Bluestar Israel Equity Update First Quarter 2014

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BlueStar Israel Equity Update First Quarter 2014

Q4 2013 in Review & 2014 Outlook

 All major global developed market equity benchmarks rose strongly in Q4 2013 despite the announcement of the Federal Reserve’s intentions to reduce the scope of its bond purchase What’s Inside program

 The BlueStar Israel Global Index rose 10.54% in Q4 2013 on an annualized basis while the TA-100 and MSCI Israel indices were up 7.38% and 6.34%, respectively. The BlueStar 1. Israeli Global benchmark also outperformed the TA-100 and MSCI Israel benchmarks for the full year 2013 Equities in Q4 by 4 and 15 percentage points, respectively.

2013  For the second straight quarter the rally in Israeli equities was broad based and in each of the three largest sectors: Information Technology, Financials and Health Care. Additionally a long-awaited recovery in the telecom sector took hold during the quarter. Each of these sectors rose strongly during Q4 2013 indicating strength in the domestic economy and an 2.-6. About the BIGI & acceleration in the growth rates of the economies of Israel’s largest trading partners. BIGTech Indexes,  The Israeli government budget deficit continued to shrink bringing on the prospect of lower Rebalance Review, taxes and higher government spending in 2014. The labor force participation rate rose in the and Risk/Return fourth quarter while the unemployment rate remained low. Data  The revival in trading volume on the TASE, rise in equity prices in most developed countries, and several relatively large IPOs by Israeli companies during the second half of 2014 resulted in a net addition of 12 companies in the BlueStar Israel Global Index’s December rebalance. Also, foreign investors added to their Israeli equity allocation during the 7-9. Technical Analysis fourth quarter

BlueStar Indexes introduced a new benchmark by which investors can track Israel’s Global Technology sector. The benchmark is called the BlueStar Israel Global Technology Index 10. Israeli Sector and can be found under the ticker “BGTH” both on Bloomberg terminals and Spotlight Googlefinance.com.

Macroeconomic fundamentals in Israel firmed up in 2013 and net exports, the weakest link to growth in 2013, are expected to rise in 2014 despite a strengthening local currency. 11. Israeli Capital Markets Update BIGI Performance (BlueStar Israel Global Index, Jan. 2010- Dec.2013)

12. Israeli Economic 170 Review & Outlook 160 150

140

130 13. Geopolitical 120 TA-100 Environment 110 S&P 500 100 BIGI 90 80 70

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 1yr. Sector BIGI TA-25 TA-100 Q4 ‘13 3yrs. 5yrs. 10yrs. 15yrs. Inception1 EIS Israel (2013) Information Technology 31.1% 6.6% 4.0% 4.8% 8.3% ACWI 7.42% 23.44% 10.33% 15.53% 7.72% 5.09% 8.17% Health Care 28.0% 24.9% 47.3% 23.7% 25.8% EAFE 5.75% 23.29% 8.66% 12.96% 7.39% 4.96% 7.20% Financials 18.9% 35.8% 24.5% 32.9% 31.9% MSCI EM 1.86% -2.27% -1.74% 15.15% 11.52% 11.22% 8.23% Energy 5.7% 5.0% 4.7% 13.8% 11.1% S&P 500 10.51% 32.39% 16.18% 17.94% 7.41% 4.68% 9.22% Materials 5.4% 10.2% 6.8% 9.1% 7.3% MSCI Telecom Services 3.5% 7.9% 6.5% 10.1% 7.2% 6.34% 11.91% -8.00% 4.79% 6.27% 7.10% 5.57% Israel Industrials 2.6% 4.8% 3.3% 2.9% 4.5% TA-100 7.38% 23.75% 0.40% 18.59% 11.05% 11.06% 7.84% Consumer Discretionary 2.6% 0.6% 0.4% 0.0% 0.8% Consumer Staples 1.8% 4.1% 2.5% 2.6% 3.2% TA-25 6.76% 20.53% 0.92% 17.33% 12.77% 11.57% 8.10% Utilities 0.4% 0.0% 0.0% 0.0% 0.0% BlueStar 10.54% 27.84% 2.75% 19.96% 12.73% - -

Source: BlueStar Global Investors LLC *Annualized Dec. 31, 2013 1Inception Date: Dec. 1992 Source: BlueStar Global Investors LLC Dec. 31, 2013 Comparative Risk (Standard Deviation of Returns)* Five Year Correlations

1yr. MSCI Q4 ‘13 3yrs. 5yrs. 10yrs. 15yrs. Inception1 ACWI MSCI EM EAFE S&P 500 TA-100 TA-25 (2013) Israel ACWI 4.89% 9.28% 14.12% 17.59% 16.52% 16.47% 15.53% ACWI 1.00 EAFE 4.61% 12.13% 16.44% 19.70% 18.15% 17.60% 16.82% MSCI EM 0.91 1.00 MSCI EM 12.64% 11.86% 19.31% 22.59% 23.86% 23.60% 23.66% EAFE 0.98 0.88 1.00 S&P 500 3.72% 8.48% 12.11% 15.81% 14.62% 15.49% 14.91% S&P 500 0.96 0.81 0.90 1.00 MSCI 12.66% 9.42% 18.69% 19.13% 18.87% 24.21% 23.83% Israel MSCI Israel 0.62 0.68 0.59 0.56 1.00 TA-100 7.59% 11.14% 17.32% 20.18% 21.53% 24.32% 24.39% TA-100 0.79 0.82 0.76 0.72 0.83 1.00 TA-25 10.39% 13.21% 18.14% 20.69% 21.76% 24.55% 24.44% TA-25 0.80 0.83 0.78 0.73 0.82 0.99 1.00 BlueStar 7.20% 8.39% 17.00% 19.54% 20.01% - - BlueStar 0.81 0.83 0.79 0.74 0.85 0.98 0.95 *Annualized Source: BlueStar Global Investors LLC 1Inception Date: Dec. 1992 Dec. 31, 2013 Source: BlueStar Global Investors LLC Dec. 31, 2013

The BlueStar Israel Global Index (BIGI) changes for the December 2013 rebalance were released on December 13th 2013 and were effective at the open of U.S. stock markets on December 23rd 2013. During the six month period ending December 13th 2013 Israeli equities prices rallied, the Tel Aviv Stock Exchange experienced a resurgence of trading volume and liquidity, and there were several relatively large IPOs by Israeli companies (most notably WIX.com and Plus500). These events resulted in the addition of 18 new index constituents in the December 2013 BIGI rebalance. The BlueStar Index Advisory Committee met in November and recommended the removal of five constituents in the Energy sector due to investibilty concerns and an additional constituent was deleted due to low trading volume which resulted in a net addition of 12 companies to the BlueStar Israel Global Index. The five companies that were removed from the Energy sector are TASE-listed Limited Partnership (LP) units which have the potential for inefficiently distributing income to unit holders; since the tax consequences for U.S. investors of such distributions are unknown, the committee deemed them to be “not investible” thus their continued inclusion would violate the index’s mandate of providing investors with an “investible benchmark” of Global Israeli stocks. Partly compensating for the reduction in the weight of the Energy sector was the addition of Naphtha Israel Petroleum as well as that the cross-holding percent of Oil & Gas LPs held by non-LP constituents were added back to the investible weight factor (IWF) of the holding company.

Index Additions and Deletions Index Stats Index Additions Index Deletions Post- December Pre-December Benchmark Naphtha Israel Petroleum Isramco Negev 2 LP Rebalance Rebalance Electra (Israel) Avner Oil & Gas Ltd LP Number of Constituents 104 92 Delta-Galil Industries Protalix Biotherapeutics Inc Plus500 Ltd Delek Drilling LP Concentration Ratio 52.53% 52.72% Mivtach Shamir Hldgs Ratio Oil Exploration L.P. Index Weight on TASE* 54.29% 54.75% Matrix Givot Olam Oil Exploration L.P. Telit Communications Index Weight in the U.S.* 43.38% 43.19% Wix.com Ltd Index Weight on LN* 2.04% 1.73% Alcobra Ltd Elco Hldgs Index Weight on Warsaw* 0.29% 0.33% Perion Network Ltd ADR Data as of Dec. 23, 2013 Al-Rov (Israel) Ltd Sapiens Intl Corp *Companies attributed to any exchange on the table above may be dual-listed, dual-listed stocks comprise approximately 30% of the BlueStar Israel Global Index Property & Building Corp Attunity Ltd. Medgenics Inc FOX WIZEL LTD 3 Clal Biotechnology BIGI Sector Weights

Data as of Dec. 23, 2013 © 2014 BlueStar Global Investors, LLC These are not recommendations to buy or sell any security About the BlueStar Israel Global Technology Index 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. BIGTech 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 BIGTech 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 BIGI Preliminary Index Statistics Software 30.30% No. of Securities 50 Information Technology Services 17.55% Computers & Peripherals 11.85% Currency USD Semiconductors & Semiconductor Equipment 9.66% Max. Security Weighting 10% Communications Equipment 6.83% Biotechnology 5.45% Concentration Ratio 60.28% Health Care Equipment & Supplies 5.29% Performance Internet Software & Services 3.57% 200.87% Aerospace & Defence 3.21% (10 years ending Dec. 31, 2013) Independent Power Producers & Energy Traders 1.43% Dividend Yield n/a Electrical Equipment 1.28% Dec. 31, 2013 Hotels Restaurants & Leisure 1.14% Diversified Telecommunication Services 0.92% Primary Listing of Constituents Diversified Financial Services 0.83% New York (NYSE/NQ) US Dollar 70.26% Pharmaceuticals 0.67% Dec. 31, 2013 Tel Aviv (TASE) Israeli Shekel 23.02% London (LSE) British Pound 6.72%

Dec. 31, 2013

Index Weight as Index Weight as Company Name Ticker Exchange Company Name Ticker Exchange of Dec. 31, 2013 of Dec. 31, 2013 1 Teva Pharmaceutical Industries TEVA IT 12.13% 53 Kamada KMDA IT 0.38% 2 Perrigo Company plc PRGO UN 9.74% 54 ALLOT COMMUNICATIONS LTD ALLT UQ 0.38% 3 Check Point Software (US) CHKP UQ 7.03% 55 Rami Levi Chain Stores RMLI IT 0.37% 4 Amdocs Ltd DOX UQ 4.75% 56 Jerusalem Oil Exploration JOEL IT 0.37% 5 Bank Hapoalim BM Reg POLI IT 4.20% 57 Mazor Robotics Ltd. MZOR IT 0.36% 6 Bank Leumi Le-Israel BM LUMI IT 4.04% 58 Alon Usa Energy ALJ UN 0.36% 7 Stratasys Ltd SSYS UQ 3.70% 59 MELISRON Ltd. MLSR IT 0.35% 8 Israel Chemical Corp ICL IT 2.68% 60 AMOT Investment Ltd AMOT IT 0.35% 9 VeriFone Systems Inc PAY UN 2.24% 61 Ceva Inc CEVA UQ 0.34% 10 BEZEQ ISRAELI TELECOM CORP BEZQ IT 2.17% 62 Ituran Location & Control Ltd ITRN IT 0.33% 11 Nice Systems Ltd NICE IT 1.80% 63 Menorah Insurance Co Ltd 1 MMHD IT 0.32% 12 Delek Group Ltd DLEKG IT 1.63% 64 Nova Measuring Instruments Ltd NVMI IT 0.31% 13 VERINT SYSTEMS VRNT UQ 1.57% 65 Shufersal Ltd. SAE IT 0.31% 14 Opko Health Inc OPK UN 1.41% 66 Silicom Limited SILC UQ 0.30% 15 Israel Corp ILCO IT 1.35% 67 Evogene Ltd. EVGN IT 0.30% 16 Delek Energy Systems Ltd DLEN IT 1.30% 68 Naphtha Israel Petroleum Corp NFTA IT 0.30% 17 Mizrahi Tefahot Bank Ltd MZTF IT 1.28% 69 Cinema City International NV CCI PW 0.29% 18 Playtech PTEC LN 1.24% 70 Electra (Israel) ELTR IT 0.28% 19 MELLANOX TECH MLNX UQ 1.22% 71 Delta-Galil Industries DELT IT 0.28% 20 Israel Discount Bank 0.1 DSCT IT 1.21% 72 Oil Refineries Ltd ORL IT 0.28% 21 Taro Pharmaceutical Industries TARO UN 1.12% 73 Africa Israel Properties AFPR IT 0.27% 22 Delek US Holdings DK UN 1.07% 74 DSP Group DSPG UQ 0.27% 23 Elbit Systems Ltd ESLT IT 0.98% 75 Audiocodes Ltd AUDC UQ 0.27% 24 Imperva Inc IMPV UN 0.86% 76 Koor Industries KOR IT 0.27% 25 Gazit Globe 1982 Ltd GZT IT 0.83% 77 Plus500 Ltd PLUS LN 0.26% 26 SodaStream International Ltd SODA UQ 0.80% 78 Israel Phoenix Assurance 1 PHOE1 IT 0.26% 27 Azrieli Group AZRG IT 0.80% 79 Clicksoftware Technologies Ltd CKSW UQ 0.25% 28 Paz Oil Company Ltd PZOL IT 0.75% 80 Gilat Satellite Networks GILT IT 0.25% 29 Caesar Stone Sdot Yam Ltd CSTE UQ 0.70% 81 PLURISTEM THERAP PSTI UQ 0.25% 30 LivePerson Inc LPSN UQ 0.68% 82 Bayside LandCorp 1 BYSD IT 0.25% 31 Cellcom Israel Ltd. CEL IT 0.66% 83 Jerusalem Economic Corp (ECJ) ECJM IT 0.24% 32 Frutarom FRUT IT 0.66% 84 Africa-Israel Inv Ltd AFIL IT 0.24% 33 Partner Communications Co Ltd PTNR IT 0.64% 85 Photomedex Inc PHMD UQ 0.24% 34 Ezchip Semiconduct EZCH IT 0.63% 86 Wix.com Ltd WIX UQ 0.23% 35 Radware Ltd RDWR UQ 0.61% 87 Perion Network Ltd ADR PERI UQ 0.23% 36 Osem Investment OSEM IT 0.59% 88 Matrix MTRX IT 0.22% 37 Harel Insurance Inv Ltd 1 HARL IT 0.56% 89 Attunity Ltd. ATTU UQ 0.22% 38 Strauss Group STRS IT 0.55% 90 Telit Communications Plc TCM LN 0.22% 39 Migdal Insurance Hdlgs MGDL IT 0.52% 91 FIBI Hldgs FIBI IT 0.22% 40 Shikun & Binui Ltd. SKBN IT 0.49% 92 Discount Investment Corp DISI IT 0.22% 41 Aloni Hetz Properties ALHE IT 0.48% 93 Mivtach Shamir Hldgs Ltd MISH IT 0.22% 42 Clal Insurance Enterprises Hldgs CLIS IT 0.48% 94 Brainsway Ltd. BRIN IT 0.22% 43 Given Imaging Ltd GIVN UQ 0.46% 95 FOX WIZEL LTD FOX IT 0.21% 44 Orbotech Ltd (US) ORBK UQ 0.45% 96 Elco Hldgs ELCO IT 0.21% 45 Ormat Technologies ORA UN 0.45% 97 Alcobra Ltd ADHD UQ 0.20% 46 Syneron Medical Ltd ELOS UQ 0.43% 98 Al-Rov (Israel) Ltd ALRO IT 0.20% 47 Delek Automotive Systems Ltd DLEA IT 0.41% 99 Sapiens Intl Corp SPNS UQ 0.20% 48 First Intl Bank of Israel FTIN IT 0.41% 100 Property & Building Corp (Isrl) PTBL IT 0.19% 49 Compugen Ltd CGEN UQ 0.39% 101 Ceragon Networks [US Listing] CRNT UQ 0.18% 50 Ormat Industries ORMT IT 0.39% 102 Medgenics Inc MDGN UA 0.18% 51 NITSBA Hldgs (1995) Ltd NTBA IT 0.38% 103 Clal Biotechnology Industrie CBI IT 0.17% 52 888 Holdings Plc 888 LN 0.38% 104 Babylon Ltd. BBYL IT 0.14%

BIGI Internal Characteristics Attribution

Currency Attribution Exchange-Related Attribution

Local Attribution of Total Index Attribution of Currency Currency Weight Listed on Total Index Weight Category to BIGI Performance Performance Local Exchange(s) as of Dec. 31 2013 Performance (Q4 vs USD (Q4 to BIGI Dec. 31, 2013 2013) 2013) Performance Dual-Listed 35.16% 2.25% Israel – New Israeli Constituents Shekel 53.85% 1.90% 1.02% Non-TASE (TASE) 29.95% 2.96% Constituents US - US Dollar (NYSE, NASDAQ, 43.76% 0.00% 0.00% Non-TASE AMEX) Technology 24.06% 0.69% Constituents UK – GB Pound 2.10% 6.37% 0.13% (London)

Poland – Polish Zolty 0.29% 4.22% 0.01% (Warsaw)

Total Direct Effect of Currency Fluctuation - - 1.16% on BIGI Price Level

BlueStar Israel Global Index Constituent Attribution vs Peers

BIGI Weight BIGI Weight Q4 2013 Positive Q4 2013 Negative Relative to MSCI Relative to MSCI Company Name Relative Weight Company Name Relative Weight Israel Capped Israel Capped Attribution Attribution Index Index

Perrigo Company plc 9.74% 2.37% Teva Pharmaceutical -11.20% -0.70%

Stratasys Ltd 3.70% 1.22% Bank Hapoalim BM Reg -5.93% -0.65%

Check Point Software (US) 7.03% 0.99% Bank Leumi Le-Israel BM -4.72% -0.47% Mizrahi Tefahot Bank Ltd -1.56% -0.30% Delek US Holdings 1.07% 0.68% Given Imaging Ltd -0.44% -0.25% Amdocs Ltd 4.75% 0.60% Delek Group Ltd -1.07% -0.18% Harel Insurance Inv Ltd 1 -0.51% 0.46% Elbit Systems Ltd -1.43% -0.17% Evogene Ltd. 0.30% 0.46% SodaStream International 0.80% -0.16% VeriFone Systems Inc 2.24% 0.39% Cellcom Israel Ltd. -0.65% -0.15% LivePerson Inc 0.68% 0.39% Partner Communications -0.74% -0.12% Taro Pharmaceutical 1.12% 0.34% Industries Frutarom -0.72% -0.11%

6 © 2014 BlueStar Global Investors, LLC These are not recommendations to buy or sell any security Market Trends- Technical Analysis Measured LT Target: 360 The BlueStar Israel Global Index (BIGI) has been trending well from a technical point of view and is supportive of our fundamentally bullish view on Israeli Global Equities. Mid-Term Target 2: 285

Mid-Term Target 1 Met: 270-275

Mid-Term Support: 245-250

Long-Term Support: 195

The 2008/2009 lows connect with the lows put in during mid-2012 to form a strong channel of support, guiding BIGI higher over the past year.

Current divergence between 50 and 200 day SMA is 18.91 points, the largest difference since Nov. 2012.

Both the 50 and 200 day moving averages display a clear upward trajectory for the index. The index has remained above its 200 day moving average for nearly 57 weeks, testing it only once in mid-2013. Additionally, the 50-day moving average has remained above the 200-day moving average since crossing it in late 2012.

Due to a quick move to nearly 270 during November, it looked as if BIGI was slightly overbought as we headed into December. The index continued on its uptrend, using the 50-day average as support throughout December. Therefore we continue to caution that a pull back or consolidation may be imminent, especially as the index approaches medium-term resistance near the 280-285 level.

Mid-Term Target 2: 285

Mid-Term Target 1 Met: 275

Short-Term Target Met: 255-260 Short-Term Support: 250-255

Mid-Term Support: 235-240

TEVA 12.07(% of BIGI)

50-Day Simple Moving Average We closely follow chart patterns of the largest 200-Day Simple Moving Average BIGI constituents. These chart patterns are revealing as to the direction of the broader index as an index is simply a sum of its parts. We provide charts for the five highest-weighted companies in the BlueStar Israel Global Index. The theme of these charts is that “The Trend is Your Friend Until It Bends,” and the BIGI benchmark as well as its top five constituents are all trending higher heading into Q1 2014.

Perrigo Co. (9.72%) Check Point Software (6.87%)

Amdocs (4.78%) Bank Hapoalim (4.31%)

Sector As defined by Q4 2013 Q3 2013 Q2 2013 Q1 2013 Q4 2012 BlueStar Indexes Performance Performance Performance Performance Performance Information Technology 3.34% 3.08% 0.10% 0.95% 1.54% Financials 2.32% 2.06% -0.13% 1.13% 4.45% Health Care 1.39% 1.14% -0.09% 2.08% -1.97% Telecom Services 1.37% 1.11% -0.07% 0.41% -0.40% Industrials 0.87% 0.62% -0.03% 0.55% 0.11% Energy 0.67% 0.41% -0.85% 1.23% 2.15% Consumer Staples 0.35% 0.10% 0.25% 0.20% 0.12% Utilities 0.09% -0.16% 0.02% -0.05% -0.30% Materials -0.10% -0.35% -1.47% 0.73% -0.16% Consumer Discretionary -0.11% -0.10% 0.62% 0.38% 0.04% Information Technology The table above shows each sector’s attribution to the BlueStar Israel Global Index’s quarterly performance. Of the 32 Information Technology sector components in the BlueStar Israel Global Index, 12 had double digit gains during the fourth quarter of 2013 and four rose by 20 percent or more. Additionally, the rally in Israeli Global Information Technology stocks was broad based across industry groups. Standout performers during the quarter were LivePerson, DSPGroup, Stratasys, and Radware.

The BlueStar Israel Global Technology Index, which is the broadest benchmark for Israeli Global Technology stocks, gained 11.53% during the fourth quarter on an annualized basis, and the Nasdaq-100 index gained 12.03% while the TA-BlueTech index rose by just 3.89%. The outlook for the global technology sector, in which Israeli Global Technology companies play a critical role is quite positive for 2014: 1- recovery in non-energy Israeli exports due to increased demand for Israeli goods and services (technology plays a prominent role in Israeli exports) and a modest improvement in global economic activity 2- “value” technology stocks, such as large cap technology stocks, stocks that trade at low valuations vs book value and growth expectations, and those with higher degrees of operating leverage are poised to outperform in a cyclical upturn for the technology sector… 3- this anticipated forthcoming upturn has been indicated by the outperformance of the broader technology group over the past several years; as well as positive “indicators” in the financial results of many Israeli Global Technology companies including increasing orders backlogs and positive revenue, net income, and cash growth acceleration Health Care

The HealthCare sector has been one of the leading groups of Israeli Global Equities throughout the 2013 recovery. Similar to Israel Global Technology stocks, Israeli Global Health Care stocks are closely tied to trends in the broader global HealthCare sector. Some Israeli HealthCare companies such as Teva Pharmaceuticals and Perrigo Co. are global players but smaller and often lesser-known Israeli companies help lead innovation in the HealthCare sector not only in pharmaceuticals but in biotechnology and medical devices. As the global economy recovers, Israeli Global HealthCare companies and their stocks’ valuation are benefiting.

During the Fourth Quarter, the two greatest-gaining HealthCare components of both the BlueStar Israel Global Index and the BlueStar Israel Global Technology Index were Evogene which is a player in the agricultural-technology industry and Given Imaging which is a medical devices company. Those two companies’ stocks rose by 134% and 51%, respectively during the fourth quarter (Given Imaging announced it is being acquired by Covidien and the deal is supposed to close in March, 2014). Other leading Global Israeli HealthCare stocks during the quarter were Syneron Medical, Taro Pharmaceutical, and Mazor Robotics.

A key source of Israel’s economic resiliency and growth is its ability to tap international markets and forge economic and security agreements with foreign governments and agencies. In the fourth quarter of 2013, several such relationships developed, including:

. Israel and Russia agreed to negotiate a free trade agreement after the two economies did approximately $2 billion in trade in 2012 .Two of the world’s top-ten shipping companies are bidding in Israel’s ports tender .Toshiba plans to open its first Israeli R&D center .Ormat Technologies completed a 16 megawatt geothermal power station in Nevada

The majority of Israel’s exports are to the U.S. and European countries. Nearly 20% of Israel’s 2012 exports were to Asian countries including China, India, and Russia. While trade between the Israel other Western countries is expected to rebound, Israeli policy makers sought to strengthen trade ties or begin free trade agreement negotiations with countries in Asia and Latin America (including Russia and China) during 2013. As Israel develops stronger trade ties with these regions in 2014 and 2015, Israel’s economy will become more diversified by export destination thus adding a layer of stability and potential for growth to one of the most important sectors of the economy, the export sector. Capital Markets

TASE Equity and Convertibles Market Vitals at Dec. 31, 2013 2013 may prove to be the year of the “storm before the calm.” The dissatisfaction among TASE-listed company executives, regulators, and capital Number of Listed Market Cap (USD) Avergae Daily Companies Dec. 31, 2013/Dec. Turnover (USD market participants over a wide range of issues came to a head in 2013. The 2013/2012 31, 2012 mm) 2013/2012 main issues were: low trading volumes, net delistings from the TASE, low visibility of publicly traded Israeli securities among international investors, and 508/556 203.3/184.4 Billion 324/279 the need for more of Israel’s prominent start-up companies to retain their New Capital Number of Public Israeli identity and go public before selling out to larger international buyers. Raised (USD) Issues 2013 /2012 2013/2012 In 2013 the head of the TASE was displaced, there was a net reduction of 2.13 billion/1.06 95/66 publicly traded stocks on the TASE by 48 (including Mellanox, a former top- billion ten constituent of most Israeli Equity indexes), and many members of the capital markets voiced strong opinions on the trajectory of Israel’s capital markets and the need to revive the local exchange’s visibility abroad and trading volumes. There was a marked turn-around in the second half of 2013 as most Israeli equity benchmarks rallied strongly and trading volumes halted their slide -- average daily turnover on the TASE was 16% higher in 2013 than in 2012.

We believe that awareness amongst the regulators and executives on the issues listed above and the bill on concentration in the economy will be a profound catalyst for Israel’s economy and capital markets with long lasting consequences such as:

1- Increased transparency and reduction in moral hazards in Israel’s largest corporations 2- Pick up in mergers and acquisitions 3- Increase in late stage venture capital 4- Increased free-float of companies that were operating subsidiaries of the pyramids’ holdings companies - This will increase the free-float market capitalization of the TASE thereby increasing the weight which Israel holds in All Country, Developed market, and regional equity indexes -The increased weight will guide index fund managers toward a higher allocation to Israeli stocks in order to minimize tracking error - Also, as more of Israel’s start-up companies choose to go public, the market capitalization of Israeli Global Equities will increase and Israeli companies will attract more institutional research coverage Israel Non-Government Bond Index The appreciation of the Shekel in the first half of 2013, relatively strong economic growth and low (Jan. 2010 – Dec. 2013) unemployment have reduced credit risk in Israeli debt markets. The effect of the regulatory changes regarding Israeli corporate pyramids, which has served to reduce the risk of holding some Israeli corporate debt, is becoming more clear.

Both Standard and Poor’s and Moody’s reaffirmed their high credit ratings on Israeli government foreign currency credit with stable outlooks during Q3 2013. The resulting lower yields in government debt has permeated throughout the broader corporate and consumer credit markets.

Israel’s GDP Growth Factors Israel GDP Growth Israel vs OECD Members

GDP growth is now expected to be 3.5% in 2013 vs expectations of 3.6% in September, 2013. Forecasts for 2014 GDP growth is 3.3%, down from the 3.4% growth expected in September. At the same time the positive effect of natural gas production on GDP growth was reduced by twenty basis points. Therefore analysts and officials are expecting a modest increases in non-energy related exports as well as private consumption in 2014. A strong recovery in the “fixed capital formation” is expected in 2014 and 2015 with growth of 4.1% and 4.0%, respectively, after declining in 2013.

Fiscal Policy

Policy makers in Israel made the tough decisions necessary to improve the government’s fiscal situation throughout 2013. At the end of 2012, the Israeli government stated that its goal for the government debt-to-GDP ratio Source: OECD * Estimates as of Nov. 2013 for 2013 was 4.65%. Through a combination of tax hikes, spending cuts, and bond auctions at record low yields, the government budget deficit as a percentage of GDP for 2013 is expected to come in at 3%. Government expenditures are expected to grow at 2.4% in 2014 and just 1.5% in 2015. We think the prudence in the government’s fiscal policy today and the years Shekel-Dollar to come has lowered risk premiums in Israel’s capital markets, supported the appreciation of the Shekel, and will allow for greater flexibility by the government in future situations where it may need to stimulate the economy, spend on national defense, or spend on large infrastructure projects.

Inflation and Monetary Policy

The rate of inflation during 2013 is estimated to be 1.8% which is near the midpoint of the Bank of Israel’s target rate of 1% - 3%. Subdued domestic consumption in 2013 was offset by rising housing prices. Additionally the strength of the Shekel against the currencies of Israel’s largest trading partners has helped tame inflation. Jan. 1, 2010 - Dec. 31, 2013 The Bank of Israel lowered its policy benchmark rate from 1.75% in January 2013 to 1.00% by the end of the year. Several factors have affected the Bank of Israel’s interest policy throughout 2013: rising housing prices, relatively low inflation and inflation expectations, the strength of the shekel, easy Shekel-Euro monetary policy by the central banks of the world’s biggest economies, and a mild global economic recovery. The bank of Israel is expected to maintain its 1.00% policy rate throughout the first half of 2014 and expectations are set for at least a 25 bps increase later in the year.

New Israeli Shekel Performance

The Shekel appreciated in terms of its real and Nominal Effective Exchange Rates throughout most of 2013. While lowering Israel’s risk premium and supporting the government’s ability to meet foreign-currency debt obligations, the strong shekel has dampened export growth and export growth expectations. As the central banks of some of the world’s largest economies exit their easy money policies, upward pressure on the shekel should subside a bit. However, due to the strength of the local economy Jan. 1, 2010 - Dec. 31, 2013 and the changes occurring in Israel’s external trade balances as a result of natural gas production, Israel’s exporters (including High-Tech and Health Care) will have to get used to a stronger local currency.

The divergence between Israeli and U.S. equities over the past eighteen months or so represents the largest performance differential between the two markets in recent years, and we attribute this mostly to two factors: 1- the superior performance of U.S. equity benchmarks compared to nearly every other major Emerging and Developed equity market in the world; and 2- overblown fears of geopolitical risks in the local market during mid- to late- 2012.

The global systemic risks that increased volatility in global equity markets in the third quarter extended into much of the fourth quarter but dissipated at we headed into the final week of the year. The major events in the fourth quarter had much to do with U.S. policy and politics and the government there shut down and the federal reserve announced it would reduce the size of its monthly bond purchase program.

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