Bluestar Israel Equity Update September 2014 This Bluestar Global Investors Monthly Update Covers Israeli Equities Traded Worldwide

® BlueStar Israel Equity Update September 2014 This BlueStar Global Investors monthly update covers Israeli equities traded worldwide. We use the BlueStar Israel Global Index ® (“BIGI ®” or BLS:IND on Bloomberg) as the benchmark for our review, as it represents the complete opportunity set of Israeli equity investments. Israel has one of the world’s most resilient economies and its technology sector is a global innovation leader. Yet few investors are aware of the broad global footprint of Israeli companies in other sectors. The BlueStar Israel Equity Update provides insight into the macro forces (including the geopolitical environment under which Israel’s economy operates) and the individual company investment opportunities that have contributed to Israeli Global Equities’ impressive performance over the past two decades. Focus on Fundamental Strength September 4, 2014 August and early September marked an exceptionally interesting period for Israeli and global geopolitics, economies and markets. U.S. and Israeli equity indexes sold off and then rallied despite several major geopolitical events including military conflicts in Gaza and Ukraine, and the beheadings of two American journalists by ISIS. Also, as several European economies entered a recession and growth forecasts for the Israeli economy continue to be lowered, both the European Central Bank and the Bank of Israel lowered various policy interest rates in an attempt to spur growth and inflation, and to stimulate exports. In the U.S., on the other hand, economic and labor market indicators were strong though Janet Yellen, the Federal Reserve chairwoman, indicated the policy interest rates in the U.S. are not likely to be increased until late 2015. Finally, Emerging Market equities appear to be breaking out from a technical perspective and with valuations at suppressed levels they could be playing catch-up to Developed Market equities.

The resilience and strength of global equity markets - including Israeli equities as measured by the BlueStar Israel Global Index - is not only perplexing but worrying to some. However one must continue to analyze what matters most to equity markets and do one’s best to cancel out background noise. Like most investors, BlueStar believes that the U.S. and Israeli equities are influenced by the pace of economic growth, major industry trends and cycles, valuations, technical trading patterns, and monetary and fiscal policy. But the interpretation of how these factors affect equity markets can vary widely. In our view, the long-term bull market in U.S. and Israeli Global Equities will continue until the market next fears an imminent economic recession which is, at present, not in sight. Additionally, there are several major industrial trends and cycles that we believe can carry markets higher over the medium and long term. One example is the forthcoming refresh cycle of enterprise data centers, cloud computing, and telecommunications/networking infrastructure both in Developed and Emerging Markets which is needed to support an ever-increasing demand for data storage, connectivity, and media consumption. Other examples are the emerging energy industries in both in Israel and the U.S., and the incredible advances in science, medicine and health care. For these reasons technical pull-backs in the stock market caused by the risk factors highlighted below should be viewed in the context of a bull market.

There are several risk factors that have caused slight pullbacks in Israeli and global equities recently, and these factors could impact markets again in the future. First is that there has been a slowdown in Israeli economic growth and growth forecasts over the past few months. Additionally, the recent conflict with Hamas in Gaza has delayed consumer expenditures and created a major slowdown in tourism. Finally, there are signs that the housing market in Israel is also slowing down - though we see this as partly due to regulatory uncertainty and thus we expect the real estate markets in Israel to remain stable for the foreseeable future. In our view, these factors might create short-term softness in financial results reported by many domestic-focused Israeli companies and thus the “BlueStar Bottom Line” is a neutral outlook for Israeli equities. This outlook is not likely to change until late in 2014/early 2015, after the temporary economic slowdown has been fully digested by the markets. Additionally, if Europe falls into a deeper recession, local Israeli equity performance will likely lack major upside catalysts in the near-term.

On the other hand, the economic and stock market strength in the U.S. is likely to give support to globally-traded and export-oriented Israeli equities. Many investors are focusing on rising interest rates in the U.S. as a signal for the start to a “major” correction or bear market. We believe that so long as there is no major spike in U.S. interest rates or a larger-than-expected rise in the Federal Reserve policy rate, any sell off due to interest rates will be short-lived and a buying opportunity. Higher interest rates in the U.S. in the current economic environment signal economic strength and will result in a stronger dollar. As the dollar strengthens, the balance sheets of U.S. companies strengthen and all dollar-denominated financial assets are likely to be attractive compared to international peers. Export-oriented Israeli Global Equities, mainly in the technology, health care, and materials sectors should benefit from U.S. economic and stock market strength as well as favorable industry trends and cycles.

BlueStar Israel Global Index ® Global Equity Benchmark Comparison: Relative Performance Since 2010 August 2014 190 August Benchmark 170 Performance BIGI® 0.84% 150 TA-100 MSCI Israel -2.25% 130 S&P 500 TA-100 1.50% 110 BIGI S&P 500 3.77% 90 MSCI EAFE 0.88% 70 MSCI EM 2.27%

Top Israeli Equity Gainers and Losers Israeli Equity Sector Attribution to BIGI® Performance Top-Performing Israeli Stocks Worst-Performing Israeli Stocks Sector August 2014 August 2014 August 2014 (As Defined by GICS) Imperva Inc 31.30% Babylon Ltd. -45.66% Information Technology 1.97% Alon Usa Energy 29.42% Enzymotec Ltd -40.61% Energy 0.26% SuperCom Ltd. 22.54% Photomedex Inc -24.19% Utilities -0.01% Ceragon Networks 22.50% Brainsway Ltd. -21.05% Consumer Discretionary -0.02% Caesar Stone 19.95% Perion Network Ltd -19.78% Materials -0.04% Delek US Holdings 19.71% ALLOT COMMUNICATIONS -16.24% Telecom. Services -0.04% Stratasys Ltd 19.32% Medgenics Inc -11.16% Industrials -0.06% Telit Communications 18.04% Shufersal Ltd. -9.89% Consumer Staples -0.13% Source:Silicom BlueStar Limited Global Investors LLC;15.69% Currency -AdjustedClal returns Biotechnology in dollar terms -8.58% Financials -0.45% Playtech 15.26% Africa-Israel Inv Ltd -7.71% Health Care -0.51% August Economic Update • The Bank of Israel lowered its policy benchmark rate for September by 25 bps to 0.25%, the second consecutive month of interest rate cuts • The July CPI reading showed an increase of 0.10%, 10 bps lower than expected • The CPI over the past twelve months increased by 0.30% and expectations for growth in the CPI over the next twelve months declined to 1.1% which is below the lower bound of the Bank of Israel’s target rate • There was a further slowdown in economic growth, even before the start of the conflict with Gaza • The shekel weakened by 1.7% in August in terms of the Nominal Effective Exchange Rate, but a further weakening of the shekel ought to help exports rebound

• The government budget deficit in 2014-to-date is NIS 2.6 billion below the seasonal path to meeting the 2014 target • While the level of government expenditure is below the seasonal path, tax revenues in July were lower: The government allowed a deferral of taxes owed by companies operating in the South during July on account of the security situation there

• It remains difficult to assess the impact that the recent conflict with Gaza will have on the economy but many analysts and government officials are predicted a long-lasting impact on tourism to Israel as well as a relatively short-lived impact on consumer spending

• The labor market has softened a bit after several quarters of strengthening. The unemployment rate rose 10 bps to 6.0% accompanied by gradual reduction in the numbers of hours worked per employee each week indicating that less Israelis are employed in full-time work and more are being employed in part-time positions

“The BlueStar Bottom Line” Our market outlook is neutral. Our outlook has not changed much from the previous month when we wrote the following: “Economic growth in Israel is experiencing continued moderation and slower global trade is resulting in lower export trends. We continue to believe that Global Israeli Information Technology, Health Care, and Materials companies are poised to benefit from global growth in those industries for the foreseeable future while stocks more closely tied to domestic economic trends (specifically financials and consumer stocks) will be under pressure for some time to come…” The technical outlook for Israeli Global Equities turned less bullish last month, however price action at the end of August (a rally off of key support) suggests a mildly bullish tendency for BIGI over the next several months. We also foresee limited upside potential in Israeli equity indexes that are constrained to locally-traded shares; those indexes are more closely tied to sectors that may see softness in earnings as a result of temporary economic headwinds.

The opinions expressed in this report are those of BlueStar Global Investors, LLC and should not be interpreted as a recommendation to buy or sell any security. Readers should consult with a financial professional before investing. 2 © 2014 BlueStar Global Investors, LLC These are not recommendations to buy or sell any security

Market Trends & Technical Analysis

MT Target: 310-325

ST Support: 277-282

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 short- to 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. The short-term outlook has turned from neutral-bearish back to neutral-bullish as key support levels have held and the downtrend line originating in April 2014 was broken in late August.

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