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, 2013. The Fund’s principal investment objective is to seek long-term capital appreciation by investing primarily in equity securities of Israeli companies.
Total Return Performance
For the year ended December 31, 2013, the total return to shareholders of the Fund net of fees, based on the net asset value (“NAV”) of the Fund, was 27.4%, assuming reinvestment of dividends and distributions, versus a return of 23.8% for the Fund’s benchmark, the Tel Aviv-100 Index (“TA-100 Index”). The Fund’s total return for the year ended December 31, 2013 is based on the reported NAV at period end.
Share Price and NAV
For the year ended December 31, 2013, based on market price, the Fund’s total return was 30.6%, assuming reinvestment of dividends and distributions. The Fund’s share price increased 28.7% over the twelve months, from $13.10 on December 31, 2012 to $16.86 on December 31, 2013. The Fund’s share price on December 31, 2013 represented a discount of 13.3% to the NAV per share of $19.44 on that date, compared with a discount of 15.4% to the NAV per share of $15.49 on December 31, 2012.
Open Market Repurchase Program
The Fund’s policy is generally to buy back Fund shares on the open market when the Fund trades at certain discounts to NAV. During the fiscal year ended December 31, 2013, the Fund repurchased and retired 82,515 shares. During the fiscal year ended December 31, 2012, the Fund repurchased and retired 5,501 shares.
Portfolio Holdings Disclosure
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-Q are available on the SEC’s website at http://www.sec.gov and may be reviewed and copied at the SEC’s Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The information on Form N-Q is also available to shareholders on the Fund’s website or upon request and without charge by calling Investor Relations toll-free at 1-866-839-5205.
Proxy Voting
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information regarding how the Fund voted proxies relating to portfolio
securities during the most recent twelve months ended June 30 is available by August 30 of the relevant year: (i) upon request and without charge by calling Investor Relations toll-free at 1-866-839-5205; and (ii) on the SEC’s website at http://www.sec.gov.
Investor Relations Information
As part of our ongoing commitment to provide information to our shareholders, I invite you to visit the Fund on the web at www.aberdeenisl.com. From this page, you can view monthly fact sheets, portfolio manager commentary, distribution and performance information, updated daily fact sheets courtesy of Morningstar
®
, conduct portfolio charting and other timely data.
Please take a look at Aberdeen’s award-winning Closed-End Fund Talk Channel, where you can watch fund manager web casts and view our latest short films. For replays of recent broadcasts or to register for upcoming events, please visit Aberdeen’s Closed-End Fund Talk Channel at www.aberdeen-asset.us/aam.nsf/usClosed/aberdeentv.
Please ensure that you are enrolled in our email servies, which feature timely news from Aberdeen Portfolio Managers located around the world. Enroll today at www.aberdeen-asset.us/aam.nsf/usclosed.email and be among the first to receive the latest closed-end fund news, announcements of upcoming fund manager web casts, films and other information. Please note that Aberdeen does not share our shareholder information with any other organizations.
Please contact Aberdeen Asset Management Inc. by:
·
calling toll free at 1-866-839-5205 in the United States;
·
emailing InvestorRelations@aberdeen-asset.com;
·
visiting Aberdeen Closed-End Fund Center at http://www.aberdeen-asset.us/aam.nsf/usclosed/home;
·
visiting www.aberdeenisl.com.
Yours sincerely,
Christian Pittard
President
Market/Economic Review
Despite persistent uncertainty in global markets over the U.S. Federal Reserve’s (Fed) quantitative easing program, Israeli equities rose over the year ended December 31, 2013, with gains most notable in the latter half of the period. The start of operations of the country’s first offshore gas deposit at Tamar and the prospect of greater energy efficiency lifted market sentiment in early 2013. Later, investors were cheered by the re-election of Prime Minister Benjamin Netanyahu and parliament’s approval of a two-year austerity budget, which sought to trim spending. Meanwhile, inflows into government securities and the nascent natural gas sector helped push the Israeli Shekel higher versus the U.S. Dollar. After months of ambiguity, global markets also responded positively to the Fed’s long-awaited decision in December to pare its asset purchases beginning in January 2014. On the economic front, Israel’s gross domestic product growth was estimated at 3.3% for the 2013 calendar year, dipping from 3.4% in 2012, as exports and investments stagnated. The central bank cut its key interest rate early in the year to help stem the Shekel’s sharp appreciation, as well as bolster consumption, but thereafter held the rate unchanged at 1%.
Fund Performance Review
The Fund’s performance relative to its benchmark, the TA-100 Index, benefited from positive stock selection, which outweighed negative asset allocation during the reporting period.
At the stock level, the Fund’s holdings in Frutarom Industries Limited, Rami Levi Chain Stores Hashikma Marketing 2006 Limited and Ituran Location and Control Limited were the top contributors to the relative return. Flavors and fragrances manufacturer Frutarom’s share price rallied as the company made good progress in cost savings on the back of production streamlining. Towards the end of 2013, significant acquisitions in the U.S., Russia and Central America further bolstered investors’ confidence towards the stock. Discount supermarket chain Rami Levi continued to report good quarterly results despite more intense competition. Meanwhile, Ituran, which sells global positioning systems for motor vehicles, reported an expansion in its subscriber base to a record level as of September 30, 2013, led by its Brazilian business.
Conversely, the Fund’s holdings in Israel Chemicals Limited, Bank Hapoalim Limited and Bank Leumi Le-Israel detracted from performance. Israel Chemicals’ stock price fell in tandem with the materials sector as the breakup of the trading agreement between Russia and Belarus, which control a significant portion of global exports, impacted pricing discipline. The threat of higher contributions to the government further weakened market sentiment. Shares of Bank Hapoalim and Bank Leumi both rallied on faster asset growth, which detracted from Fund performance because of the underweight positions relative to the benchmark TA-100 Index in both stocks. The
absence of a position in Delek Group, as well as its subsidiaries Avner and Delek Drilling, also hurt Fund performance as investors sought exposure to the growing offshore energy sector.
The value of the venture capital holdings in the portfolio decreased 2.05% during the fiscal year ended December 31, 2013. ABS GE Capital Giza Fund saw the biggest decrease in value (-29%), closely followed by Neurone Ventures II (-22%), which was hit by an 81.4% decrease in the valuation of Keenhigh, a Chinese original design manufacturer of tablets, digital picture frames and MP3/MP4/PMP devices, which has had inventory issues with its ‘Nabi’ tablet, as well as the company being too highly leveraged. Concord Ventures II paid its final distribution in April 2013 and completed its windup in the second quarter of 2013. The best performing underlying holding was Delta Fund I which increased in value by 34% over the 12 month period. This was due primarily to a 66.8% increase in valuation of Borderfree, which provides and manages logistics and services for U.S. brands who are looking to sell their goods and services internationally, and which was a star performer for the Delta portfolio.
In December 2012, the SVE Star Ventures IX portfolio was sold in a secondary sale following the end of the fund’s term. During the secondary sale process, the Fund’s pro rata shareholdings in Vidyo (and its affiliate Delta Vidyo) were excluded from the transaction, placed in trust and considered as a distribution in kind. They are currently held in the Fund as a separate active investment. The remaining value in the SVE Star Ventures IX portfolio is in the form of two escrows, from the respective 2012 sales of Aeroscout and Broadlight, which decreased in value over the period.
Underlying venture capital holdings distributed $395,712 during the 12 month period to December 31, 2013, with 61% of these proceeds being received by ISL in the first 6 months of the period. The largest distributions over the year were from the SVE Star Ventures IX portfolio ($159,082), from the sale of the whole portfolio in the secondary market, completed at the end of 2012; Walden Israel Ventures III ($91,801), from the sale of all its remaining assets, with the exception of EPOS; and Giza GE Venture Fund III ($52,019), from the sale of shares in six of the fund’s publicly-traded holdings. One capital call was issued over the year from Neurone Ventures II of $18,750, $7,500 of which was for a follow-on investment in Panorama, a business intelligence solutions provider, and $11,250 of which was for fees. The fund is now fully drawn. On December 19
th,
2013, Neurone II announced that a second extension had been approved by way of majority consent; the term of the fund has now been extended to December 31
st
, 2015.
Outlook
Uncertainty that had clouded the market has receded somewhat, after the Fed decided to start trimming its bond purchases in January.
Notes to Financial Statements
December 31, 2013
1. Organization
Aberdeen Israel Fund, Inc. (the “Fund”) was incorporated in Maryland on March 6, 1990 and commenced investment operations on October 29, 1992. The Fund is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified closed-end, management investment company. The Fund trades on the NYSE MKT under the ticker symbol “ISL”.
The Fund seeks long-term capital appreciation by investing primarily in equity securities of Israeli companies.
2. Summary of Significant Accounting Policies
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform to 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 assets and 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 accounting records of the Fund are maintained in U.S. Dollars.
(a) Security Valuation:
The Fund is required to value its securities at fair market value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Equity securities that are traded on an exchange are valued at the last quoted sale price on the principal exchange on which the security is traded at the “Valuation Time” subject to application, when appropriate, of the valuation factors described in the paragraph below. The Valuation Time is as of the close of regular trading on the New York Stock Exchange (usually 4:00 p.m. Eastern Time). In the absence of a sale price, the security is valued at the mean of the bid/ask price quoted at the close on the principal exchange on which the security is traded. Securities traded on NASDAQ are valued at the NASDAQ official closing price. Closed-end funds and exchange-traded funds (“ETFs”) are valued at the market price of the security at the Valuation Time. A security using any of these pricing methodologies is determined to be a Level 1 investment.
Foreign equity securities that are traded on foreign exchanges that close prior to the Valuation Time are valued by applying valuation factors to the last sale price or the mean price as noted above. Valuation factors are provided by an independent pricing service provider. These valuation factors are used when pricing the Fund’s portfolio holdings to estimate market movements between the time foreign markets close and the time the Fund values such foreign securities. These
valuation factors are based on inputs such as depositary receipts, indices, futures, sector indices/ETFs, exchange rates, and local exchange opening and closing prices of each security. When prices with the application of valuation factors are utilized, the value assigned to the foreign securities may not be the same as quoted or published prices of the securities on their primary markets. A security that applies a valuation factor is determined to be a Level 2 investment because the exchange-traded price has been adjusted. Valuation factors are not utilized if the independent pricing service provider is unable to provide a valuation factor or if the valuation falls below a predetermined threshold; in such case, the security is determined to be a Level 1 investment.
In the event that a security’s market quotation is not readily available or is deemed unreliable (for reasons other than because the foreign exchange on which they trade closed prior to the Valuation Time), the security is valued at fair value as determined by the Fund’s Pricing Committee (which is appointed by the Board of Directors), taking into account the relevant factors and surrounding circumstances using valuation policies and procedures approved by the Board. A security that has been fair valued by the Pricing Committee may be classified as Level 2 or 3 depending on the nature of the inputs.
The Fund also invests in venture capital private placement securities, which represented 1.7% of the net assets of the Fund as of December 31, 2013. These private placement securities are deemed to be restricted securities. In the absence of readily ascertainable market values these securities are valued at fair value as determined in good faith by, or under the direction of the Board, under procedures established by the Board. The Fund’s estimate of fair value assumes a willing buyer and a willing seller neither of whom are acting under the compulsion to buy or sell. Although these securities may be resold in privately negotiated transactions, the prices realized on such sales could differ from the prices originally paid by the Fund or the current carrying values, and the difference could be material. These securities are categorized as Level 3 investments. Level 3 investments have significant unobservable inputs, as they trade infrequently. In determining the fair value of these investments, management uses the market approach which includes as the primary input the capital balance reported; however, adjustments to the reported capital balance may be made based on various factors, including, but not limited to, the attributes of the interest held, including the rights and obligations, and any restrictions or illiquidity of such interests, and the fair value of these venture capital investments.
In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Fund discloses the fair value of its investments using a three level hierarchy that classifies the inputs to valuation techniques used to measure the fair value. The hierarchy assigns Level 1 measurements to valuations based upon
|
12
|
Aberdeen Israel Fund, Inc.
|
|
Notes to Financial Statements
(continued)
December 31, 2013
unadjusted quoted prices in active markets for identical assets, Level 2 measurements to valuations based upon other significant observable input, including adjusted quoted prices in active markets for identical assets and Level 3 measurements to valuations based upon unobservable inputs that are significant to the valuation. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability, which are based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information
available in the circumstances. The three-tier hierarchy of inputs is summarized below:
Level 1 – quoted prices in active markets for identical investments;
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc); or
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments).
A financial instrument’s level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement.
The following is a summary of the inputs used as of December 31, 2013 in valuing the Fund’s investments carried at fair value. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Refer to the Portfolio of Investments for a detailed breakout of the security types:
|
Investments, at value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Balance as of
12/31/2013
|
|
|
Long-Term Investments
|
|
|
|
|
|
|
|
|
|
|
Commercial Banks
|
|
$2,913,226
|
|
$10,592,174
|
|
$–
|
|
$13,505,400
|
|
|
Paper & Forest Products
|
|
714,744
|
|
–
|
|
–
|
|
714,744
|
|
|
Pharmaceuticals
|
|
15,011,515
|
|
–
|
|
–
|
|
15,011,515
|
|
|
Software
|
|
11,834,696
|
|
–
|
|
–
|
|
11,834,696
|
|
|
Specialty Retail
|
|
1,517,270
|
|
–
|
|
–
|
|
1,517,270
|
|
|
Venture Capital
|
|
–
|
|
–
|
|
1,346,037
|
|
1,346,037
|
|
|
Other
|
|
–
|
|
37,178,028
|
|
–
|
|
37,178,028
|
|
|
Short-Term Investments
|
|
–
|
|
1,098,000
|
|
–
|
|
1,098,000
|
|
|
Total
|
|
$31,991,451
|
|
$48,868,202
|
|
$1,346,037
|
|
$82,205,690
|
|
Amounts listed as “–” are $0 or round to $0.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing transfers at the end of each period. As described above, certain foreign securities are valued utilizing valuation factors provided by an independent pricing service to reflect any significant market movements between the time the Fund values such foreign securities and the earlier closing of foreign markets. For some securities, the pricing service is unable to provide a valuation factor, the utilization of these procedures results in transfers between Level 1 and Level 2. For the year ended December 31, 2013, the securities issued by First International Bank of Israel Limited and Golf & Co., Limited in the amount of $2,913,226 and $1,517,270 respectively, transferred from Level 2 to Level 1 because there was not a valuation factor applied at December 31, 2013. For the year ended December 31, 2013, there have been no significant changes to the fair valuation methodologies.
The significant unobservable inputs used in the fair value measurement of the Fund’s venture capital holdings are audited financial statements, interim financial statements, capital calls, and distributions. These unobservable inputs are used by taking the most recent quarterly valuation statements and adjusting the value using the unobservable inputs mentioned above. Significant increases (decreases) in any of those inputs in isolation would result in a significantly lower (higher) fair value measurement.
|
|
|
Fair Value
at 12/31/13
|
|
Valuation Technique
|
|
Unobservable Inputs
|
|
Range
|
|
Venture Capital
|
|
$1,346,037
|
|
Partner Capital Value/Net Asset Value
|
|
Capital Calls & Distributions
|
|
$18,750 – ($91,801)
|
|
|
Aberdeen Israel Fund, Inc.
|
13
|
Notes to Financial Statements
(continued)
December 31, 2013
The following is a reconciliation of investments in which significant unobservable inputs (Level 3) were used in determining value:
|
Investments,
at value
|
|
Balance
as of
12/31/2012
|
|
Accrued
discounts/
premiums
|
|
Realized
gain/(loss)
|
|
Change in
unrealized
appreciation/
(depreciation)
|
|
Capital
Contributed
|
|
Distributions/
Sales
|
|
Transfers
into
Level 3
|
|
Transfers
out of
Level 3
|
|
Balance
as of
12/31/2013
|
|
|
Venture Capital
|
|
$1,712,255
|
|
$–
|
|
$(1,151,047)
|
|
$1,088,942
|
|
$18,750
|
|
$(322,863)
|
|
$–
|
|
$–
|
|
$1,346,037
|
|
|
Total
|
|
$1,712,255
|
|
$–
|
|
$(1,151,047)
|
|
$1,088,942
|
|
$18,750
|
|
$(322,863)
|
|
$–
|
|
$–
|
|
$1,346,037
|
|
Change in unrealized appreciation/(depreciation) relating to Level 3 investments still held at December 31, 2013 is $(22,616).
(b) Short-Term Investment:
The Fund sweeps available cash into a short-term time deposit available through Brown Brothers Harriman & Co. (“BBH & Co.”), the Fund’s custodian. The short-term time deposit is a variable rate account classified as a short-term investment.
(c) Foreign Currency Translations:
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 the Valuation Time, as provided by an independent pricing service approved by the Board.
Foreign currency amounts are translated into U.S. Dollars on the following basis:
(I)
market value of investment securities, other assets and liabilities at the rate of exchange at the Valuation Time; and
(II)
purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments in equity securities which is due to changes in the foreign exchange rates from that which is due to changes in market prices of equity securities. Accordingly, realized and unrealized foreign currency gains and losses with respect to such securities are included in the reported net realized and unrealized gains and losses on investment transactions balances.
The Fund reports certain foreign currency related transactions and foreign taxes withheld on security transactions as components of realized gains for financial reporting purposes, whereas such foreign currency related transactions are treated as ordinary income for U.S. federal income tax purposes.
Net unrealized currency gains or losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation/depreciation in value of investments, and translation of other assets and liabilities denominated in foreign currencies.
Net realized foreign exchange gains or losses represent foreign exchange gains and losses from transactions in foreign currencies and forward foreign currency contracts, exchange gains or losses realized between the trade date and settlement date on security transactions, and the difference between the amounts of interest and dividends recorded on the Fund’s books and the U.S. dollar equivalent of the amounts actually received.
Foreign security and currency transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. Dollar. When the U.S. Dollar rises in value against foreign currency, the Fund’s investments denominated in that currency will lose value because its currency is worth fewer U.S. Dollars; the opposite effect occurs if the U.S. Dollar falls in relative value.
(d) Security Transactions and Investment Income:
Security transactions are recorded on the trade date. Realized and unrealized gains/(losses) from security and currency transactions are calculated on the identified cost basis. Dividend income is recorded on the ex-dividend date except for certain dividends on foreign securities, which are recorded as soon as the Fund is informed after the ex-dividend date. Interest income and expenses are recorded on an accrual basis.
(e) Distributions:
On an annual basis, the Fund intends to distribute its net realized capital gains, if any, by way of a final distribution to be declared during the calendar quarter ending December 31. Dividends and distributions to shareholders are recorded on the ex-dividend date.
Dividends and distributions to shareholders are determined in accordance with federal income tax regulations, which may differ from GAAP. These differences are primarily due to differing treatments for foreign currencies, dividend redesignations and partnerships.
(f) Federal Income Taxes and Foreign 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 of 1986, as amended, and to make distributions of net
|
14
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Aberdeen Israel Fund, Inc.
|
|
Notes to Financial Statements
(continued)
December 31, 2013
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 listed on TASE (unlisted securities) will be subject to a 25% Israeli tax, provided the security is an approved investment. Generally, stock of corporations that produce a product or provide a service that supports 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, 2013, the Fund did not incur any Israeli capital gains taxes.
Dividends derived from listed or approved Israeli securities are subject to a 20% withholding tax, while dividends from unlisted or unapproved securities are subject to a 25% withholding tax. The Fund accrued for a refund of a portion of these amounts withheld. Interest on debt obligations (whether listed or not) is subject to withholding tax of 25% to 35%. Withholding taxes are accrued when the related income is earned in an amount management believes is ultimately payable after any reclaims of taxes withheld. As of December 31, 2013, the Fund has filed the necessary returns with the Israel tax authority to reclaim a portion of the withholding taxes as previously paid in the amount $410,252, as noted in the Statement of Assets and Liabilities.
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 that would require recognition in the financial statements. Since tax authorities can examine previously filed tax returns, the Fund’s U.S. federal and state tax returns for each of the four years up to the year ended December 31, 2013 are subject to such review.
(g) Partnership Accounting Policy:
The Fund records its pro-rata share of the income/(loss) and capital gains/(losses) allocated from the underlying partnerships and adjusts the cost of the underlying partnerships accordingly. These amounts are included in the Fund’s Statement of Operations.
3. Agreements and Transactions with Affiliates and Other Service Providers
(a) Investment Adviser:
Aberdeen Asset Managers Limited (“AAML”) serves as the Fund’s investment adviser with respect to all investments. AAML is a direct wholly-owned subsidiary of Aberdeen Asset Management PLC. AAML receives, as compensation for its advisory services from the Fund, an
annual fee, calculated weekly and paid quarterly, equal to 1.30% of the first $50 million of the Fund’s average weekly market value or net assets (whichever is lower), 1.25% on amounts from $50-$100 million, 1.20% on amounts from $100-$150 million, 1.15% on amounts from $150-$200 million and 1.05% on amounts above $200 million. Effective March 6, 2013, AAML has agreed to contractually waive a portion of its advisory fee. Prior to March 6, 2013, AAML voluntarily waived an equal portion of its advisory fee. For the year ended December 31, 2013, AAML earned $814,147 for advisory services, of which AAML waived $155,329.
(b) Fund Administration:
BBH & Co. is the U.S. Administrator for the Fund and certain other funds advised by AAML and its affiliates (collectively the “Funds”). The Funds pay BBH & Co. a monthly administration and fund accounting service fee at an annual rate of 0.02% of the Funds’ aggregate assets up to $250 million, 0.015% for the next $250 million and 0.01% in excess of $500 million.
The Fund pays its pro rata portion of the fee based on its level of assets with a monthly minimum of $2,500. For the year ended December 31, 2013, BBH & Co. earned $29,998 from the Fund for administrative and fund accounting services.
Please see Note 11, “Subsequent Events” for more information.
(c) Investor Relations:
Under the terms of an Investor Relations Services Agreement, Aberdeen Asset Management Inc. (“AAMI”), an affiliate of AAML, serves as the Fund’s investor relations services provider.
Pursuant to the terms of the Investor Relations Services Agreement, AAMI provides, among other things, objective and timely information to shareholders based on publicly-available information; provides information efficiently through the use of technology while offering shareholders immediate access to knowledgeable investor relations representatives; develops and maintains effective communications with investment professionals from a wide variety of firms; creates and maintains investor relations communication materials such as fund manager interviews, films and webcasts, published white papers, magazine articles and other relevant materials discussing the Fund’s investment results, portfolio positioning and outlook; develops and maintains effective communications with large institutional shareholders; responds to specific shareholder questions; and reports activities and results to the Board and management detailing insight into general shareholder sentiment.
For the year ended December 31, 2013, the Fund incurred fees of approximately $55,503 for investor relations services. Investor relations fees and expenses in the Statement of Operations include certain out-of-pocket expenses.
|
|
Aberdeen Israel Fund, Inc.
|
15
|
Notes to Financial Statements
(continued)
December 31, 2013
(d) Director Purchase Plan:
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 year ended December 31, 2013, 2,821 shares were purchased pursuant to the Directors compensation plan. As of December 31, 2013, the Directors as a group owned less than 1% of the Fund’s outstanding shares.
4. Investment Transactions
For the year ended December 31, 2013, Fund purchases and sales of securities, other than short-term investments, were $4,380,627 and $3,930,271, respectively.
5. Capital
The authorized capital stock of the Fund is 100,000,000 shares of common stock, $0.001 par value. During the fiscal year ended December 31, 2013, the fund repurchased 82,515 shares pursuant to its Share Repurchase Program. As of December 31, 2013 there were 4,184,675 common shares issued and outstanding.
6. Restricted Securities
Certain of the Fund’s investments are restricted as to resale and are valued at fair value as determined in good faith by, or under the direction of, the Board under procedures established by the Board in the absence of readily ascertainable market values.
|
Security
|
|
Acquisition Date(s)
|
|
Cost
|
|
Fair Value
At 12/31/13
|
|
Percent of
Net Assets
|
|
Distributions
Received
|
|
Open
Commitments
|
|
|
ABS GE Capital Giza Fund, L.P.
|
|
02/03/98 – 02/13/02
|
|
$985,303
|
|
$51,000
|
|
0.06
|
|
$1,660,765
|
|
$–
|
|
|
BPA Israel Ventures, LLC
|
|
10/05/00 – 12/09/05
|
|
1,046,492
|
|
374,321
|
|
0.46
|
|
211,330
|
|
625,412
|
|
|
Concord Fund I Liquidating Main Trust
|
|
12/08/97 – 09/29/00
|
|
562,090
|
|
51,351
|
|
0.07
|
|
693,246
|
|
–
|
|
|
Delta Fund I, L.P.
|
|
11/15/00 – 03/28/07
|
|
113,567
|
|
195,999
|
|
0.24
|
|
197,461
|
|
–
|
|
|
Emerging Markets Ventures l, L.P.
|
|
01/22/98 – 01/10/06
|
|
785,197
|
|
95,465
|
|
0.12
|
|
2,551,099
|
|
262,708
|
|
|
Giza GE Venture Fund III, L.P.
|
|
01/31/00 – 11/23/06
|
|
790,786
|
|
127,837
|
|
0.16
|
|
372,474
|
|
–
|
|
|
Neurone Ventures II, L.P.
|
|
11/24/00 – 02/14/12
|
|
218,028
|
|
144,846
|
|
0.18
|
|
401,834
|
|
–
|
|
|
Pitango Fund II, LLC
|
|
10/31/96 – 08/01/01
|
|
371,350
|
|
66,690
|
|
0.08
|
|
1,215,237
|
|
–
|
|
|
SVE Star Ventures Enterprises GmbH & Co. No. IX KG
|
|
12/21/00 – 08/08/08
|
|
764,437
|
|
99,378
|
|
0.12
|
|
875,530
|
|
–
|
|
|
Vidyo, Inc. Trust
|
|
11/22/13
|
|
429,970
|
|
90,668
|
|
0.11
|
|
–
|
|
–
|
|
|
Walden-Israel Ventures III, L.P.
|
|
02/23/01 – 10/20/10
|
|
692,689
|
|
48,482
|
|
0.06
|
|
1,310,185
|
|
–
|
|
|
Total
|
|
|
|
$6,759,909
|
|
$1,346,037
|
|
1.66
|
|
$9,489,161
|
|
$888,120
|
|
The Fund may incur certain costs in connection with the disposition of the above securities.
7. Open Market Repurchase Program
The Board authorized, but does not require, Fund management to make open market purchases from time to time in an amount up to 10% of the Fund’s outstanding shares, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and other applicable federal securities laws. Such purchases may be made when, in the reasonable judgment of Fund management, such repurchases may enhance shareholder value and when the Fund’s shares are trading at a discount to net asset value of 12% or more, subject to intraday fluctuations that may result in repurchases at discounts below 12%. The Board has instructed Fund management to report repurchase activity to it regularly, and to post the number of shares repurchased
on the Fund’s website on a monthly basis. For the year ended December 31, 2013, the Fund repurchased 82,515 shares through this program.
8. 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. These risks include, among others, 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
|
16
|
Aberdeen Israel Fund, Inc.
|
|
Notes to Financial Statements
(continued)
December 31, 2013
taxation, political or social instability or diplomatic developments, which could adversely affect investments in those countries.
Certain countries also may impose substantial restrictions on investments in their capital markets by foreign entities, including restrictions on investments in issuers of industries deemed sensitive to relevant national interests. These factors may limit the investment opportunities available and result in a lack of liquidity and high price volatility with respect to securities of issuers from developing countries.
(b) Risks Associated with Israeli Markets:
Investments in Israel may involve certain considerations and risks not typically associated with investments in the United States, including the possibility of future political and economic developments and the level of Israeli governmental supervision and regulation of its securities markets. The Israeli securities markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. Consequently, acquisition and disposition of securities by the Fund may be inhibited.
(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 venture capital 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 underlying 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 venture capital funds may take longer to liquidate than would be the case for publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized on such sales could be substantially less than those originally paid by the Fund or the current carrying values and these differences could be material. Further, companies whose securities are not publicly traded may not be subject to the disclosures and other investor protection requirements applicable to companies whose securities are publicly traded.
9. Contingencies
In the normal course of business, the Fund may provide general indemnifications pursuant to certain contracts and organizational documents. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote.
10. Tax Information
The U.S. federal income tax basis of the Fund’s investments and the net unrealized appreciation as of December 31, 2013 were as follows:
|
Tax Basis of
Investments
|
|
Appreciation
|
|
Depreciation
|
|
Net
Unrealized
Appreciation
|
|
|
$54,957,080
|
|
$36,121,404
|
|
$(8,872,794)
|
|
$27,248,610
|
|
Income and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from GAAP.
The tax character of distributions paid during the fiscal years ended December 31, 2013 and December 31, 2012 was as follows:
|
|
|
December 31, 2013
|
|
December 31, 2012
|
|
|
Distributions paid from:
|
|
|
|
|
|
|
Ordinary income
|
|
$937,659
|
|
$744,671
|
|
|
Long-term capital gains
|
|
140,291
|
|
1,020,951
|
|
|
Total tax character of distributions
|
|
$1,077,950
|
|
$1,756,622
|
|
At December 31, 2013, the components of accumulated earnings on a tax basis, for the Fund were as follows:
|
Undistributed long-term capital gains
|
|
1,694,410
|
|
|
Other book/tax differences
|
|
2,347,522
|
|
|
Unrealized appreciation
|
|
24,901,154
|
|
|
Total accumulated earnings
|
|
$28,943,086
|
|
|
|
Aberdeen Israel Fund, Inc.
|
17
|
Notes to Financial Statements
(concluded)
December 31, 2013
During the year ended December 31, 2013, the Fund did not have any and, therefore, did not utilize any capital loss carryforwards. Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, during the year ended December 31, 2013, $41,923 has been reclassified to undistributed net investment income from accumulated net realized gain on investments and foreign currency related transactions as a result of permanent differences primarily attributable to return of capital distributions, partnership investments, foreign currencies, and dividend redesignations. These reclassifications have no effect on net assets or net asset values per share.
11. Subsequent Events
Management has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financials statements were issued. Based on this evaluation, no adjustments were required to the financial statements as of December 31, 2013.
On December 10, 2013, the Board of Directors approved a transition of services from BBH & Co., the Fund’s administrator and custodian, to AAMI and State Street Bank and Trust Company (“State Street”). AAMI was approved as the Fund’s administrator pursuant to an Administration Agreement between the Fund and AAMI, under which the Fund will pay AAMI 0.08% of the Fund’s average net monthly assets, computed monthly. State Street will serve as the Fund’s sub-administrator pursuant to a Sub-Administration Agreement between AAMI and State Street, under which AAMI will pay State Street a sub-administration fee. The Board approved State Street as the Fund’s custodian, to serve pursuant to a Custodian Agreement between the Fund and State Street. Management anticipates that the transition of services from BBH & Co. to AAMI and State Street will be complete as of April 1, 2014.
|
18
|
Aberdeen Israel Fund, Inc.
|
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of
Aberdeen Israel Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Aberdeen Israel Fund, Inc. (the “Fund”) at December 31, 2013, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as “financial statements”) are the responsibility of the Fund’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2013 by correspondence with the custodian and venture capital issuers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
February 27, 2014
|
|
Aberdeen Israel Fund, Inc.
|
19
|
Tax Information
(unaudited)
The following information is provided with respect to the distributions paid by The Israel Fund, Inc. during the fiscal year ended December 31, 2013:
|
Payable
Date
|
|
Total Cash
Distribution
|
|
Long-Term
Capital
Gain
|
|
Net
Ordinary
Dividends
|
|
Foreign
Taxes
Paid
(1)
|
|
Gross
Ordinary
Dividend
|
|
Qualified
Dividends
(2)
|
|
Foreign
Source
Income
|
|
|
01/17/14
|
|
0.25757
|
|
0.02254
|
|
0.23503
|
|
0.10333
|
|
0.33836
|
|
0.33836
|
|
99.15%
|
|
|
(1)
|
The foreign taxes paid represent taxes incurred by the Fund on interest received from foreign sources. Foreign taxes paid may be included in taxable income with an offsetting deduction from gross income or may be taken as a credit for taxes paid to foreign governments. You should consult your tax advisor regarding the appropriate treatment of foreign taxes paid.
|
|
(2)
|
The Fund hereby designates the amount indicated above or the maximum amount allowable by law.
|
|
20
|
Aberdeen Israel Fund, Inc.
|
|
Supplemental Information
Board Approval of Investment Advisory Agreement
Investment Company Act of 1940 (the “1940 Act”) and the terms of the investment advisory agreement (the “Advisory Agreement”) between the Aberdeen Israel Fund, Inc. (the “Fund”) and Aberdeen Asset Managers Limited (the “Adviser”), require that the Advisory Agreement be approved annually at an in-person meeting by the Board of Directors (the “Board”), including a majority of the Directors who have no direct or indirect interest in the Advisory Agreement and are not “interested persons” of the Fund, as defined in the Investment Company Act (the “Independent Directors”).
At its in-person meeting on December 10, 2013, the Board voted unanimously to renew the Advisory Agreement between the Fund and the Adviser. In considering whether to approve the renewal of the Fund’s Advisory Agreement, the Board members received and considered a variety of information provided by the Adviser relating to the Fund, the Advisory Agreement and the Adviser, including comparative performance, fee and expense information of a peer group of funds selected by Strategic Insight Mutual Fund Research and Consulting, LLC (“SI”), an independent third-party provider of investment company data, performance information for relevant benchmark indices and other information regarding the nature, extent and quality of services provided by the Adviser under the Advisory Agreement. The Board’s materials also included: (i) information on the investment performance of the Fund and the performance of a peer group of funds and the Fund’s performance benchmark; (ii) information on the Fund’s advisory fees and other expenses, including information comparing the Fund’s expenses to those of a peer group of funds and information about any applicable expense limitations and fee “breakpoints”; (iii) information about the profitability of the Advisory Agreement to the Adviser; (iv) a report prepared by the Adviser in response to a request submitted by the Independent Directors’ independent legal counsel on behalf of such Directors; and (v) a memorandum from the Independent Directors’ independent legal counsel on the responsibilities of the Board of Directors in considering approval of the investment advisory arrangement under the 1940 Act and Maryland law.
The Board also considered other matters such as: (i) the Adviser’s financial results and financial condition, (ii) each Fund’s investment objective and strategies, (iii) the Adviser’s investment personnel and operations, (iv) the procedures employed to determine the value of the Fund’s assets, (v) the allocation of the Fund’s brokerage, and the use, if any, of “soft” commission dollars to pay the Fund’s expenses and to pay for research and other similar services, (vi) the resources devoted to, and the record of compliance with, the Fund’s investment policies and restrictions, policies on personal securities transactions and other compliance policies, and (vii) possible conflicts of interest. Throughout the process, the Board members were afforded the opportunity to ask questions of and request additional information from management.
In addition to the materials requested by the Board in connection with their consideration of the renewal of the Advisory Agreement, it was noted that the Board received materials in advance of each regular quarterly meeting that provided information relating to the services provided by the Adviser.
The Independent Directors were advised by separate independent legal counsel throughout the process. The Independent Directors also consulted in executive sessions with counsel to the Independent Directors regarding consideration of the renewal of the Advisory Agreement. In considering whether to approve the continuation of the Advisory Agreement, the Board, including the Independent Directors, did not identify any single factor as determinative. Individual Directors may have evaluated the information presented differently from one another, giving different weights to various factors. Matters considered by the Board, including the Independent Directors, in connection with its approval of the continuation of the Advisory Agreement included the factors listed below.
As part of their deliberations, the Board members considered the following:
The nature, extent and quality of the services provided to the Fund under the Agreement.
The Board considered the nature, extent and quality of the services provided by the Adviser to the Fund and the resources dedicated to the Fund by the Adviser and its affiliates. The Boards reviewed, among other things, the Advisers’ investment experience. The Board received information regarding the Adviser’s compliance with applicable laws and SEC and other regulatory inquiries or audits of the Fund and the Adviser. The Board also considered the background and experience of the Adviser’s senior management personnel and the qualifications, background and responsibilities of the portfolio managers primarily responsible for the day-to-day portfolio management services for the Fund. In addition, the Board considered the financial condition of the Adviser and ability to provide a high level and quality of service to the Fund. The Board also considered information received from the Fund’s Chief Compliance Officer regarding the Adviser’s compliance policies and procedures. The Board also took into account the Adviser’s risk management processes. The Board considered the Adviser’ brokerage policies and practices. Management reported to the Board on, among other things, its business plans and
|
|
Aberdeen Israel Fund, Inc.
|
21
|
Supplemental Information
(continued)
organizational changes. The Board also took into account their knowledge of management and the quality of the performance of management’s duties through Board meetings, discussion and reports during the preceding year.
Investment performance of the Fund and the Adviser.
The Board received and reviewed with management, among other performance data, information compiled by SI as to the Fund’s total return, as compared to the funds in the Fund’s Morningstar category (the “Morningstar Group”).
The Board received and considered: information for the Fund’s total return on a gross and net basis and relative to the Fund’s benchmark; the Fund’s share performance and premium/discount information; and the impact of foreign currency movements on the Fund’s performance. The Board also received and reviewed information as to the Fund’s total return against its Morningstar Group average and other comparable Aberdeen-managed funds and segregated accounts. The Board considered management’s discussion of the factors contributing to differences in performance, including differences in the investment strategies of each of these other funds and accounts. The Board also reviewed information as to the Fund’s discount/premium ranking relative to its Morningstar Group. The Board took into account management’s discussion of the Fund’s performance, including that the Fund’s annualized net total return was above the median of the peers in the Fund’s Morningstar Group for the one- and three-year periods ended September 30, 2013, at the median for the five-year period ended September 30, 2013, and below the median for the ten- year period ended September 30, 2013. The Board also noted that, although the Fund’s quarterly annualized net total returns slightly underperformed the benchmark, the Fund’s annualized net total returns for the one-, three- and five- year periods ended September 30, 2013 were above those of the Fund’s benchmark, the Tel Aviv-100 Index, but were below the total return of the Fund’s benchmark for the 10-year period.
The costs of the services provided and profits realized by the Adviser and its affiliates from their relationships with the Fund.
The Board reviewed with management the effective annual management fee rate paid by the Fund to the Adviser for investment management services. Additionally, the Board received and considered information compiled at the request of the Fund by SI, comparing the Fund’s effective annual management fee rate with the fees paid by a peer group consisting of other comparable closed-end funds (the “Peer Group”). The Board also took into account the management fee structure, including that management fees for the Fund were based on the Fund’s total managed assets. Management noted that due to the unique strategy and structure of the Fund, Aberdeen currently does not have any closed-end funds that are directly comparable to the Fund. Management provided to the Board the annual fee schedules, payable monthly, for each US closed-end, country-specific equity fund managed by AAMAL. Although there were no other substantially similar Aberdeen-advised US vehicles against which to compare advisory fees, the Adviser provided information for other Aberdeen products with similar investment strategies to those of the Fund where available. In evaluating the Fund’s advisory fees, the Board took into account the demands, complexity and quality of the investment management of the Fund.
In addition to the foregoing, the Board considered the Fund’s fees and expenses as compared to its Peer Group, consisting of closed-end funds in the Fund’s Morningstar expense category as compiled by SI, which indicated that the Fund’s effective management fee rate (computed based on average managed assets for the six months ended June 30, 2013, and which reflects both the advisory fee and the current administration fee) was below the median expense ratio of its Peer Group; and, the Fund’s annualized net total expense ratio based on average net assets for the six months ended June 30, 2013 was above the median of the Peer Group.
Economies of Scale.
The Board took into account management’s discussion of the Fund’s management fee structure. The Board determined that the management fee structure for the Fund was reasonable and reflected economies of scale being shared between each of the Fund and the Adviser and that an increase in the size of the Fund’s portfolio would add to these economies of scale. This determination was based on various factors, including that the Fund’s management fee schedule provides breakpoints at higher asset levels to adjust for anticipated economies in the event of asset increase, and how the Fund’s management fees compare relative to its Peer Group at higher asset levels.
The Board also considered other factors, which included but were not limited to the following:
·
the effect of any market and economic volatility on the performance, asset levels and expense ratios of the Fund.
·
whether the Fund has operated in accordance with its investment objective, the Fund’s record of compliance with its investment restrictions, and the compliance programs of the Adviser.
·
the nature, quality, cost and extent of administrative services performed by Aberdeen Asset Management Inc. (“AAMI”), an affiliate of the Adviser, under a separate agreement covering administrative services.
|
22
|
Aberdeen Israel Fund, Inc.
|
|
Supplemental Information
(concluded)
·
so-called “fallout benefits” to the Adviser or AAMI, such as the benefits of research made available to AAMI by reason of brokerage commissions generated by the Fund’s securities transactions or reputational and other indirect benefits. The Board considered any possible conflicts of interest associated with these fallout and other benefits, and the reporting, disclosure and other processes in place to disclose and monitor such possible conflicts of interest.
* * *
Based on their evaluation of all factors that they deemed to be material, including those factors described above, and assisted by the advice of independent counsel, the Directors, including the Independent Directors, concluded that renewal of the Agreement would be in the best interest of the Fund and its shareholders. Accordingly, the Board, and the Board’s Independent Directors voting separately, approved the Fund’s Agreement for an additional one-year period.
|
|
Aberdeen Israel Fund, Inc.
|
23
|
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 the tables below. Directors that are deemed “interested persons” (as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended) of the Fund or the Fund’s investment adviser are included in the table below under the heading “Interested Directors.” 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
as of December 31, 2013
|
Name, Address and
Year of Birth
|
|
Position(s) Held
With the Fund
|
|
Term of Office
and Length of
Time Served
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
Funds in
Fund Complex*
Overseen by
Director
|
|
Other Directorships
Held by Director
|
|
|
Independent Directors
|
|
|
|
|
|
|
|
|
|
|
|
|
Enrique R. Arzac
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1941
|
|
Chairman of the Board of Directors, Nominating Committee Chairman and Audit and Valuation Committee Member
|
|
Since 1996; Chairman since 2005; current term ends at the 2015 annual meeting
|
|
Mr. Arzac is a Professor of Finance and Economics at Columbia University (education). He has served in this position since 1971.
|
|
5
|
|
Director of The Adams Express Company since 1983; Director of Petroleum and Resources Corporation, since 1987; Director of Mirae Asset Management since 2010; Director of Credit Suisse Funds since 1990.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James Cattano
1366 Wood Duck Trail
Naples, FL 34108
Year of Birth: 1943
|
|
Director, Audit and Valuation Committee Chairman and Nominating Committee Member and Cost Review Committee Chairman
|
|
Since 2005; current term ends at the 2014 annual meeting
|
|
Mr. Cattano is the President of Costal Trade Corporation (international commodity trade) since October 2011. Previously, he was the President of Primary Resources Inc. (agricultural and raw materials) from 1996 to 2011.
|
|
5
|
|
Director of Credit Suisse Asset Management Income Fund, Inc. since 2006; and Director of Credit Suisse High Yield Bond Fund since 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lawrence J. Fox
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1943
|
|
Director, Nominating Committee Member
|
|
Since 2006; current term ends at the 2016 annual meeting
|
|
Mr. Fox has been a Partner at Drinker Biddle & Reath LLP (law firm) since 1972. He has also been a Lecturer at Yale Law School (education) since 2009.
|
|
4
|
|
Director of Credit Suisse Asset Management Income Fund, Inc. since 1990; Director of Credit Suisse High Yield Bond Fund since 2001; and Director of Dynasil Corp of America since 2011.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven Rappaport
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1948
|
|
Director, Audit and Valuation, Nominating, and Cost Review Committee Member
|
|
Since 1992; current term ends at the 2014 annual meeting
|
|
Mr. Rappaport has been a Partner of Lehigh Court, LLC (private investment firm) and RZ Capital LLC (private investment firm) since 2004.
|
|
5
|
|
Director of iCAD, Inc., since 2006; Director of Credit Suisse Funds since 1999; Director of Credit Suisse Asset Management Income Fund, Inc. since 2005 and Director of Credit Suisse High Yield Bond Fund, Inc. since 2005.
|
|
*
Aberdeen Asia-Pacific Income Fund, Inc., Aberdeen Global Income Fund, Inc., Aberdeen Australia Equity Fund, Inc., Aberdeen Chile Fund, Inc., Aberdeen Israel Fund, Inc., Aberdeen Indonesia Fund, Inc., Aberdeen Latin America Equity Fund, Inc., Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc., Aberdeen Singapore Fund, Inc., The Asia-Tigers Fund, Inc., The India Fund, Inc., Aberdeen Greater China Fund, Inc., Aberdeen Investment Funds and Aberdeen Funds have a common investment manager and/or investment adviser, or an investment adviser that is affiliated with the Investment Adviser, and may thus be deemed to be part of the same “Fund Complex.”
|
24
|
Aberdeen Israel Fund, Inc.
|
|
Management of the Fund
(unaudited) (continued)
Information Regarding Officers who are not Directors
|
Name, Address and Year of Birth
|
|
Position(s) Held
With the Fund
|
|
Term of Office
and Length of
Time Served+
|
|
Principal Occupation(s) During Past Five Years
|
|
|
Officers
|
|
|
|
|
|
|
|
|
Christian Pittard*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1973
|
|
President
|
|
Since July 2009
|
|
Currently, Group Head of Product Development of Aberdeen Asset Management PLC and Director of Aberdeen Asset Managers Limited since 2010. Previously, Director and Vice President (2006-2008), Chief Executive Officer (from October 2005 to September 2006) of AAMI
|
|
|
Jeffrey Cotton*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1977
|
|
Chief Compliance Officer, Vice President – Compliance
|
|
Since March 2011
|
|
Currently, Vice President and Head of Compliance – Americas for AAMI Mr. Cotton joined Aberdeen in 2010. Prior to joining Aberdeen, Mr. Cotton was a Senior Compliance Officer at Old Mutual Asset Management (2009-2010) supporting its affiliated investment advisers and mutual fund platform. Mr. Cotton was also a VP, Senior Compliance Manager at Bank of America/Columbia Management (2006-2009).
|
|
|
Andrea Melia*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1969
|
|
Treasurer and Chief Financial Officer
|
|
Since November 2009
|
|
Currently, Vice President and Head of Fund Administration US for AAMI (since 2009). Prior to joining Aberdeen, Ms. Melia was Director of Fund Administration and accounting oversight for Princeton Administrators LLC, a division of BlackRock Inc. and had worked with Princeton Administrators since 1992.
|
|
|
Megan Kennedy*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1974
|
|
Secretary and Vice President
|
|
Since July 2009
|
|
Currently, Head of Product Management for AAMI (since 2009.) Ms. Kennedy joined AAMI in 2005 as a Senior Fund Administrator. Ms. Kennedy was promoted to Assistant Treasurer Collective Funds/North American Mutual Funds in February 2008 and promoted to Treasurer Collective Funds/North American Mutual Funds in July 2008.
|
|
|
Alan Goodson*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1974
|
|
Vice President
|
|
Since July 2009
|
|
Currently, Head of Product US, overseeing both Product Management and Product Development for Aberdeen’s registered and unregistered investment companies in the US and Canada. Mr. Goodson is Vice President of AAMI and joined Aberdeen in 2000.
|
|
|
Joanne Irvine*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1968
|
|
Vice President
|
|
Since July 2009
|
|
Currently, Head of Emerging Markets Ex. Asia on the global emerging markets equities team in London (since 1997). Ms. Irvine joined Aberdeen in 1996 in a group development role.
|
|
|
|
Aberdeen Israel Fund, Inc.
|
25
|
Management of the Fund
(unaudited) (continued)
|
Name, Address and Year of Birth
|
|
Position(s) Held
With the Fund
|
|
Term of Office
and Length of
Time Served+
|
|
Principal Occupation(s) During Past Five Years
|
|
|
Devan Kaloo*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1972
|
|
Vice President
|
|
Since July 2009
|
|
Currently, Head of Global Emerging Markets (since 2005). Mr. Kaloo joined Aberdeen in 2000 on the Asian portfolio team before becoming responsible for the Asian ex Japan region as well as regional portfolios within emerging market mandates and technology stocks.
|
|
|
Jennifer Nichols*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1978
|
|
Vice President
|
|
Since July 2009
|
|
Currently, Global Head of Legal for Aberdeen (2012). Ms. Nichols serves as a Director and Vice President for AAMI since 2010. She previously served as Head of Legal – Americas from 2010-2012. She joined AAMI in October 2006.
|
|
|
Nick Robinson*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1978
|
|
Vice President
|
|
Since June 2011
|
|
Currently, Director and Head of Brazilian Equities, of Aberdeen’s operations in São Paulo. Nick joined Aberdeen in 2000 and spent eight years on the North American Equities desk, including three years based in Aberdeen’s US offices. In 2008 he returned to London to join the global emerging markets equities team. Mr. Robinson relocated to São Paulo in 2009.
|
|
|
Lucia Sitar*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1971
|
|
Vice President
|
|
Since July 2009
|
|
Currently, Managing U.S. Counsel for AAMI. Ms. Sitar joined AAMI in July 2007.
|
|
|
Hugh Young**
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1958
|
|
Vice President
|
|
Since July 2009
|
|
Mr. Young is currently a member of the Executive Management Committee of Aberdeen Asset Management PLC. He has been Managing Director of Aberdeen Asset Management Asia Limited (“AAMAL”), since 1991. Mr. Young also served as a Director of Aberdeen Asset Managers (C.I.) Limited from 2000 to June 2005 and a Director of AAMAL since 2000.
|
|
|
Sharon Ferrari*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1977
|
|
Assistant Treasurer
|
|
Since June 2011
|
|
Currently, Senior Fund Administration Manager for AAMI. She joined AAMI as a Senior Fund Administrator in 2008. Prior to joining AAMI, she was an Accounting Analyst at Delaware Investments.
|
|
|
26
|
Aberdeen Israel Fund, Inc.
|
|
Management of the Fund
(unaudited) (concluded)
|
Name, Address and Year of Birth
|
|
Position(s) Held
With the Fund
|
|
Term of Office
and Length of
Time Served+
|
|
Principal Occupation(s) During Past Five Years
|
|
|
Heather Hasson*
c/o Aberdeen Asset
Management Inc.
Attn: US Legal
1735 Market Street,
32
nd
Floor,
Philadelphia, PA 19103
Year of Birth: 1982
|
|
Assistant Secretary
|
|
Since March 2012
|
|
Currently, Senior Product Manager for Aberdeen Asset Management Inc. Ms. Hasson joined AAMI as a Fund Administrator in November 2006.
|
|
*
As of December 2013, Messrs. Pittard, Cotton, Goodson, Kaloo, and Robinson and Mses. Nichols, Irvine, Melia, Kennedy, Sitar, Ferrari and Hasson hold officer position(s) in one or more of the following: Aberdeen Asia-Pacific Income Fund, Inc., Aberdeen Global Income Fund, Inc., Aberdeen Australia Equity Fund, Inc., Aberdeen Chile Fund, Inc., Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc., Aberdeen Israel Fund, Inc., Aberdeen Indonesia Fund, Inc., Aberdeen Latin America Equity Fund, Inc., Aberdeen Singapore Fund Inc., The India Fund Inc., The Asia-Tigers Fund Inc., Aberdeen Greater China Fund, Inc., Aberdeen Investment Funds 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. and The India Fund, Inc. which has a common investment manager and/or Investment Adviser with the Fund, or an investment adviser that is affiliated with the investment manager and Investment Adviser with the Fund, and may thus be deemed to be part of the same “Fund Complex” as the Fund.
+
Officers hold their position with the Fund until a successor has been duly elected and qualified. Officers are elected annually by the Board.
|
|
Aberdeen Israel Fund, Inc.
|
27
|
[THIS PAGE INTENTIONALLY LEFT BLANK]
Corporate Information
(unaudited)
|
Directors
|
Shareholder Servicing Agent
|
|
Enrique R. Arzac,
Chairman
|
Computershare Trust Company, N.A.
|
|
James J. Cattano
|
P.O. Box 30170
|
|
Lawrence J. Fox
|
College Station, TX 77842-3170
|
|
Steven N. Rappaport
|
|
|
|
Independent Registered Public Accounting Firm
|
|
Officers
|
PricewaterhouseCoopers LLP
|
|
Christian Pittard,
President
|
300 Madison Avenue
|
|
Jeffrey Cotton,
Vice President and Chief Compliance Officer
|
New York, NY 10017
|
|
Andrea Melia,
Treasurer and Chief Financial Officer
|
|
|
Megan Kennedy,
Vice President and Secretary
|
Legal Counsel
|
|
Alan Goodson,
Vice President
|
Willkie Farr & Gallagher LLP
|
|
Joanne Irvine,
Vice President
|
787 Seventh Avenue
|
|
Devan Kaloo,
Vice President
|
New York, NY 10019
|
|
Jennifer Nichols,
Vice President
|
|
|
Nick Robinson,
Vice President
|
Investor Relations
|
|
Lucia Sitar,
Vice President
|
Aberdeen Asset Management Inc.
|
|
Hugh Young,
Vice President
|
1735 Market Street, 32
nd
Floor
|
|
Sharon Ferrari,
Assistant Treasurer
|
Philadelphia, PA 19103
|
|
Heather Hasson,
Assistant Secretary
|
1-866-839-5205
|
|
|
InvestorRelations@aberdeen-asset.com
|
|
Investment Adviser
|
|
|
Aberdeen Asset Managers Limited
|
|
|
Bow Bells House
|
|
|
1 Bread Street
|
|
|
London, United Kingdom
|
|
|
EC4M 9HH
|
|
|
|
|
|
Administrator & Custodian
|
|
|
Brown Brothers Harriman & Co.
|
|
|
50 Post Office Square
|
|
|
Boston, MA 02110-1548
|
|
Aberdeen Asset Managers 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, shares of its common stock in the open market.
Shares of Aberdeen Israel Fund, Inc. are traded on the NYSE MKT Exchange under the symbol “ISL”. Information about the Fund’s net asset value and market price 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 only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Past performance is no guarantee of future returns.
*Diversification does not necessarily ensure return or protect against a loss.
Closed-end funds are traded on the secondary market through one of the stock exchanges. The Fund’s investment return and principal value will fluctuate so that an investor’s shares may be worth more or less than the original cost. Shares of closed-end funds may trade above (a premium) or below (a discount) the net asset value (NAV) of the fund’s portfolio. There is no assurance that the Fund will achieve its investment objective. Past performance does not guarantee future results. Foreign securities are more volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks may be enhanced in emerging market countries.
Aberdeen Asset Management (AAM) is the marketing name in the U.S. for the following affiliated, registered investment advisers: Aberdeen Asset Management Inc., Aberdeen Asset Managers Ltd, Aberdeen Asset Management Ltd and Aberdeen Asset Management Asia Ltd, each of which is wholly owned by Aberdeen Asset Management PLC. “Aberdeen” is a U.S. registered service trademark of Aberdeen Asset Management PLC.