Bluestar Israel Equity Update Fourth Quarter 2014 Q3 2014 in Review & Q4 2014 Outlook

BlueStar Israel Equity Update Fourth Quarter 2014 Q3 2014 in Review & Q4 2014 Outlook

What’s Inside  The S&P 500 index gained 1.10% in Q3 2014. MSCI EAFE and MSCI EM lost -5.80% and -3.40%, respectively.

Israeli Global  The BlueStar Israel Global Index (“BIGI ®”) declined 0.90% in Q3. Financials, Materials and Telecommunication Services stocks led the decline in Israeli 1. Equities in Q2 Global Equities while Information Technology, Energy and Health Care stocks 2014 moved higher.

® Volatility in global equity indexes rose sharply towards the end of Q3 as 2.-4. About the BIGI investors began to fear a recession in Europe, slower global economic growth, Index and a rise in U.S. interest rates.

Israeli Global Equities demonstrated resilience during Israel’s Operation 5-6. Technical Analysis Defensive Edge in the Gaza Strip. As a result of the conflict though, tourism and consumer spending declined in Q3 compared to the previous year. 7. About the  Israeli companies continued to list on U.S. exchanges during the quarter. BIGITech Index Among the most notable were technology companies Mobileye, CyberArk and ReWalk. They will all be eligible to enter the BIGI and/or the BIGITech during the 8. Israeli IPOs in December 2014 rebalancing.

2014 The Bank of Israel lowered its policy interest rate twice during the third quarter. That and the expectation that the Federal Reserve will increase U.S. interest 9. Israeli Economic rates in mid-to-late 2015 contributed to a sharp depreciation of the Shekel against the Dollar. This should be supportive of export growth going forward, a Review & Outlook recent problem for the Israeli economy.

10. Geopolitical The IMF lowered its global GDP growth forecast as well as its forecast for Israeli GDP growth for both 2014 and 2015. The Bank of Israel’s also lowered its Environment GDP growth forecast for Israel.

BIGI® Performance (BlueStar Israel Global Index, Jan. 2010- Sept. 2014)

190

170

150

TA-100 130 S&P 500

BIGI 110

70 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 1 © 2014 BlueStar Global Investors, LLC These are not recommendations to buy or sell any security About the BlueStar Israel Global Index ® The BlueStar Israel Global Index (’BIGI®’) provides a benchmark for investors to track the broadest and deepest universe of Israeli public companies. The index is constructed using BlueStar Indexes’ unique methodology and proprietary database of Israeli and Israel-linked companies. BIGI® includes the largest and most liquid companies as well as mid and small cap companies that display sufficient liquidity for global investors. The index methodology allows for the inclusion of Israeli companies listed on the Tel Aviv Stock Exchange as well as other exchanges such as the London Stock Exchange, New York Stock Exchange, and NASDAQ. The BlueStar Israel Global Index has been created to provide investors with an investable product allowing them to quickly take advantage of both event-driven news and long-term economic trends as the economy and companies of Israel continue to evolve.

Comparative Sector Weights Long- Term Returns*

MSCI - FTSE Sector BIGI® TA-25 TA-100 Q3 2014 1yr. 3yrs. 5yrs. 10yrs. EIS Israel Information Technology 31.5% 6.1% 3.2% 4.7% 8.1% ACWI -2.20% 11.89% 17.24% 10.65% 7.84% Health Care 30.1% 24.5% 57.3% 24.3% 25.2% EAFE -5.83% 4.70% 14.16% 7.04% 6.80% Financials 18.5% 37.8% 19.9% 33.2% 32.6% Materials 5.2% 9.9% 6.0% 7.9% 6.8% MSCI EM -3.36% 4.66% 7.56% 4.76% 11.03% Energy 4.7% 5.7% 3.8% 14.7% 12.0% S&P 500 1.13% 19.73% 22.99% 15.70% 8.11% Telecom. Services 3.2% 6.7% 4.9% 9.5% 7.0% MSCI Israel 0.38% 29.77% 11.20% 2.63% 8.45% Industrials 2.7% 5.1% 2.6% 2.9% 4.4% TA-100 -3.00% 9.39% 10.70% 7.50% 11.01% Consumer Discretionary 1.9% 0.7% 0.4% 0.0% 1.3% TA-25 Consumer Staples 1.7% 3.5% 1.8% 2.8% 2.6% -2.20% 10.38% 10.90% 8.38% 12.82% Utilities 0.4% 0.0% 0.0% 0.0% 0.0% BIGI® -0.91% 15.03% 13.65% 9.55% 12.46%

Source: BlueStar Global Investors LLC *Annualized Sept. 30, 2014 1Inception Date: Dec. 1992 Source: BlueStar Global Investors LLC Sept. 30, 2014 Five Year Correlations Comparative Risk (Standard Deviation of Returns)*

MSCI ACWI MSCI EM EAFE S&P 500 TA-100 TA-25 BlueStar Q3 2014 1yr. 3yrs. 5yrs. 10yrs. Israel

ACWI 1.00 ACWI 9.55% 9.13% 12.12% 14.62% 16.62% EAFE 6.35% 9.60% 14.24% 16.60% 18.28% MSCI EM 0.90 1.00 MSCI EM 19.10% 13.69% 17.19% 18.55% 23.85% EAFE 0.97 0.86 1.00 S&P 500 10.78% 8.87% 10.57% 13.20% 14.71% S&P 500 0.96 0.80 0.87 1.00 MSCI Israel 8.57% 11.33% 16.04% 18.17% 18.44% MSCI Israel 0.66 0.68 0.60 0.62 1.00 TA-100 0.76 0.75 0.74 0.71 0.85 1.00 TA-100 4.61% 8.81% 14.26% 17.50% 21.46% TA-25 0.75 0.75 0.73 0.69 0.84 0.99 1.00 TA-25 8.15% 9.90% 15.27% 18.08% 21.71% ® BIGI® 0.81 0.77 0.78 0.76 0.86 0.97 0.93 1.00 BIGI 4.05% 9.54% 13.68% 17.26% 19.69%

*Annualized Source: BlueStar Global Investors LLC 1Inception Date: Dec. 1992 Sept. 30, 2014 Source: BlueStar Global Investors LLC Sept. 30, 2014

Index Weight as Index Weight as Company Name Ticker Exchange Company Name Ticker Exchange of Sept. 30, 2014 of Sept. 30, 2014 1 Teva Pharmaceutical Industries TEVA IT 13.08% 58 Syneron Medical Ltd ELOS UQ 0.35% 2 Perrigo Company plc PRGO UN 11.76% 59 Rami Levi Chain Stores RMLI IT 0.34% 3 Check Point Software (US) CHKP UQ 6.36% 60 888 Holdings Plc 888 LN 0.34% 4 Amdocs Ltd DOX UQ 4.77% 61 Allot Communications ALLT UQ 0.32% 5 Bank Hapoalim BM Reg POLI IT 3.80% 62 Ceva Inc CEVA UQ 0.32% 6 Bank Leumi Le-Israel BM LUMI IT 3.63% 63 Nova Measuring Instruments Ltd NVMI IT 0.32% 7 Stratasys Ltd SSYS UQ 3.34% 64 Ituran Location & Control Ltd ITRN IT 0.31% 8 VeriFone Systems Inc PAY UN 2.34% 65 SafeCharge International Group SCH LN 0.31% 9 Bezeq BEZQ IT 2.22% 66 Menorah Insurance Co Ltd 1 MMHD IT 0.31% 10 Israel Chemical Corp ICL IT 2.08% 67 Delta-Galil Industries DELT IT 0.30% 11 VERINT SYSTEMS VRNT UQ 1.92% 68 Electra (Israel) ELTR IT 0.30% 12 Nice Systems Ltd NICE IT 1.65% 69 Naphtha Israel Petroleum Corp NFTA IT 0.29% 13 Playtech PTEC LN 1.52% 70 Clicksoftware Technologies Ltd CKSW UQ 0.29% 14 Israel Corp ILCO IT 1.44% 71 Evogene Ltd. EVGN IT 0.29% 15 Taro Pharmaceutical Industries TARO UN 1.42% 72 DSP Group DSPG UQ 0.28% 16 Delek US Holdings DK UN 1.29% 73 Africa Israel Properties AFPR IT 0.27% 17 MELLANOX TECH MLNX UQ 1.18% 74 Bayside LandCorp 1 BYSD IT 0.27% 18 Opko Health Inc OPK UN 1.17% 75 FIBI Hldgs FIBI IT 0.27% 19 Delek Group Ltd DLEKG IT 1.16% 76 SuperCom Ltd. SPCB UQ 0.26% 20 Israel Discount Bank 0.1 DSCT IT 1.12% 77 Shufersal Ltd. SAE IT 0.26% 21 Mizrahi Tefahot Bank Ltd MZTF IT 1.11% 78 Discount Investment Corp DISI IT 0.26% 22 Elbit Systems Ltd ESLT IT 1.04% 79 Matrix MTRX IT 0.25% 23 Caesar Stone Sdot Yam Ltd CSTE UQ 0.89% 80 Formula Systems (1985) Ltd FORT IT 0.25% 24 Azrieli Group AZRG IT 0.79% 81 Israel Phoenix Assurance 1 PHOE1 IT 0.25% 25 Paz Oil Company Ltd PZOL IT 0.76% 82 Fox Wizel FOX IT 0.25% 26 Frutarom FRUT IT 0.75% 83 Mazor Robotics Ltd. MZOR IT 0.25% 27 Gazit Globe 1982 Ltd GZT IT 0.71% 84 Magic Software Enterprises Ltd. MGIC IT 0.24% 28 LivePerson Inc LPSN UQ 0.59% 85 Africa-Israel Inv Ltd AFIL IT 0.24% 29 Osem Investment OSEM IT 0.58% 86 Sapiens Intl Corp SPNS UQ 0.24% 30 Radware Ltd RDWR UQ 0.58% 87 PLURISTEM THERAP PSTI UQ 0.24% 31 Ezchip Semiconduct EZCH IT 0.57% 88 Mivtach Shamir Hldgs Ltd MISH IT 0.23% 32 Imperva Inc IMPV UN 0.55% 89 Meitav DS Investments Ltd MTDS IT 0.23% 33 Strauss Group STRS IT 0.55% 90 Plasson Industries Ltd. PLSN IT 0.22% 34 Harel Insurance Inv Ltd 1 HARL IT 0.49% 91 Varonis Systems Inc VRNS UQ 0.21% 35 Orbotech Ltd (US) ORBK UQ 0.49% 92 Big Shopping Centers Ltd. BIG IT 0.21% 36 Cellcom Israel Ltd. CEL IT 0.49% 93 Ceragon Networks [US Listing] CRNT UQ 0.21% 37 Partner Communications Co PTNR IT 0.49% 94 Audiocodes Ltd AUDC UQ 0.20% 38 Shikun & Binui Ltd. SKBN IT 0.47% 95 Jerusalem Economic Corp (ECJ) ECJM IT 0.20% 39 Wix.com Ltd WIX UQ 0.47% 96 Silicom Limited SILC UQ 0.20% 40 Aloni Hetz Properties ALHE IT 0.46% 97 Al-Rov (Israel) Ltd ALRO IT 0.20% 41 SodaStream International Ltd SODA UQ 0.46% 98 Industrial Building Corp IBLD IT 0.20% 42 Delek Energy Systems Ltd DLEN IT 0.44% 99 Attunity Ltd. ATTU UQ 0.20% 43 Ormat Technologies ORA UN 0.44% 100 Property & Building Corp (Isrl) PTBL IT 0.19% 44 Migdal Insurance Hdlgs MGDL IT 0.43% 101 Elco Hldgs ELCO IT 0.18% 45 Oil Refineries Ltd ORL IT 0.41% 102 Alcobra Ltd ADHD UQ 0.18% 46 NITSBA Hldgs NTBA IT 0.41% 103 Elbit Imaging Ltd EMIT IT 0.18% 47 Ormat Industries ORMT IT 0.40% 104 Borderfree Inc BRDR UQ 0.17% 48 Delek Automotive Systems Ltd DLEA IT 0.40% 105 Lumenis Ltd. LMNS UQ 0.17% 49 Compugen Ltd CGEN UQ 0.40% 106 Kamada KMDA IT 0.16% 50 Clal Insurance Enterprises CLIS IT 0.40% 107 Medgenics Inc MDGN UA 0.15% 51 First Intl Bank of Israel FTIN IT 0.39% 108 Perion Network Ltd PERI UQ 0.15% 52 Plus500 Ltd PLUS LN 0.38% 109 Brainsway Ltd. BRIN IT 0.15% 53 Alon Usa Energy ALJ UN 0.37% 110 Photomedex Inc PHMD UQ 0.13% 54 Melisron MLSR IT 0.37% 111 Enzymotec Ltd ENZY UQ 0.12% 55 Telit Communications Plc TCM LN 0.37% 112 Elron Electronic Indust ELRN IT 0.12% 56 Jerusalem Oil Exploration JOEL IT 0.36% 113 Clal Biotechnology Industrie CBI IT 0.10% 57 AMOT Investment Ltd AMOT IT 0.35% 114 Babylon Ltd. BBYL IT 0.08%

3 © 2014 BlueStar Global Investors, LLC These are not recommendations to buy or sell any security BlueStar Israel Global Index ® Q3 2014 Performance Attribution and Differentiators BIGI® Internal Characteristics Attribution Currency Attribution Exchange-Related Attribution

Total Index Local Attribution of Attribution of Total Index Weight Listed Currency Currency Category to BIGI® Weight as of on Local Performance Performance Performance (Q3 Sept. 30, 2014 Exchange(s) vs USD (Q3 to BIGI® 2014) Sept. 30, 2014 2014) Performance Dual-Listed Israel – New Israeli Shekel 35.61% -0.04% 51.92% -6.84% -3.55% Constituents (TASE) Constituents With US - US Dollar 32.47% 1.19% 45.18% 0.00% 0.00% No TASE Listing (NYSE, NASDAQ, AMEX) Technology UK – GB Pound 2.90% -4.65% -0.13% Constituents With 26.37% 0.98% (London) No TASE Listing Total Direct Effect of Currency Fluctuation on - - -3.69% BIGI® Price Level

BlueStar Israel Global Index ® Constituent Attribution vs Peers

BIGI® Weight BIGI® Weight Q3 2014 Positive Q3 2014 Negative Relative to MSCI Relative to MSCI Company Name Relative Weight Company Name Relative Weight Israel Capped Israel Capped Attribution Attribution Index Index

Israel Chemical Corp -3.37% 0.54% Teva Pharmaceutical -11.25% -0.22% Perrigo Company plc 11.76% 0.36% Bank Leumi -5.51% -0.20% Mellanox 1.18% 0.34% VeriFone Systems Inc 2.34% -0.15% Verint Systems 1.92% 0.26% Wix.com Ltd 0.47% -0.08% Delek US Holdings 1.29% 0.22% Oil Refineries Ltd -0.31% -0.08% Stratasys Ltd 3.34% 0.21% Mazor Robotics Ltd. 0.25% -0.08% Check Point Software 6.36% 0.21% Perion Network Ltd 0.15% -0.07% Bezeq -2.29% 0.18% Audiocodes Ltd 0.20% -0.07% Bank Hapoalim BM Reg -6.51% 0.17% Photomedex Inc 0.13% -0.06% Delek Group Ltd -1.90% 0.16% Evogene Ltd. 0.29% -0.06%

BlueStar Israel Global Index ® Sector Performance Attribution Q3 2014 Performance Q2 2014 Performance Q1 2014 Performance Q4 2013 Performance Q3 2013 Performance GICS Sector Attribution Attribution Attribution Attribution Attribution Info. Technology 0.56% -0.09% 0.51% 2.32% 2.06% Energy 0.15% -0.46% 1.66% 3.34% 3.08% Health Care 0.04% 0.07% -0.36% 0.67% 0.41% Utilities -0.14% -0.17% -0.15% 0.35% 0.10% Industrials -0.15% -0.16% 0.09% 0.87% 0.62% Consumer Disc. -0.17% -0.46% 4.97% 1.39% 1.14% Consumer Staples -0.21% -0.34% -0.38% -0.11% -0.10% Telecom Services -0.37% -0.17% -0.04% 1.37% 1.11% Materials -0.40% -0.15% -0.09% 0.09% -0.16% Financials -0.58% -0.15% 0.24% -0.10% -0.35%

MT Target: 310-325

ST Support: 275-283

Strong Support Area ~9% Below MT Support: 245-255

LT Support: 195-200

The two parallel trend lines connecting the tops in 2008 and 2011, and now 2014, in the chart above were confirmed in March and early April as the most significant area of upside resistance for Israeli Global Equities in the long-term chart of BIGI®. The highest of the two trend lines should serve as major resistance for the index in the medium-term. That line is doubly-significant, as it equates with the measured target from the 2009 lows with respect to the 2012 low. If theses trend lines are breached they will likely turn into a key support area for the index and serve as a strong base for this multi-year bull-market in Israeli Global Equities to continue onward. On the other hand, if the 275 level is decisively broken, as it seems to have been in early October, we would expect a sharper correction from current levels, a drop of approximately 6-9%.

Short-Term Target: 295-298

Short-Term Support 1: 280-282 Short-Term Support 2: 273-275

Mid-Term Support: 1 255-265

Mid-Term Support: 2 240-245

6 6 © 2014 BlueStar Global Investors, LLC These are not recommendations to buy or sell any security About the BlueStar Israel Global Technology Index (BIGI®Tech) The BlueStar Israel Global Technology Index provides a benchmark for investors to track Israeli and Israel-linked technology companies trading worldwide. The index is constructed using BlueStar Indexes’ unique methodology and proprietary database of Israeli and Israel-linked companies. BIGI®Tech is a modified market capitalization weighted index, capping the top-weighted constituents at 10%. It includes the largest and most liquid technology companies, as well as mid and small cap companies that display sufficient liquidity for global investors. The methodology allows for the inclusion of Israeli companies listed on the Tel Aviv Stock Exchange and other major exchanges such as the London Stock Exchange, New York Stock Exchange, and NASDAQ. Furthermore the methodology provides for the inclusion of companies that develop, manufacture, and/or deliver innovative technologies in a wide range of tech sectors, including Bio-Tech, Agri-Tech, Defense-Tech, Clean-Tech as well as Info-tech. The BIGI®Tech Index provides investors with an investable benchmark that allows them to quickly take advantage of event-driven news, industry trends, market/industry cycles, as well as the potential for capital appreciation driven by Israeli technological innovation. GICS Industry Breakdown Index Internals Data

Industry Weight Preliminary Index Statistics Software 31.86% No. of Securities 53 I.T. Services 19.59% Computers & Peripherals 11.25% Currency USD Semiconductors 9.40% Max. Security Weighting 11.25% Communications Equipment 5.53% Internet Software & Services 4.14% Concentration Ratio 64.00% Aerospace & Defense 3.40% Biotechnology 3.00% Annualized 5 Year Performance 11.60% Health Care Equipment & Supplies 2.96% Sept. 30, 2014 Electronic Equipment & Components 1.52% Independent Power Producers 1.34% Primary Listing of Constituents Electrical Compoenents & Equipment 1.24% Life Sciences Tools & Services 1.20% New York (NYSE/NQ) US Dollar 68.68% Diversified Financial Services 1.17% Tel Aviv (TASE) Israeli Shekel 22.22% Hotels, Restaurants & Leisure 0.99% Diversified Telecommunication Services 0.94% London (LSE) British Pound 9.10% Pharmaceuticals 0.48% Sept. 30, 2014 Sept. 30, 2014

Recent Israeli Global Company IPOs and Other Corporate Action

2014 has been a record year for Israeli companies going public. Three of the most notable IPOs happened during the third quarter. Mobileye, CyberArk and ReWalk are all excellent examples of innovative Israeli companies with global footprints. Each of these companies are changing paradigms in their respective industries and are undisputed leaders in the markets they serve. They will each be considered for inclusion in the BIGI and BIGITech in the December rebalance.

Mobileye held its IPO on August 1st, selling 35.6 million shares for $25/share. The shares traded as high at $37/share on IPO day and reached as high at $60/share in early October giving the company a market cap of over $10 billion. Mobileye is the world leader in autonomous driving and accident-prevention solutions and counts the world’s top auto-makers as some of its largest customers.

ReWalk held its IPO on September 12th, selling 3.0 million shares at $12/share. Shares of ReWalk reached as high as $30 on IPO day marking a 150% intraday gain. On the second day of trading shares surged to as high as $43.71 which marked a 264% gain from its IPO price. ReWalk is a medical device company that designs, develops and commercializes exoskeletons that allow wheel-chair bound people to stand and walk again.

CyberArk held its IPO on September 24th, selling 5.4 million shares at $16/share. After opening at $25 then dipping to $22 in the first hour of trading, shares recovered and closed at $30 on IPO day. Shares of CyberArk hit an all-time high of $35.90 on the second day of trading. CyberArk has created a new layer of I.T. security and is virtually the only supplier of privileged-account security software. Recent security breaches at major U.S. institutions such as JP Morgan Chase and Home Depot among others, show that traditional perimeter security solutions like those provided by Check Point and Palto Alto Networks, while still necessary, are not sufficient. CyberArk serves more than 20% of Fortune 100 companies and targets companies operating in all major industries including financial and banking institutions as well as telecommunication service providers.

Finally, $421 million worth of Israel Chemicals stock were listed on the New York Stock Exchange, after being sold by parent company Israel Corp. in order to increase liquidity and raise the company’s profile among global investors. Israeli Company IPO Pipeline

Notable IPOs since BlueStar Indexes’ June 2014 Rebalance CyberArk IPO on Sept. 24, 2014 Foamix IPO on Sept. 18, 2014 ReWalk IPO on Sept. 12, 2014 Mobileye IPO on Aug. 1, 2014 Bioblast Pharma IPO on Jul. 31, 2014 Marimedia IPO on May 28, 2014 Matomy Media Group IPO on May 28, 2014 XL Media IPO on Mar. 21, 2014 IPO/Prospectus Filed Zubra Filed prospective with SEC on Feb. 27, 2014 Mapi-Pharms Filed prospectus with SEC on Mar. 26, 2014 Adama Draft prospectus filed with SEC on Aug. 11, 2014 IPO Being Planned Oplon Planning IPO with $100 million company valuation Outbrain Planning IPO with $1 billion company valuation Orscan Planning TASE IPO Kaltura- Planning IPO Delek Energy Possible dual-listing on Wall Street Kenshoo Planning IPO with $750 million company valuation

The Bank of Israel and the IMF updated their growth expectations for the Israeli economy for 2014 and 2015. Israel’s GDP is expected to growth 2.4% in 2014 compared to the previous forecast (published in June 2014) of 2.9%. The main causes for the reduction in growth expectations are the temporary effects of Operation Protective Edge and slower economic growth in Europe. Economic growth is expected to increase to 3.0% in 2015 based on the assumption that the Israeli economy will resume a level of activity similar to that before Operation Protective Edge. The negative impact of Operation Protective Edge is reflected in consumer expenditures and tourism (tourism is reflected in the current account and net exports).

Source: OECD Expectations for 2015 growth include an increase in fixed capital formation (or * Estimates as of May. 2014 the “investment” component of GDP) of 6.6% after a decline of 1.4% in 2014. Additionally, net exports are expected to grow at 5.2% in 2015 compared to Shekel/Dollar 4.1% growth in 2014. The expectations for faster net export growth in 2015 reflect the effects of a weaker shekel, and a moderate growth rate of imports by the G4 economies.

Fiscal Policy and the Labor Market

The government’s budget deficit from January to August 2014 was Shekel Strength approximately NIS 3.9 billion less than the deficit consistent with the seasonal path toward the target for 2014. An acceleration in government expenditures, primarily a result of increased defense spending for Operation Protective Edge, is expected in the remainder of the second half of 2014. The unemployment rate was 6.4% at the end of July with just a slight increase in Jan. 1, 2010 - Sept. 30, 2014 the labor market participation rate. Shekel/Euro Inflation and Monetary Policy

The Bank of Israel lowered its policy benchmark rate twice during the third quarter; first to 50 bps in July then down to 25 bps in August. Reasons for a low interest rate policy include the strengthening of the Shekel throughout most of 2014, low inflation, and lower expectations for economic growth. The Bank of Israel hinted at the possibility of lowering interest rates even further as well as the possibility of taking some other monetary policy steps to

promote economic growth and bring inflation back toward the midpoint of Shekel Strength the target range.

New Israeli Shekel Performance Jan. 1, 2010 - Sept. 30, 2014 The Shekel weakened by 7.50% against the dollar during the third quarter but Israel Non-Government Bond Index strengthened by 1.0% against the Euro during that period. The primary causes for the depreciation of the Shekel against the dollar were: expectations of higher interest rates in the U.S. combined with lower interest rates in Israel; direct intervention in the foreign exchange markets by the Bank of Israel to weaken the shekel; and lower Israeli economic growth forecasts for 2014.

The primary causes for the strength of the shekel against the Euro during the third quarter is a deflationary environment and potential recession in Europe.

Jan. 1, 2010 - Sept. 30, 2014

9 © 2014 BlueStar Global Investors, LLC These are not recommendations to buy or sell any security Israeli Equities Performance During Global Economic and Regional Geopolitical Events (July 1997 – Sept 2014)

This summer’s conflict in Gaza, Operation Protective Edge, lasted approximately six weeks and, unlike Operation Pillar of Defense, involved the deployment of Israeli ground troops into Gaza. This conflict also marked the first time since the Gulf War of 1990 that numerous rockets were directed at the greater Tel Aviv area as well as points as far north as the Port of Haifa. The economic impact of this conflict was greater than that of Operation Pillar of Defense in that consumer expenditures were delayed and there was a more serious blow to the tourism industry. Nonetheless, Israeli equities performed more or less in-line with their Developed Market peers. The above chart shows a sharp initial stock market reaction to the official announcement of a military operation in Gaza. It took just seven days for the market to nearly fully recover from pre-conflict highs. After these initial seven days one cannot accurately attribute negative stock market returns to correlation with other Developed Market Equities or the ongoing conflict in Gaza.

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