.
earned $41,863 from the Fund for administrative and fund accounting
services.
Effective February 1, 2010, the Board approved an Investor Relations
Services Agreement. Under the terms of the Investor Relations ServicesAgreement, Aberdeen Asset Management Inc. (AAMI), an affiliate of
AAMISL, provides investor relations services to the Fund and certain
other U.S. registered closed end funds advised by AAMISL or its
affiliates. The Fund incurred investor relations service fees of
approximately $43,390 as of December 31, 2010. Investor relations
fees and expenses in the Statement of Operations include certain
out-of-pocket expenses.
Fifty percent (50%) of the annual retainer of the Independent Directors
is invested in Fund shares and, at the option of each Independent
Director, 100% of the annual retainer can be invested in shares of the
Fund. During the fiscal year ended December 31, 2009, 1,046 shares
were issued and an additional 954 shares were purchased pursuant to
the Directors compensation plan. During the fiscal year ended
December 31, 2010, there were 1,775 shares purchased pursuant to the
Directors compensation plan. Directors as a group own less than 1% of
the Funds outstanding shares.
3. Investment TransactionsFor the year ended December 31, 2010, Fund purchases and sales of
securities, other than short-term investments, were $8,849,211 and
$8,215,199, respectively.
4. Tax InformationIncome and capital gain distributions are determined in accordance
with U.S. federal income tax regulations, which may differ from GAAP.
For the fiscal year ended December 31, 2010 the Fund paid $1,289,925
in distributions classified as ordinary income. For the fiscal year ended
December 31, 2009, the Fund did not pay a distribution.
The tax basis of components of distributable earnings differ from the
amounts reflected in the Statement of Assets and Liabilities by
temporary book/tax differences. These differences are primarily due to
losses deferred on wash sales, timing differences due to partnership
investments and capital loss carry forwards. At December 31, 2010,
the components of distributable earnings on a tax basis for the Fund
were as follows:
Undistributed ordinary income $118,849
Capital loss carry forward (1,266,954)
Unrealized appreciation 31,254,839
Total distributable earnings $30,106,734
At December 31, 2010, the Fund had a capital loss carry forward for U
federal income tax purposes of $1,266,954 that will expire in 2017. It
uncertain whether the Fund will be able to realize the benefits befo
they expire.
At December 31, 2010, the identified cost for U.S. federal income t
purposes, the gross unrealized appreciation from investments for tho
securities having an excess of value over cost, the gross unrealize
depreciation from investments for those securities having an excess
cost over value and the net unrealized appreciation from investmen
were $53,398,574, $35,519,617, $(4,273,607) and $31,246,01
respectively.
GAAP requires that certain components of net assets be adjusted
reflect permanent differences between financial and tax reportin
Accordingly, during the year ended December 31, 2010, $50,049 an
$539,189 had been reclassified from paid-in capital to undistributed ninvestment income and accumulated net realized gain on investmen
and foreign currency related transactions, respectively, as a result
permanent differences primarily attributable to foreign curren
transactions and prior year partnership investment adjustments. The
reclassifications had no effect on net assets or net asset values per sha
5. CapitalThe authorized capital stock of the Fund is 100,000,000 shares
common stock, $0.001 par value. As of December 31, 2010, the Fun
held 4,272,691 shares outstanding.
6. Credit FacilityOn November 12, 2010, the Fund entered into a joint credit facili
along with certain other Funds. The Funds agreed to a $10 millio
committed revolving joint credit facility with BBH & Co. for tempora
or emergency purposes. Under the terms of the joint credit facility, t
Funds pay an aggregate commitment fee on the average unus
amount of the credit facility. In addition, the Funds pay interest o
borrowings at the Overnight LIBOR rate plus a spread. For the ye
ended December 31, 2010, the Fund had no borrowings under the jo
credit facility.
Notes to Financial Statements (continued)December 31, 2010
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Aberdeen Israel Fund, Inc.
7. Restricted SecuritiesCertain of the Funds investments are restricted as to resale and are valued at fair value as determined in good faith by, or under the direction o
the Board under procedures established by the Board in the absence of readily ascertainable market values. The following chart details suc
securities currently held by the Fund:Fair Value Percent of Distributions Open
Security Acquisition Date(s) Cost At 12/31/10 Net Assets Received Commitments
ABS GE Capital Giza Fund, L.P. 02/03/98 02/13/02 $985,303 $82,500 0.10 $1,660,765 $
BPA Israel Ventures LLC 10/05/00 12/09/05 1,160,529 485,585 0.58 97,293 625,412
Concord Ventures Fund II, L.P. 09/29/00 12/15/06 1,277,753 433,232 0.52 166,126
Delta Fund I, L.P. 11/15/00 03/28/07 167,473 143,591 0.17 57,937
Emerging Markets Ventures I, L.P. 01/22/98 01/10/06 860,088 253,642 0.30 2,443,399 262,708
Giza GE Venture Fund III L.P. 01/31/00 11/23/06 834,089 260,500 0.31 329,171
K.T. Concord Venture Fund L.P. 12/08/97 09/29/00 595,042 41,332 0.05 660,194
Neurone Ventures II, L.P. 11/24/00 12/21/10 165,528 128,967 0.15 401,834 52,500
Pitango Fund II LLC 10/31/96 08/01/01 388,547 91,161 0.11 1,198,040
SVE Star Ventures Enterprises
GmbH & Co. No. IX KG 12/21/00 08/08/08 1,536,591 486,838 0.58 380,279
Walden-Israel Ventures III, L.P 02/23/01 10/20/10 885,714 574,764 0.69 942,976
Total $8,856,657 $2,982,112 3.56 $8,338,014 $940,620
The Fund may incur certain costs in connection with the disposition of the above securities.
Notes to Financial Statements (continued)December 31, 2010
8. Contingencies
In the normal course of business, the Fund may provide generalindemnifications pursuant to certain contracts and organizational
documents. The Funds 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.
9. Portfolio Investment Risks
(a) Risks Associated with Foreign Securities and Currencies:
Investments in securities of foreign issuers carry certain risks not
ordinarily associated with investments in securities of U.S. issuers. Such
risks include, among others, currency risks, information risk and politicalrisk. Currency risk results from securities denominated in currencies
other than U.S. dollars that are subject to changes in value due to
fluctuations in exchange rates. Information risk arises with respect to
foreign securities when key information about foreign issuers may be
inaccurate or unavailable. Political risk includes future political and
economic developments, and the possible imposition of exchange
controls or other foreign governmental laws and restrictions. In
addition, with respect to certain countries, there is the possibility of
expropriation of assets, confiscatory taxation, political or social
instability or diplomatic developments, which could adversely affe
investments in those countries. Other risks of investing in foreigsecurities include liquidity and valuation risks.
Certain countries also may impose substantial restrictions o
investments in their capital markets by foreign entities, includin
restrictions on investments in issuers of industries deemed sensiti
to relevant national interests. These factors may limit the investme
opportunities available and result in a lack of liquidity and a high pri
volatility with respect to securities of issuers from developing countrie
Some countries require governmental approval for the repatriation
investment income, capital or the proceeds of sales of securities
foreign investors. In addition, if there is a deterioration in a country
balance of payments or for other reasons, a country may impotemporary restrictions on foreign capital remittances abroad. Amoun
repatriated prior to the end of specified periods may be subject to tax
as imposed by a foreign country.
(b) Risks Associated with Israeli Markets:
Investments in Israel may involve certain considerations and risks n
typically associated with investments in the United States, including t
possibility of future political and economic developments and the lev
of Israeli governmental supervision and regulation of its securiti
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16 Aberdeen Israel Fund, Inc.
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.
(c) Risks Associated with Restricted Securities:
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 trade
securities. Although these securities may be resold in private
negotiated transactions, the prices realized on such sales could b
substantially less than those originally paid by the Fund or the curre
carrying values and these differences could be material. Furthe
companies whose securities are not publicly traded may not be subje
to the disclosure and other investor protection requirements applicab
to companies whose securities are publicly traded.
10. Subsequent EventsManagement has evaluated the need for disclosures and/
adjustments resulting from subsequent events through the date th
financial statements were issued. Based on this evaluation, n
adjustments were required to the Financial Statements as
December 31, 2010.
Notes to Financial Statements (concluded)December 31, 2010
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Aberdeen Israel Fund, Inc.
To the Board of Directors and Shareholders of
Aberdeen Israel Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements
operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Aberdeen IsraFund, Inc. (the Fund, formerly The First Israel Fund, Inc.) at December 31, 2010, the results of its operations for the year then ended and the chang
in its net assets and financial highlights for the periods presented, in conformity with accounting principles generally accepted in the United Stat
of America. These financial statements are the responsibility of the Funds management. Our responsibility is to express an opinion on these financ
statements based on our audit. We conducted our audit of these financial statements in accordance with the standards of the Public Compan
Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance abo
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amoun
and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluatin
the overall financial statement presentation. We believe that our audit, which included confirmation of securities at December 31, 2010 b
correspondence with the custodian and venture capital issuers, provides a reasonable basis for our opinion.
Boston, Massachusetts
February 25, 2011
Report of Independent Registered Public Accounting Firm
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18 Aberdeen Israel Fund, Inc.
Tax Information (unaudited)
For the year ended December 31, 2010, the Fund designates approximately $1,289,925, or up to the maximum amount of such dividends allowab
pursuant to the Internal Revenue Code, as qualified dividend income eligible for reduced tax rates. These lower rates range from 5% to 15
depending on an individuals tax bracket. If the Fund pays a distribution during a calendar year, complete information will be reported in conjunctio
with Form 1099-DIV.
The Fund has made an election under Section 853 to pass through foreign taxes paid by the Fund to its shareholders. The amount of foreign tax
that were passed through to shareholders for the year ended December 31, 2010, was $527,681. The amount of foreign source income w
$2,971,954. Shareholders should refer to their Form 1099-DIV to determine the amount includable on their respective tax returns for 2010.
Information regarding how the Fund voted proxies related to its portfolio securities during the 12-month period ended June 30 of each year,
well as the policies and procedures that the Fund uses to determine how to vote proxies relating to its portfolio securities are available:
By calling 1-866-839-5205;
On the website of the Securities and Exchange Commission, 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
Forms N-Q are available on the SECs website at www.sec.gov and may be reviewed and copied at the SECs Public Reference Room in Washingto
DC. Information on the operation of the SECs Public Reference Room may be obtained by calling 1-800-SEC-0330.
The Fund makes the information on Form N-Q available to shareholders on the Funds website or upon request and without charge by callin
Investor Relations toll-free at 1-866-839-5205.
Proxy Voting and Portfolio Holdings Information (unaudited)
Supplemental Information (unaudited)
Considerations in Approving Renewal of ManagementAgreement, Investment Advisory Agreement and Sub-Advisory AgreementThe Investment Company Act of 1940 (the Investment Company Act)
and the terms of the investment advisory agreement (the Advisory
Agreement) between the Aberdeen Israel Fund, Inc. (the Fund) and
Aberdeen Asset Management Investment Services Limited (the
Adviser) and the investment sub-advisory agreement (the Sub-
Advisory Agreement) between the Fund and Analyst Exchange and
Trading Services Ltd. (the Sub-Adviser) require that, following their
initial two-year approval period, the agreements be approved annually
at an in-person meeting by a majority of the Board of Directors (the
Board), including a majority of the Directors who have no direct or
indirect interest in the investment advisory agreements and are not
interested persons of the Fund, as defined in the Investme
Company Act (the Independent Directors).
At its meeting on December 7, 2010, the Board voted unanimously
renew the Advisory Agreement between the Fund and the Adviser anthe Sub-Advisory Agreement between the Fund and the Sub-Advise
The Adviser and the Sub-Adviser are referred to collectively at th
Advisers. The Advisory Agreement and the Sub-Advisory Agreeme
are collectively referred to as the Advisory Agreements. In connecti
with its evaluation of the Advisory Agreements, the Board reviewed
broad range of information requested for this purpose and consider
a variety of factors, including the following:
(i) The nature, extent and quality of the services provided by t
Advisers;
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Aberdeen Israel Fund, Inc.
Supplemental Information (unaudited) (continued)
(ii) The performance of the Fund;
(iii) The management fee rate and the net total expense ratio of the
Fund, both on an absolute basis and as compared both to a relevant
peer group of funds and to fees charged by the Adviser to others;
(iv) The extent to which economies of scale could be realized by the
Adviser and shared with the shareholders;
(v) The costs of services provided and profits realized by the Adviser;
(vi) Other benefits realized by the Advisers from their relationship with
the Fund; and
(vii)Any other factors that the Board deemed relevant to its
consideration.
In its review of information presented to the Board during the contract
renewal process and throughout the year, the Board also consideredknowledge gained from discussions with management leading up to
and since the initial approval of the Advisory Agreements. The
Independent Directors were represented by independent counsel
throughout the review process and convened executive sessions
without management present. In its deliberations, the Board did not
identify any single factor that was all-important or controlling and each
Director may have attributed different weights to the various factors.
Certain of the Board considerations outlined above are discussed in
more detail below.
Nature, Extent and Quality of Services. The Board received and
considered various data and information regarding the nature, extent
and quality of services provided under the Advisory Agreements. The
Board considered, among other things, information about the
background and experience of senior management and investment
personnel who were responsible for managing the Fund. The Board also
received presentations from and participated in information sessions
with senior investment personnel of the Adviser. The Board considered
the information provided regarding the portfolio managers and other
resources dedicated to the Fund and the investment philosophy and
process followed by those individuals responsible for managing the Fund.
The Board also evaluated the ability of the Advisers, based on their
resources, reputation and other attributes, to attract and retainqualified investment professionals. In this regard, the Board considered
information regarding the general nature of the compensation structure
applicable to portfolio managers and other key personnel.
In addition, the Board considered and evaluated materials and
information received regarding the Advisers investment and legal
compliance program and record with respect to the U.S. registered
closed-end funds managed by the Adviser. The Board met in-person with
and received quarterly reports from the Funds Chief Compliance Officer.
The Board considered the Sub-Advisors history and experience with t
Fund. The Board further considered the Sub-Advisers resourc
dedicated to compliance. The Board also considered the Advise
execution of its oversight responsibilities.
Furthermore, the Board received and considered information about t
financial viability of the Advisers to satisfy itself that the Advisers ha
adequate resources to perform the services required under the Adviso
Agreements.
Based on the foregoing and other relevant information reviewed, th
Board concluded that, overall, the nature, extent and quality of th
services provided to the Fund supported renewal of the Adviso
Agreements.
Investment Performance. In addition to reports received at its regul
quarterly meetings, the Board received and considered information o
the performance history of the Fund, including comparisons
benchmark index returns over various time periods. The Board w
provided with reports, independently prepared by Strategic Insig
Mutual Fund Research and Consulting, LLC (Strategic Insight), whi
included a comprehensive analysis of the Funds performance.
Strategic Insights performance analysis of the Fund did not include
comparison to the Morningstar Category average because the Fund
the only unleveraged fund in the Morningstar Foreign Small/Mid Valu
Category. The Funds performance for the years 2002-2003, 2006 an
2009 was higher than or in-line with the performance of its benchma
index, the MSCI Israel Index, and the Funds performance was low
than the benchmark index for the other time periods under review. T
Adviser discussed factors that contributed to the Funds performan
results and actions that had been taken to address the Fund
underperformance. The Board took into account that the Adviser ha
only been managing the Fund since July 2009 and that the Adviser ha
been gradually repositioning the portfolio as part of the transition t
the Advisers investment approach. The Board concluded that th
Adviser was taking appropriate actions to improve Funds performanc
Fees and Economies of Scale. The Board considered the manageme
fee rate charged by the Adviser to the Fund. The Board received a
analysis from Strategic Insight that compared the Funds manageme
fee rate to the management fee rate of a peer group of funds on a gro
basis and on a net basis after taking into consideration any waivers
reimbursements. The Board noted that the gross management fee ra
for the Fund was higher than the average and median gro
management fee rates for its peer group. The Board also noted that t
net management fee rate was lower than the average and median n
management fee rates for its peer group. The Board noted the Advise
agreement to voluntarily waive an allocated portion of the Fund
management fee. Furthermore, the Board concluded that th
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20 Aberdeen Israel Fund, Inc.
contractual breakpoints utilized by the Fund adequately took into
account potential economies of scale.
The Board also reviewed information prepared by Strategic Insight that
showed that the Funds that the Funds net total expense ratio washigher than the average and median ratios of its peer group. The Board
considered the differences between the Fund and the funds in the peer
group and noted that the Fund was the only fund in the peer group that
invested primarily in Israeli equity and debt securities. The Board noted
that the most significant factors contributing to the Funds expense
results were the Funds custody and Other expenses. The Board
considered the higher costs associated with custody of foreign assets
and managements explanation regarding the Funds Other Expenses.
Costs of Services Provided and Profitability. The Board considered,
among other things, the Advisers estimates of its costs in providing
advisory services to the Fund, and the Advisers resulting profitability.Based on its review of the expense and profit information provided by
the Adviser, the Board concluded that the profits earned by the Adviser
from the Advisory Agreement were not excessive in light of the nature,
extent and quality of services provided to the Fund.
The Board also received and considered a profit statement related to
the Fund from the Sub-Adviser. The Board observed the costs of
providing services to the Fund. The Board also noted that the sub-
advisory fees are paid to the Sub-Adviser by the Adviser and not directly
by the Fund. The Board noted that the fees paid to the Sub-Adviser
had been negotiated at arms length. Based on these factors, the Board
concluded that the profits and other ancillary benefits that the Sub-Adviser received with regard to providing these services to the Fund
were not excessive.
Information about Services to Other Clients. The Board considered
information about the nature and extent of services and fee rates
offered by the Adviser to other clients, including other registered
investment companies and separate accounts. The Board considere
that the Adviser was subject to a broader and more extensive regulato
regime in connection with management of the Fund compared to t
Advisers management of unregistered or institutional accounts. Th
Board concluded that the fee rate under the Advisory Agreement w
not excessive relative to these other fee rates, given its understandi
of similarities and differences in the nature and extent of servic
offered and other factors.
Fall-Out Benefits and Other Factors. The Board also consider
information regarding potential fall-out or ancillary benefits th
could be realized by the Advisers as a result of their relationship with t
Fund. In this regard, the Board concluded that the Adviser and i
affiliates may derive reputational benefits from their association wi
the Fund. The Board also noted, however, that such benefits we
difficult to quantify with certainty.
Additionally, the Board considered that the Adviser does not use so
dollars. The Board noted that the Adviser may enter into commissio
sharing arrangements with certain brokers for the receipt of goods
services that relate to the execution of trades or the provision
research. The Board considered the Advisers representations that
evaluates its commission sharing arrangements for compliance with U
regulations, particularly, with respect to the safe harbor contained
Section 28(e) of the Securities Exchange Act of 1934 and f
compliance with its best execution obligations.
* * * * *
After an evaluation of the above-described factors and based on i
deliberations and analysis of the information provided and alternativ
considered, the Board, including all of the Independent Directo
concluded that approval of the Advisory Agreements are in the be
interest of the Fund and its shareholders. Accordingly, the Boa
unanimously approved the Advisory Agreements.
Supplemental Information (unaudited) (concluded)
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Aberdeen Israel Fund, Inc.
Management of the Fund (unaudited)
The names of the Directors and Officers of the Fund, their addresses, ages, and principal occupations during the past five years are provided in t
tables below. Directors that are deemed interested persons (as that term is defined in Section 2(a)(19) of the Investment Company Act of 194
as amended) of the Fund are included in the table below under the heading Interested Directors. The Fund currently has no Interested Directo
Directors who are not interested persons, as described above, are referred to in the table below under the heading Independent Directors.
Board of Directors Information
Number ofFunds in
Term of Office Fund Complex*Position(s) Held and Length of Principal Occupation(s) Overseen by Other Directorships
Name, Address and Age With the Fund Time Served During Past Five Years Director Held by Director
Independent Directors
* Aberdeen Asia-Pacific Income Fund, Inc., Aberdeen Australia Equity Fund, Inc., Aberdeen Global Income Fund, Inc., Aberdeen Chile Fund, InAberdeen Emerging Markets Telecommunications and Infrastructure Fund, Inc., Aberdeen Indonesia Fund, Inc., Aberdeen Latin America Equi
Fund, Inc. and the Aberdeen Funds have a common Investment Manager and/or Investment Adviser with the Fund, or an investment advis
that is affiliated with the Investment Manager and Investment Adviser with the Fund, and may thus be deemed to be part of the same Fu
Complex as the Fund.
Enrique R. Arzacc/o Aberdeen AssetManagement Inc.Attn: US Legal
1735 Market Street, 32
nd
Floor,Philadelphia, PA 19103
Age: 69
Chairman of theBoard of Directors,NominatingCommittee
Chairman and Auditand ValuationCommitteeMember
Since 1996;Chairmansince 2005;current term
ends at the2012 annualmeeting
Professor of Finance and Economics,Graduate School of Business,Columbia University (1971-Present.)
5 Director of Epoch Holding CorporationDirector of The Adams ExpressCompany; Director of Petroleum andResources Corporation; Director of Mir
Asset Management Funds (6funds);Director of Credit Suisse Funds (13)
James J. Cattanoc/o Aberdeen AssetManagement Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 67
Director,NominatingCommitteeMember and Auditand ValuationCommitteeChairman
Since 2005;current termends at the2011 annualmeeting
President, Primary Resources Inc.(agricultural and raw materials)(October 1996-Present)
5 Director of Credit Suisse AssetManagement Income Fund, Inc. andDirector of Credit Suisse High YieldBond Fund
Lawrence J. Foxc/o Aberdeen Asset
Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 67
Director,Nominating and
Auditand ValuationCommitteeMember
Since 2006;current term
ends at the2013 annualmeeting
Partner, Drinker Biddle & Reath(law firm) (1972-Present) Lecturer at
Yale Law School (2009-Present);Lecturer at Harvard Law School(2007-Present)
4 Director of Credit Suisse AssetManagement Income Fund, Inc. and
Director of Credit Suisse High YieldBond Fund
Steven N. Rappaportc/o Aberdeen AssetManagement Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 62
Director,Nominating andAuditand ValuationCommitteeMember
Since 1992;current termends at the2011 annualmeeting
Partner of Lehigh Court, LLC (privateinvestment firm) and RZ Capital LLC(private investment firm)(January 2004-Present)
5 Director of iCAD, Inc.; Director ofPresstek, Inc.; Director of Credit SuisseFunds (13)
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22 Aberdeen Israel Fund, Inc.
Management of the Fund (unaudited) (continued)
Information Regarding Officers who are not Directors
Term of Office***Position(s) Held and Length of
Name, Address and Age With the Fund Time Served Principal Occupation(s) During Past Five Years
Officers
Currently, Group Head of Product Development, Collective Funds for Aberdeen AssetManagement Investment Services Limited (AAMISL) (since 008). Previously, Directorand Vice President (from 2006 to 2008), Chief Executive Officer (from October 2005 tSeptember 2006) and employee (since June 2005) of Aberdeen Asset Management Inc.(AAMI); Member of Executive Management Committee of Aberdeen Asset ManagemePLC (since August 2005); Managing Director of Aberdeen Asset Managers (C.I.) Limited(from 2000 to June 2005); Managing Director of Aberdeen Private Wealth ManagemenLimited (affiliate of each Funds investment adviser) (from 2000 to May 2005).
Since July 2009PresidentChristian Pittard*c/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 37
Currently, Director, Vice President and Head of Legal Americas for AAMI (since 2010)Ms. Nichols joined AAMI in October 2006. Previously was an associate attorney in theFinancial Services Group of Pepper Hamilton LLP (law firm) (from 2003 to 2006).
Since July 2009(Vice President);SinceSeptember 2010
(ChiefComplianceOfficer)
Vice Presidentand ChiefComplianceOfficer
Jennifer Nichols*c/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,
Philadelphia, PA 19103
Age: 32
Currently, Vice President and Head of Fund Accounting for AAMI (since 2009). Prior tojoining Aberdeen, Ms. Melia was Director of Fund Administration and accountingoversight for Princeton Administrators LLC, a division of BlackRock Inc. and had workedwith Princeton Administrators since 1992.
SinceNovember 2009
Treasurer andChief FinancialOfficer
Andrea Melia*c/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 41
Currently, Head of Product Management for AAMI (since 2009.) Ms. Kennedy joinedAAMI in 2005 as a Senior Fund Administrator. Ms. Kennedy was promoted to AssistantTreasurer Collective Funds/North American Mutual Funds in February 2008 andpromoted to Treasurer Collective Funds/North American Mutual Funds in July 2008.
Since July 2009Vice Presidentand Secretary
Megan Kennedy*c/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,
Philadelphia, PA 19103
Age: 36
Currently, Head of Investor Services for AAMI (since 2009). Prior to joining AAMI inNovember 2007, he was Vice President of Administration for Nationwide Funds Group(from 2000 to 2007.)
Since July 2009Vice PresidentWilliam Baltrus*c/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 43
Currently, Head of Product and Vice President of AAMI (since 2005.) Head of Finance(from 2000 to May 2005) and Company Secretary (from 2001 to May 2005) ofAberdeen Private Wealth Management Limited; Finance Director and Company Secretaof Aberdeen Asset Managers Jersey Limited (from 2002 to November 2005); Company
Secretary of Aberdeen Asset Managers (C.I.) Limited (from 2001 to June 2005).
Since July 2009Vice PresidentAlan Goodson*c/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,
Philadelphia, PA 19103Age: 36
Currently, Head of Emerging Markets Ex. Asia on the global emerging markets equities teamin London (since 1997.) Ms. Irvine joined Aberdeen in 1996 in a group development role.
Since July 2009Vice PresidentJoanne Irvinec/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 42
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Aberdeen Israel Fund, Inc.
Management of the Fund (unaudited) (concluded)
Term of Office***Position(s) Held and Length of
Name, Address and Age With the Fund Time Served Principal Occupation(s) During Past Five Years
* Messrs. Pittard, Baltrus, Goodson and Sullivan and Mses. Nichols, Melia, Kennedy and Sitar hold officer position(s) in one or more of t
following: Aberdeen Asia-Pacific Income Fund, Inc., Aberdeen Global Income Fund, Inc., Aberdeen Australia Equity Fund, Inc., Aberdeen Ch
Fund, Inc., Aberdeen Emerging Markets Telecommunications and Infrastructure Fund, Inc., Aberdeen Indonesia Fund, Inc., Aberdeen Lat
America Equity Fund, Inc. and the Aberdeen Funds each of which may also be deemed to be a part of the same Fund Complex.
** Mr. Young serves as an Interested Director on the Aberdeen Australia Equity Fund, Inc. which has an investment adviser that is affiliated wi
the Investment Adviser, and may thus be deemed to be part of the same Fund Complex as the Fund.
*** Officers of the Fund serve at the pleasure of the Board.
Devan Kalooc/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 38
Vice President Since July 2009 Currently, serves as Head of Global Emerging Markets (since 2005.) Mr. Kaloo joinedAberdeen in 2000 on the Asian portfolio team before becoming responsible for the Asiaex Japan region as well as regional portfolios within emerging market mandates andtechnology stocks.
Lucia Sitar*c/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 39
Vice President Since July 2009 Currently, U.S. Counsel for AAMI (since 2007.) Ms. Sitar joined AAMI in July 2007. Prior that, Ms. Sitar was an associate attorney in the Investment Management Group ofStradley Ronon Stevens & Young LLP (law firm) (2000-2007).
Tim Sullivan*
c/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 49
Vice President Since July 2009 Currently, Head of Product Development for AAMI (since 2009.) Mr. Sullivan joined
Aberdeen Asset Management Inc. in 2000.
Hugh Young**c/o Aberdeen Asset Management Inc.Attn: US Legal1735 Market Street, 32nd Floor,Philadelphia, PA 19103
Age: 52
Vice President Since July 2009 Currently, a member of the Executive Management Committee of Aberdeen AssetManagement PLC (since 1991.) He has been Managing Director of Aberdeen AssetManagement Asia Limited (AAMAL), since 1991. Mr. Young also served as a Director oAberdeen Asset Managers (C.I.) Limited from 2000 to June 2005 and a Director ofAAMAL since 2000.
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Corporate Information
DirectorsEnrique R. Arzac, ChairmanJames J. CattanoLawrence J. Fox
Steven N. Rappaport
OfficersChristian Pittard, PresidentJennifer Nichols, Vice President and Chief Compliance OfficerAndrea Melia, Treasurer and Chief Financial OfficerMegan Kennedy, Vice President and SecretaryWilliam Baltrus, Vice PresidentAlan Goodson, Vice PresidentJoanne Irvine, Vice PresidentDevan Kaloo, Vice PresidentLucia Sitar, Vice PresidentTim Sullivan, Vice PresidentHugh Young, Vice President
Investment AdviserAberdeen Asset Management Investment Services LimitedBow Bells House1 Bread StreetLondon, United KingdomEC4M 9HH
Investment Sub-AdviserAnalyst Exchange and Trading Services Ltd.46 Rothchild BoulevardTel Aviv, 66883 Israel
Administrator & CustodianBrown Brothers Harriman & Co.40 Water StreetBoston, MA 02109
Shareholder Servicing AgentComputershare Trust Company, N.A.P.O. Box 43078Providence, RI 02940
Independent Registered Public Accounting FirmPricewaterhouseCoopers LLP125 High Street
Boston, MA 02110
Legal CounselWillkie Farr & Gallagher LLP787 Seventh AvenueNew York, NY 10019
Investor RelationsAberdeen Asset Management Inc.1735 Market Street, 32nd FloorPhiladelphia, PA [email protected]
Aberdeen Asset Management Investment Services Limited
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940 that the Fund may purchase, from time to time, sharof its common stock in the open market.
Shares of Aberdeen Israel Fund, Inc. are traded on the NYSE Amex Exchange under the symbol ISL. Information about the Funds net asset value and markprice is available at www.aberdeenisl.com.
This report, including the financial information herein, is transmitted to the shareholders of Aberdeen Israel Fund, Inc. for their general information onIt does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Past performance is nguarantee of future returns.
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