aberdeen first israel fund, inc. (isl)

8/3/2019 Aberdeen First Israel Fund, Inc. (ISL)

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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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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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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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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.



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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.



Financial Highlights


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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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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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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



16/28


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.



17/28


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.


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


18/28


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


19/28


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


20/28


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;


21/28


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


22/28


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)


23/28


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)


24/28


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


25/28


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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aberdeen first israel fund, inc. (isl)

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