Israel Securities Authority

May 27, 2010

Mr. Yuval Steinitz Mr. Moshe Gafni, MK Minister of Finance Chairman of the Knesset Finance Committee Ministry of Finance The Knesset

Dear Sirs,

Re: Report on the Activities of the Israel Securities Authority In accordance with Section 14 of the Securities Law of 1968, I respectfully submit this report on the activities of the Israel Securities Authority (hereinafter – the “ISA") for 2009. The ISA's main challenge in 2009 was addressing the local effects of the global financial crisis which broke out in the summer of 2008. To this end, the ISA set itself two main goals: First - improving the performance of the off-bank credit market, which was the main focus of attention during the crisis. Second - to preserve public confidence in the capital market by increasing both transparency and enforcement. Below are details regarding the ISA's activities addressing the crisis, its ongoing activities, and goals for the coming year.

Ongoing activities: Highlights of ongoing capital market activity in the past year - Corporate finance - In 2009, the business sector raised NIS 2.4 billion in shares and convertible securities, of which NIS 2.3 billion were raised locally. These figures compare with NIS 3.1 billion raised in 2008. In addition, the business sector raised NIS 29 billion through the issue of bonds, as compared with NIS 16.5 billion in the previous year. Furthermore, the business sector raised NIS 970 million through the exercise of warrants, as compared with NIS 1.1 billion in the previous year. In total, the business sector raised NIS 32.7 billion in 2009, of which NIS 32.5 billion were raised locally, as compared with NIS 20.8 billion raised in 2008 (all locally). In 2009, the Government raised NIS 69 billion (gross) through the issue of bonds, as compared with NIS 53 billion in 2008. Mutual funds - The number of active mutual funds reached 1202 this year, with assets under management valued at NIS 133.2 billion, compared with 1185 funds managing assets of NIS 98.1 billion in 2008. During the year, 13 applications to hold the means of control in a fund manager were received, as well as eight applications to act as fund manager. Investment advisors and portfolio managers - In 2009, the ISA conducted 7323 individual investment advice and portfolio management licensing examinations, compared with 8957 examinations in 2008. Off-bank credit market: At the start of the financial crisis, the ISA established an internal work group to assess the insolvency rate of corporations which have raised debt from the public. According to prior estimates, it seemed that a significant part of the total debt in circulation may turn out to be bad debt which will not be repaid (in early 2009, the ISA estimated that the bad debt rate would be about 11% of the total debt in circulation). The ISA established a mechanism to simplify debt settlement procedures for reporting corporations, by providing a series of regulatory allowances. The bad debt forecasts did indeed materialize, and 48 corporations initiated debt settlement negotiations with their bondholders in 2009. The mechanism formulated and proposed by the ISA guaranteed that companies would be able to negotiate with bondholder representatives in such a manner as to allow fair recycling arrangements, while upholding bondholder rights as far as possible. In addition, a series of regulations went into effect in 2009, including new disclosure requirements aimed at increasing transparency in the off-bank credit sector, and providing bondholders with ongoing control over collateral and debt. Among other requirements, as of 2009, companies showing the warning signs defined in the regulations are required to publish cash flow reports for the next two years in order to present investors with a clear picture of their liabilities, and the manner in which they expect to meet those liabilities. Under the new disclosure requirement, companies may choose between either disclosing the above report or providing a board of directors' statement that the company will meet all its liabilities as planned. During the crisis, these reports have become a leading tool for investors to assess the condition of various companies and the latter’s ability to repay their debt. Furthermore, the ISA aims to improve the performance of bond trustees, so as to assure increased protection of bondholder rights. The ISA has increased enforcement for trustees, in order to make sure that they fulfill their lawful duties. In addition, the ISA has formulated a legislative amendment aimed at increasing trustee liability, while accordingly providing trustees with additional tools and powers. Work on this amendment is ongoing, and it is expected to be enacted in 2010. Finally, the ISA formulated a legislative amendment designed to improve the performance of reporting companies which raise debt from the public ("Bond Companies"), by increasing their requirements for implementing corporate governance codes. Work is also ongoing on this amendment, and is expected to be completed during the year. Enforcement: As aforesaid, preserving public confidence in the capital market was top priority for the ISA in 2009. This goal was achieved by enforcing statutory requirements on ISA-supervised entities. In this regard, the ISA exercised its powers by law, while acting to increase the enforcement tools at its disposal (additional details below). In civil enforcement, the ISA carried out, inter alia, audits for corporations classified as high-risk during the crisis. These include, inter alia, real estate companies and companies which may have broad effects on the local market. The ISA also exercised its power by law to impose monetary sanctions for certain violations of the Securities Law. During 2009, monetary sanctions were imposed on 23 corporations and two underwriters. In addition, the ISA conducted dozens of audits of mutual fund managers, trustees, portfolio management companies and investment advisors employed by banking corporations. Civil fines were imposed on ten fund managers, 15 portfolio management companies, and two investment advisors, who violated various statutory provisions. Monetary sanctions were also imposed on four portfolio management companies where violations of the Prohibition on Money Laundering Law were found. Enforcement also included the dismissal of a fund manager officer, transfer of fund management to another manager, suspending a license holder's license after his being indicted for severe violations of the Securities Law and revoking a company's portfolio management license as the license was given following false representations made to the ISA and following the violation of one of the license conditions. Regarding criminal enforcement, in 2009 the ISA submitted to the Securities Department at the Tel Aviv District Attorney's Office (Taxation and Economics) 26 cases after completing its investigations. At the end of the reporting year, the Investigations Department has 12 pending cases, where investigation is still ongoing. Investigations handled by the Investigations Department pertained to violations in the approval and disclosure of controlling shareholder transactions, fraudulent trading and use of inside information. In addition, an unprecedented bribery investigation has been completed. In the past year, the District Attorney's Office Securities Department filed eight indictments based on investigations submitted by the ISA. Three of these investigations concerned charges of fraudulently influencing securities prices, while the rest concerned charges of deceitful obtaining under aggravating circumstances and various reporting violations. This year, seven verdicts were issued by courts of first instance, and eight by courts of criminal appeals, of which one was issued by the Supreme Court. This year, the ISA continued to implement its policy to increase deterrence by streamlining violation investigation processes. This policy calls for shorter response times from the time the violation is uncovered and until the ISA takes action, in both civil and criminal investigations. The international scene: In 2009, financial markets and regulators around the world coped with the global economic crisis. Discussions on the effects of the crisis climaxed at the annual convention of the International Organization of Securities Commissions (IOSCO), which was held this year in Tel Aviv. The organization and hosting of this conference in Israel was the main international project led by the ISA in 2009. It coincided with the ISA's key goal in this respect - positioning the ISA internationally as a leading securities authority. The conference in Israel was the first opportunity for leading figures from securities authorities around the world to meet and discuss the ramifications of the international financial crisis. The IOSCO 2009 conference and the public convention which followed it were centers for discussion and decision-making regarding the joint efforts of the various authorities in coping with the crisis. Inter alia, the conference hosted discussions on the lessons learned from the economic crisis, improving the function of securities authorities in an ever-changing environment, the effects of the global economic crisis on emerging economies, as well as corporate governance and risk management. The conference attracted leading and influential figures from the international financial scene to Israel, and provided an unprecedented opportunity to showcase the positive aspects of the Israeli economy and the local capital market. The conference proved a resounding success and significantly contributed to the ISA's international position. Furthermore, the ISA actively participated in the efforts to grant Israel entry into the OECD. The ISA led Israel's efforts in working with the OECD Steering Group on Corporate Governance. This hearing led to the steering committee lavishing praise on Israel for its compliance with the standards prescribed by the OECD. The ISA also represented Israel in hearings held before the OECD Committee on Financial Markets, its Investment Committee, and the Working Group on Bribery in International Business Transactions. All hearings were declared a uccess s and contributed to the OECD's decision to invite Israel to join as a member in 2010. Reinforcing the Infrastructure for the ISA's Activities - Objectives for 2010: In the coming year, the ISA intends to focus on establishing updated legislative foundations for improving its enforcement activities, so as to enhance and reinforce proper conduct in the capital market. To this end, the ISA is working on three projects: 1. The establishment of an Economic Section in the Tel Aviv District Court - Under this initiative, promoted in cooperation with the President of the Supreme Court, the Minister of Justice, and the Courts Administration, the Courts Administration shall allocate designated judges in the Tel Aviv District Court to economic cases. The Economic Section will deal with the Companies Law and Securities Law, as well as with matters concerning the Joint Investment in Trust Law and the Investment Advice and Portfolio Management Law. Furthermore, the Section will handle derivative class actions. The Section will handle both civil and criminal cases. The Knesset is expected to enact the law in 2010. 2. Complementary enforcement - The Streamlining of ISA Enforcement Procedures Bill proposes an administrative alternative for violations of the Securities Law. Until now, these violations were only addressed through the filing of criminal indictments. The ISA will establish an administrative enforcement committee, which will be authorized to impose various sanctions, such as significant fines and restrictions on violators' business. The administrative enforcement committee's decisions will be appealable to the District Court. The bill is expected to improve and diversify the enforcement options given the ISA, and to significantly contribute to reinforcing proper conduct norms for players on the capital market, to the benefit of investors. 3. Administrative rule making - According to this proposal, the ISA will be authorized to issue directives applicable to all supervised entities. These directives will cover issues and matters currently regulated under the ISA's three constituent laws: The Securities Law of 1968; the Joint Investment in Trust Law of 1994; and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law of 1995. These powers will be similar to those currently held by other regulators in Israel and abroad. An exposure draft of the bill was published and distributed in May 2010. Today, the ISA's activities are the focus of much attention and discussion. Thus, for example, the above complementary enforcement bill is currently the subject of public debate on the powers granted the ISA and the level of control over these powers. This public debate is both legitimate and desirable. However, it should be emphasized that 2009 proved that the ISA's responsibility to protect capital market investors is not merely theoretical. The past year presented the ISA with challenges in carrying out this responsibility. I believe that the ISA has met these challenges, as evidenced by the stability and endurance of the Israeli capital market. In contrast to other markets, we did not experience financial collapses which took investors by urprise. s The level of transparency on the market enabled investors and companies to prepare for and deal with crises, without experiencing surprises. This goal was achieved through the ISA's emphasis on unwavering enforcement of the fair disclosure principle, especially in a time of crisis. However, there is no doubt that as the sophistication of global markets and local players increases, the tools available to the ISA must be updated in order to enable it fulfill its lawful duties. The ISA constantly works to develop and update these tools. In this way, the ISA will be able to meet the significant challenges it faces. The results of the ISA's initiatives and responses is apparent, and will continue to be apparent in the future, to the benefit of investors in the capital market in Israel.

Respectfully,

Zohar Goshen

ISA

Israel Securities Authority

Annual Report 2009

Table of Contents

I. Functions of the ISA 1 II. The ISA and its Employees 2 III. ISA Departments 5 IV. Corporate Finance Department 13 Department activities - general 13 Transparency - corporate reporting 13 Prospectuses and private allocations 18 Transactions with a controlling shareholder 23 Purchase offers 24 Bond settlement agreements and bond trustees 25 Directive pursuant to section 36a(b) of the Securities law - 26 disclosure requirements for debt settlement agreements Ongoing processing of debt settlement agreements 27 Termination of reporting requirements 28 Regulation 31 The global credit crisis and the off-bank credit crunch in Israel 31 Regulation of financial reporting 33 Pre-rulings 35 Staff and plenum bulletins (SLBs, SABs) 36 Extensions and exemption applications 39 Annual conference - Corporate Finance Department 41 Dual listing 41 Audits under section 56f of the securities law 42 Notices to companies 42 Underwriter reports 43 Enforcement – monetary sanctions 50 Financial instruments 50 Expanding disclosure requirements and increasing 52 transparency Ongoing work with financial instrument companies during 53 the reporting year V. Investment Department 54 A. Mutual Funds 54 continued on next page…

Table of Contents - continued 1. General 54 2. Permits to hold means of control in fund 55 managers and licensing of fund managers and trustees 3. Prospectuses 55 4. Reports 56 5. Fund manager participation in general meetings 57 6. Onsite audits of mutual fund managers 57 7. Supervision of mutual fund trustees 58 8. Regulation Activities 58 9. Enforcement measures concerning fund managers 60 B. Investment Advisors, Investment Marketing Agents and 65 Investment Portfolio Managers 1. General 65 2. Licensing 67 3. Supervision 70 4. Regulation activities 74 5. Enforcement activities concerning licensees 76 VI. Department of Supervision over the Secondary Market 83 1. Supervision of trading on the Stock Exchange 83 2. Supervision of the Stock Exchange clearing houses 83 3. Supervision of the Stock Exchange Members Department 83 and the Stock Exchange 4. Nostro account trading floors 83 5. Stock Exchange rule making activities 84 VII. Legal Counsel 87 1. Primary and secondary legislation passed or approved in 88 2009 2. Proposed legislation and secondary legislation 94 3. Directives in accordance with Section 36A of the 108 Securities Law 4. Judicial proceedings involving the ISA 111 VIII Criminal Enforcement 114 1. Criminal indictments 114 2. Criminal verdicts in trial court 124 continued on next page… Table of Contents - continued 3. Verdicts in criminal appeals 126 IX. Investigations and Intelligence Department 128 X. Research, Development and Economic & Strategic 134 Counseling Department 1. Strategic counseling 134 2. Economic counseling 134 3. Joint Team for Assessing Insolvency in the Corporate 134 Bond Market 4. Cooperation with the Milken Institute and the Koret 134 Foundation 5. Research conducted during the reporting year 135 6. Supervision of the secondary market and the Stock 135 Exchange 7. Research cooperation between the ISA and academic 135 institution 8. Managing the system for identification of irregular 135 securities trading activity XI. Class Action Lawsuits 137 1. Financing of class action lawsuits in 2009 137 2. Class action lawsuits completed during the year 138 3. Pending class action lawsuits 139 XII. International Affairs Department 142 1. General 142 2. Harmonization of securities laws 142 3. Cooperation on enforcement and exchange of 148 information 4. The ISA’s English website 149 XIII. Information Systems Department 150 1. Electronic Reporting - MAGNA 150 2. Document archiving and automated office 153 3. Operational system 154 4. The ISA website 155 5. Central Information System (CIS) – AMIGO 156 6. Computing for the Investigations Department 156 7. Forms and payments system 156 8. Digital vaults (reversed MAGNA) - YAEL 157 9. ERP system for treasury 157 continued on next page…

Table of Contents - continued 10. BI irregular trading system 157 11. Knowledge management 159 12. Vehicle fleet management system 159 13. IOSCO 2009 159 14. Infrastructure: servers, communications, and 160 information security XIV. Public Affairs 161 1. Inquiries from the public 161 2. Report of the Director for Application of the Freedom 161 of Information Law of 1998 3. Contact Details 162 XV. Investor Education 163

Appendices a. Budget for 2009 165 b. Approved budget for 2010 168

Tables Table 1 - Periodic Reports - Delinquent Filing 16 Table 2 - Interim Financial Statements - Delinquent Filing 17 Table 3 - Capital raised and allocations through shares, convertible 19 securities and bonds, 2008-2009 (NIS millions, in current prices) Table 4 - No. of applications for permits to publish prospectuses vs. 20 permits granted in 2004-2008 Table 5 - Extension applications, 2005-2009 40 Table 6 - Violations for which monetary sanctions were imposed in 44 200 Table 7 - No. of mutual funds and value of assets under 54 management, 2005-2009 Table 8 - Participation of fund managers in general meetings called 57 to approve decisions requiring their participation and voting Table 9 - Violations for which fines were imposed in 2009, including 61 sections violated and fine amounts Table 10 - Licenses granted to individuals - portfolio managers, 66 investment advisors and investment marketing agent

Table 11 - No. of applicants added each year 66 continued on next page… Table of Contents - continued Table 12 - Exam success rates in 2009 68 Table 13 - Violations for which fines were imposed in 2009 and fine 78 amounts Table 14 - Violations for which monetary sanctions were imposed in 81 2009 and the amounts of these sanctions Table 15 - Cases forwarded to the Department of Investigations in 129 the past five years, by type of violation Table 16 - Cases where it was decided whether there was sufficient 130 or insufficient prima facie evidence that a violation has been committed in the past five years Table 17 - Distribution of cases forwarded to the District Attorney's 130 Office in the past five years, by type of violation Table 18 - Distribution of investigation cases in the past five years, by 131 primary violation Table 19 - Status of indictments at the District Attorney’s Office at 132 the end of 2009 pending a decision whether to prosecute, by year submitted Table 20 - Status of the investigation cases at the State Attorney’s 133 Office as of 2009 year end pending indictment decisions, by type of violation

Charts Chart 1 - No. of mutual funds, 2005-2009 65 Chart 2 - Value of fund assets, 2005-2009 65 Chart 3 - Total value of assets under management by portfolio 67 management companies, 2004-2009 Chart 4 - Licensing examinees (by exam units), 2004-2009 68 Chart 5 - Processing of exemption applications, 2005-2009 69 Chart 6 - Processing of internship applications, 2004-2009 69

I Functions of the ISA The Israel Securities Authority (ISA) was established under the Securities Law of 1968 (hereinafter – the "Securities Law"), and its function, as stated in the Law, is to protect the interests of the investing public. Within the framework of its mandate the ISA handles, inter alia, the following issues: 1. Granting permits to publish prospectuses in which companies offer securities to the public, and prospectuses in which mutual funds offer units to the public; 2. Reviewing the following reports filed by reporting entities: a. Immediate current reports, quarterly and periodic financial statements; b. Reports on transactions between a company and controlling shareholders therein; c. Reports on private offerings by companies; d. Purchase offers specifications; e. Mutual funds' current reports; 3. Regulating and supervising the activities of the mutual fund sector; 4. Licensing portfolio managers, investment advisors and investment marketing entities, regulating their activity and supervising them; 5. Ensuring the compliance of portfolio managers and non-banking members of the Tel Aviv Stock Exchange (hereinafter – the “Stock Exchange”) with the Prohibition on Money Laundering Law of 2000. 6. Ensuring the proper and fair activity of the Stock Exchange 7. Conducting investigations regarding violations under the Securities Law, the Joint Investment in Trust Law of 1994 (hereinafter – the "Joint Investment Law"), the Regulation of Investment Advice and Investment Portfolio Management Law of 1995 (hereinafter - "Investment Advice Law"] and violations of other laws where related to violations of the aforesaid laws; 8. The ISA collaborates with the Institute of Certified Public Accountants in Israel in financing and operating the activity of the Israel Accounting Standards Board. In accordance with the Securities Law, the Chairman of the ISA and its members are appointed by the Minister of Finance. Some of the members are appointed from among the public while others are civil servants; one of them is an employee of the Bank of Israel. The ISA employs accountants, lawyers, economists and administrative employees.

II The ISA and its Employees

As of the end of December 2009, the members of the ISA Plenum were as follows: Prof. Zohar Goshen, Chairman; Prof. Zvi Eckstein; Mr. Haj Ihiya Hani, CPA; Mr. Yaheli Cahanov, Adv.; Ms. Dvora Hen, Adv.; Dr. Shai Pilpel; Ms. Orli Yarkoni; Dr. Eti Einhorn

The ISA Plenum usually convenes once a month. The ISA Plenum also deals, through the ISA’s committees, with granting applications for permission to publish prospectuses; granting exemptions and extensions; stock exchange issues; issues relating to the ISA’s finances and budget; the independence of auditors of companies subject to the Securities Law; issues relating to the licensing of investment advisors, investment marketers, and investment portfolio managers; issues relating to the imposition of civil fines on mutual fund managers, as well as other issues, as needed. In 2009, the ISA Plenum held eight meetings; the committee issuing permits for the publication of prospectuses held 56 meetings; the committee issuing exemptions - 26 meetings; the committee for stock exchange issues - seven meetings; the Finance Committee – one meeting; the committee for imposing fines as per class action suits – three meetings; the committee for licensing under Section 12a of the Joint Investment in Trust Law (hereinafter – the “Licensing Committee”) held three meetings; the committee for imposing civil fines under the Regulation of Investment Advice and Investment Portfolio Management Law of 1995 (hereinafter – the “Investment Advice Law”) held five meetings; a committee authorized to discuss the imposition of civil fines under the Securities Law held two meetings; the Auditing Committee – five meetings; the Tenders Committee - 12 meetings.

As of the end of December 2009, the ISA’s senior employees were as follows:

The ISA’s Chief Legal Counsel; - Mr. Shimshon Albek, Adv. Senior Advisor to the Chairman and Head of the - Ms. Yael Almog, Adv. Department of International Affairs Head of the Investigations and Intelligence - Mr. Nir Bar-On, Adv. Department Head of the Enforcement Department; - Dr. Tzvi Gabai Secretary General; - Mr. Aviezer Dannon

Head of the Securities Department at the Tel Aviv - Ms. Orli Doron, Adv. District Attorney's Office (Taxation and Economy) Head of the Economic Department - Dr. Gitit Gur-Gershgoren Head of the Information Systems Department - Mr. Natan Hershkovitz Head of the Corporate Finance Department - Moshe Bareket Head of the Investment Department - Mr. Dudu Lavi ISA Spokesman and Head of the Investor - Mr. Ori Katzir Education Unit Head of Department of Supervision over the - Mr. Ronen Madar, CPA Secondary Market

As of the end of December, 2009, 180 positions were filled, as well as eight legal intern positions and ten student positions, as follows:

Chairman’s Office - 3 positions; Legal Counsel - 5.7 positions; Department of International Affairs - 3.5 positions; Corporate Finance Department - 42.25 positions; Investment Department - 31.75 positions; Enforcement Department1 - 23 positions; Investigations and Intelligence Department - 32.83 positions; Research, Development and Economic and - 4.75 positions; Strategic Counseling Department Information Systems Department - 6 positions; Department of Supervision over the Secondary - 7 positions; Market Secretarial, Administrative, Finance and Human - 18.7 positions; Resources Investor Education Unit - 1.5 positions; Interns - 8 positions; Students - 10 positions;

The maximum number of approved positions as of the end of December 2009 stood at 181, in addition to eight intern positions and ten student positions. The approved positions include lawyers who are employed by he t ISA for the purpose of assisting the office of District Attorney in carrying out its roles in matters

1 Including attorneys employed by the ISA.

3 relating to the Israel Securities Authority. For this purpose, the ISA funds 15 lawyers and five interns in various offices of the District Attorney. The budget of the ISA is funded by annual fees payable by companies that are subject to the Securities Law and the Joint Investment Law; by fees payable for applications to receive permits to publish prospectuses and private offerings; by licensing fees payable by investment advisors and investment portfolio managers, and by fees payable by the Tel Aviv Stock Exchange. The budget is approved by the Minister of Finance and the Finance Committee of the Knesset.

III ISA Departments Secretary General The Secretary General of the SA I is responsible for the Organization’s ongoing operations, for follow-up on the implementation of policies set forth by the Chairman in the ISA’s various areas of activity, as well as for integration and coordination between the various departments The Secretary General oversees the implementation of work plans by the ISA’s departments and spearheads special assignments In addition, by power of personal appointment, the Secretary General serves as Head of Intelligence at the ISA. The Secretary General’s purviews include, inter alia: financials and accounting, including the ISA’s annual financial reporting; financial management; managing the fee collection system; managing the ISA’s tenders; drafting the annual budget and handling its approval process with the Ministry of Finance and the Knesset Finance Committee, as well as supervising the implementation thereof In addition, within the Secretary General’s purview are the Department of Human Resources, including positions, salaries, employment contracts, staffing, promotions, and professional training. Enforcement Department The Department is charged with promoting and improving the Israel Securities Authority’s enforcement powers and capabilities, as well as with overseeing, assisting and coordinating enforcement efforts with the ISA and vis a vis fellow enforcement agencies. Within this framework, the Department engages in legal guidance of the Investigations Department; coordinates between the ISA departments on matters requiring enforcement; acts as a liaison between the ISA and the District Attorney regarding investigations and indictments; assists with criminal proceedings throughout the entire process; and provides assistance in other proceedings which the ISA is party to, handled by the Tel Aviv District Attorney (civil cases) or State Attorney . In addition, Department personnel take part in meetings regarding enforcement legislation — mainly criminal enforcement — both at the Ministry of Justice and at the Knesset; participate in various economic enforcement forums along with other agencies investigating economic violations in order to discuss common issues and solve common problems. The Enforcement Department assists securities authorities abroad by providing them with information, insofar as possible as per the laws of the State of Israel The ISA regards class action lawsuits as an inextricable component of enforcement in the capital market. In this respect, the Department is charged with formulating recommendations to the ISA Plenum regarding applications to finance such lawsuits as well as private expenditures relating thereto; monitoring lawsuit proceedings and deciding whether to involve the State Attorney in cases that have ramifications on the efficacy of the class action mechanism and on the public's trust in the capital market.

International Affairs Department The Department implements the ISA’s strategy to integrate Israel’s capital market into global markets and, particularly, to enhance the Organization’s cooperation with other securities regulators. The Department handles all international facets of the ISA’s work. It serves as a liaison with foreign bodies and securities authorities, including signing memoranda of understanding for cooperation with those authorities. Investor Education Unit In order for the ISA to effectively perform its function as guardian of the investing public, it was deemed necessary to raise the investing public’s awareness of its rights and obligations when purchasing financial services and products in the capital market. For this purpose, the ISA established a unit responsible for initiating lectures, issuing written material and distributing information regarding the intelligent consumption of financial products. In addition, the ISA and the Stock Exchange have set up a specialized website http://www.kesef.org.il, where investors can find information that may assist them in understanding their rights as consumers and the significance of the investment advising process Investigations and Intelligence Department During 2009, the ISA implemented a reorganization, in which the Investigations Department and the Research Department were merged into a single department entitled the Investigations and Intelligence Department. The Investigations and Intelligence Department is charged with collecting information, analyzing and assessing it in cooperation with the ISA’s regulatory departments, in order to determine whether there is a prima facie suspicion of a violation of the laws that the ISA is charged with enforcing, and in order to identify the parties allegedly involved in such violations. The Department gathers information regarding the capital market from various sources. The information is examined, analyzed and evaluated. After examining the scope, nature and analysis of the information and determining the existence of a prima facie violation of the provisions of laws the ISA is charged with enforcing under the Securities Law, the Israel Securities Authority’s Chairman may decide to initiate an investigation . Following such a decision by the ISA’s Chairman, which is based – as aforesaid – on information gathered by the Department, the Investigations and Intelligence Department initiates overt investigations. The findings of such investigations are conveyed to the Tel Aviv District Attorney’s Office (Taxation and Economy) for further handling. Legal Counsel The Legal Counsel Department is charged with all legal facets of the ISA’s activity and is headed by the Chief Legal Counsel. The Department’s attorneys are teamed up with the ISA’s various departments, closely assisting in the ISA’s ongoing activities

6 and drafting regulation proposals which the ISA is charged with by way of initiating, drafting and promoting legislative reforms, while cooperating with the various departments and working closely with public sector entities, government ministries and the Knesset for the purpose of facilitating legislative processes. As part of their work in the ISA’s departments, the Department’s attorneys review prospectuses and financial statements of companies and mutual funds, handle various aspects of immediate reports according to the Securities Regulations, inter alia, examining conflict of interests issues, private offerings and purchase offers. In addition, the ISA’s attorneys take part in regulating the Stock Exchange’s activity as well as in supervising and regulating the activity of investment advisors and investment portfolio managers. The attorneys also take part in the advisory process conducted by government authorities in cooperation with the ISA in areas where such a process is required by law. In addition, the Department provides legal counseling in all matters related to the ISA’s work, including litigation services for the ISA regarding certain issues and assisting in civil proceedings handled by the State Attorney or other bodies where the ISA is a party. Research, Development and Economic and Strategic Counseling Department The Economic Department’s role is to extend strategic counseling and guidance to the Chairman of the ISA and to the Organization’s various departments .The Department monitors economic developments and trends in capital markets in Israel and abroad on an ongoing basis. It gathers economic data and information, so as to ensure that the ISA’s strategic policies are in line with the developments, changes and risks which arise in international capital markets and which reflect on the local capital market. The Department takes part in work teams responsible for various issues, such as: Leading the team for the assessment of insolvency in the corporate bond market and taking part in the ISA’s enforcement forum, in the team charged with examining offerings of venture capital funds, in the ISA's team handling financial brokers, as well as in the team handling knowledge management. The Department extended assistance to the Corporate Finance Department, the Investment Advisors Unit, the Investigations Department and the State Attorney’s Office in matters related to trading on the Stock Exchange and the manner in which capital markets operate. It also assisted the International Affairs Department in updating information for international organizations. In addition, the Department works closely with the Supervision over the Secondary Market Department in matters related to the monitoring and supervision of trading. The Department is also charged with the development and maintenance of databases and computerized indices related to trading in securities, which are used by the ISA for continuous monitoring activity and empirical assessment of the possible ramifications of ISA’s decisions or various events on the Stock Exchange. The Department is responsible for the development, operation, and supervision of the computerized system designed to detect irregular activities in securities trading, and monitors the system on an ongoing basis in order to ensure its effectiveness and compatibility with new financial instruments, new trading technologies and sophisticated trading methods employed by investors. In addition, one of the

Department's most significant tasks is applied research, which focuses on the analysis of developments in the capital market in general and the Stock Exchange in particular. The research work is used, inter alia, to supervise the capital market and occasionally forms a basis for legislative initiatives in the area of the capital markets and supervision thereof. The research is related to a number of capital markets issues and focuses mainly on matters related to the ISA’s areas of activity and its objectives. Supervision over the Secondary Market Department The Department coordinates the ISA’s supervision and control over the proper and fair management of the Tel Aviv Stock Exchange and trading herein. t The Department's responsibilities include: 1. Monitoring trading on the Stock Exchange The Department follows trading on and off the Stock Exchange on a regular basis, systematically, in order to detect irregular activities in securities. The monitoring of the trading activity on the Exchange is implemented through computerized monitoring systems as well as other systems which have been developed by the ISA. 2. Supervision of the Stock Exchange clearing houses The Departments supervises the Stock Exchange’s clearing houses on an ongoing basis, in order to ensure their stability and efficacy. The Department examines the clearing houses’ compliance with applicable international requirements and obligations. In order to ensure the proper and fair operation of the Stock Exchange clearing houses, the Department's representatives maintain an ongoing rapport with the Stock Exchange’s management. 3. Supervision of the Members of Stock Exchange Department and the Stock Exchange The Department ascertains that the supervision of the Stock Exchange over its members’ activities focuses on material issues, using appropriate auditing methods and tools, in order to minimize failures and risks embodied in the activities of Exchange members, while focusing on issues related to fair and proper conduct towards their clients. 4. Stock Exchange Standards The Department’s representatives serve as observers on the Stock Exchange’s Board of Directors as well as on the clearing houses’ boards of directors. Following the approval of amendments to the rules on the ISA Committee, the Department’s representatives continue to support the process until it is approved by the Finance Committee. Investments Department The Investments Department is in charge of the licensing, supervision, and regulation of various kinds of investment intermediaries, which include mutual fund

8 managers, mutual fund trustees, investment portfolio managers, investment advisors and investment marketers.1 The Department’s work is subject to the provisions of the Joint Investment in Trust Law (hereinafter – the “Mutual Funds Law”, the Investment Advice Law and the Prohibition on Money Laundering Law (hereinafter – the “Prohibition on Money Laundering Law”). The Department’s headquarters include, inter alia, the Department’s legal counsel and functional units as follows: 1. Licensing Division The Licensing Division processes applications for permits to hold means of control in fund managers, handles the licensing of trust fund managers and of investment intermediaries, both individuals and companies, including administering licensing examinations, processing exemption applications, and registering interns. The Division also processes suspensions and revocations of licenses, either voluntary or enforced by the ISA. Following the Bachar Reform, the ISA conducts examinations and reviews exemption applications of pension advisor license candidates, pension marketing agent candidates and insurance agent candidates on behalf of the Capital Markets Division at the Ministry of Finance 2. Supervision of Mutual Funds Division The Division supervises fund managers’ and fund trustees’ compliance with the Mutual Funds’ Law on an ongoing basis; reviews fund prospectuses submitted to the ISA to obtain publication approvals; reviews immediate reports submitted by fund managers and their trustees; develops and operates computerized warning systems to identify violations of the Mutual Funds Law and determines if the funds’ returns are reasonable; enforces applicable requirements by imposing civil fines for violations of Mutual Funds Law and publishes bulletins on issues related to mutual funds. 3. Supervision of Licensees Division The Division engages in the ongoing supervision of the compliance of investment portfolio managers, investment advisors and investment marketers with the provisions of the Investment Advice Law; conducts onsite inspections and audits by correspondence in order to examine the compliance of investment portfolio managers, investment advisors and investment marketers with the requirements of the Investment Advice Law; handles public complaints regarding licensees; enforces the Investment Advice Law and Prohibition on Money Laundering Law by imposing civil fines for violations thereof on investment portfolio managers and non-banking members of the Stock Exchange and publishes bulletins on issues relating to licensees.

1 As of February 2010, the Department is also charged with the ILNs, deposit certificates, commodity certificates, composite certificates, contract certificate and other index- linked products (financial instruments). The Department, through its Financial Instruments Unit, in charged with regulating this field. 9

4. Auditing Division The Division conducts various forms of audits for the Department’s divisions. On-site audits are usually conducted by auditors who are not ISA employees but have been authorized by the ISA to conduct such audits. The audits are carried out under the close supervision and guidance of the Auditing Division staff. In addition, the Division’s staff conducts broad audits, usually conducted by means of questionnaires addressed to a group of regulated entities with certain characteristics, in order to examine a specific issue by cross section; conducts financial audits to ensure that fund managers, fund trustees and portfolio managers are in compliance with capital adequacy and insurance requirements; and examine mutual funds' inancial f statements, including the handling of accounting issues which arise as a result of such examinations; conducts audits regarding securities transactions carried out by regulated entities, including inquiring into securities trading activity on the Stock Exchange by such entities. 5. Information Systems Department The roles of the Department include the development and maintenance of the ISA’s data systems and computing and communications infrastructures, so as to enable the Organization’s management and staff to perform their duties according to the approved annual work plans. The Department takes part in setting forth the ISA’s computing strategy and implements it. In some cases, the Department acts in response to requests from other departments, and in others - by virtue of its knowledge of other departments - identifies needs and provides computerized solutions thereto. The Department is responsible for developing and maintaining the following IT systems: the computerized archive system; electronic mail; task appointment, calendars and contact management; the ISA website; the investigations management system ("AGATHA"), used by the Enforcement Department; the electronic reporting system ("MAGNA"), used by all reporting entities, the general public and the ISA staff; the operational system, which includes most of the information on various subjects handled by the ISA, including data regarding corporations, mutual funds, investment advisors and portfolio managers, trading data, trading supervision, data used for economic research and accounting; a business intelligence (BI) system for identifying irregular trading activity; the YAEL secured email system; and additional dedicated systems. The Department also handles infrastructure hardware and software: purchase and maintenance of personal computers and relevant off the shelf software; purchase and maintenance of servers; internal communications network and external communication lines, including lines to Internet providers and a line connecting the Jerusalem and Tel Aviv offices, which allows full sharing of information between the two sites; information security for all systems; telephone ommunications, c telephone lines and switchboards; maintenance and servicing of printers; supply and installation of consumables of all kinds, etc. The Department includes six ISA employees; some of its activity is outsourced.

Corporate Finance Department The Corporate Finance Department serves as the civil supervisory arm of the Securities Law. Thus, the Department supervises companies traded on the Tel Aviv Stock Exchange as well as other companies which have offered securities to the Israeli public (hereinafter – the “reporting corporations”). Accordingly, the Department is responsible for regulating disclosures under the Securities Law; for ensuring the proper implementation of generally accepted accounting principles (GAAP) in financial statements; for initiating disclosures where required by changes in circumstances; for the administrative enforcement of the Law according to the powers bestowed on the ISA; and for the implementation of corporate governance provisions insofar as their violation pertains to the Securities’ Law disclosure provisions. The Department’s staff includes accountants and attorneys who mainly engage in:  Corporations’ reports - the Department is responsible for monitoring corporations’ current reports, including immediate reports, interim financial statements as well as annual financial statements. The monitoring includes the assessment and review of reports with an emphasis on the fairness of disclosure; compliance with the provisions of the Law and regulations; enforcement of GAAP; and examination of the legal, accounting, and economic aspects involved therein. The Department’s staff is charged with handling complex, often interrelated, legal and accounting issues and with locating market failures that require the ISA’s intervention. Special effort is devoted to preventative action based on intelligence, with close cooperation with the ISA’s Intelligence Department.  Authorizing the issue of prospectuses - the Department is also engaged in reviewing and authorizing prospectuses of corporations and entities offering securities to the public, in order to ascertain fair disclosure and lawful implementation of accounting principles.  Reporting transactions subject to holders’ approval - reports on transactions with controlling shareholders, private allocations and purchase offers, as well as debt settlement agreements and merger reports. As part of dealing with these reports, the Department’s staff handles complex valuations and examines the economic models underlying the reports, the level of disclosure, the assumptions underlying the valuations and reasonableness thereof, and is constantly on guard to ensure fair disclosure.  Corporate governance – the ISA’s staff examines compliance with corporate governance principles in connection to activities or transactions that require disclosure by law.  Initiating disclosure requirements – the Department initiates legislation and secondary legislation in the areas of securities and financial reporting and sees them through, in cooperation with other ISA departments, mainly the

Legal Counsel Department, which is charged with drafting legislation proposals.  Supporting civil proceedings to which the ISA is a party and which are handled by the State Attorney’s Office or other authorities.  As part of its services to the reporting community, the Department enables reporting entities and their accountants and lawyers to request pre rulings, according to the procedure outlined on the ISA’s website. The purpose of these requests is to obtain information regarding the Department’s stance prior to applying specific accounting or legal treatments to disclosures, accounting principles and corporate governance. The Department posts, on the ISA website, accounting and legal decisions handed down by the ISA's staff which are of fundamental significance to the investing public and reporting entities, so as to enhance transparency and decrease uncertainty among reporting corporations.

IV Corporate Finance Department DEPARTMENT ACTIVITIES - GENERAL The Department's main role is the civil regulation of the Securities Law. This function entails numerous responsibilities, including enforcing transparency in the capital market by way of examining the various corporate reports for proper disclosure, and examining proper accounting practice. In addition, the Department grants permits for the issue of prospectuses, conducts in-depth audits (under Section 56F), examines the application of corporate governance provisions as far as these affect reporting corporations' positions and disclosure requirements, and imposes monetary sanctions when necessary. The Department employs accountants and lawyers, the majority of whom serve as points of contact (POCs) for the reporting corporations. The entire Department staff is charged with professional responsibilities - in an either legal or accounting capacity. Each reporting corporation is handled by a point of contact as regards the reporting requirements prescribed under the Securities Law.

TRANSPARENCY - CORPORATE REPORTING Financial and immediate reports Corporations whose securities are have been offered to the public under a prospectus are required to file reports from the time, as long as the public holds such securities. These requirements include the filing of immediate reports as well as periodic and quarterly statements. As part of the ISA's monitoring of these reports, the Department is responsible for continuously sampling reports filed by corporations subject to the Securities Law, using a variety of different methods. In sampling reports, the Department examines their compliance with the Securities Law and Regulations, and with Israeli GAAP, so as to realize the fair disclosure principle. If necessary, corporations are instructed to amend their reports, while - in other cases - corporations are instructed to clarify reports, supplement information and/or disclose additional nformation i to the public. When a violation of the Law is found, the ISA may impose a monetary sanction on the violating company. If the ISA suspects that the violation was due to criminal motives, the matter is submitted to the ISA's Investigations Department, following a hearing. In 2009, the Department continued its review of financial statements and other reports filed by reporting corporations, with special emphasis on the application of International Financial Reporting Standards (hereinafter - "IFRS"). It should be noted that the 2008 annual financial reports were the first to be prepared in accordance with IFRS.

The Department also places special emphasis on disclosures regarding reporting corporations' financial position, as part of debt settlements carried out by various corporations. Under the Department's point of contact (POC) model, the companies' POCs regularly review their reports, using their specific familiarity with each corporation and its particular events. Furthermore, economic and intelligence information systems have been integrated into the process of reviewing financial statements. Thus, reviews employ a broader perspective, which takes into account, inter alia, the company's commitments, the identity of the various parties in the company, the economic market indicators, sectorial developments, as well as sophisticated economic models for analyzing the financial position of reporting corporations. As every year, the ISA published on its website the accounting and legal decisions adopted by its staff which are of principle interest to investors and reporting corporations. These publications were made under a variety of formats, including the publication of pre-ruling directives, enforcement decisions, FAQs (Frequently Asked Questions) and SLBs (Staff Legal Bulletins), as well as clarifications. Thus, the ISA seeks to increase transparency and minimize uncertainty among reporting corporations. Due to the Department's great emphasis on maintaining a high professional level in both legal and accounting matters, the Department staff implements an ongoing and extensive training program. The program keeps staff up to date on legal developments, including legislation updates, case law developments, legal positions, etc., and on accounting developments, including accounting standards updates, IFRS- related decisions adopted by foreign regulators, etc. The ISA's strategy when reviewing financial statements and immediate reports takes into account recent economic developments and developments pertaining to accounting standards. In applying this strategy, this year the Department staff implemented a process for identifying events embodying broad risks, especially in issues related to initial adoption of IFRS and the global economic crisis, as well as the Israeli crisis. This year, the review of financial statements revealed that some reporting corporations failed to adequately comply with the fair disclosure principle and implement generally accepted accounting and reporting principles. The main issues which were improperly handled were: Conducting fair value valuations and attaching material valuations; impairment testing; presentation and measurement of compound financial instruments, hedges, etc.; market risks and market risks management; accounting for financial instruments and associated disclosures, including reclassification; accounting for investments and consolidation of financial statements; impairment of assets and their presentation in an amount not exceeding their recoverable value; transactions with interested parties and controlling shareholders; timely filing of immediate reports; etc. In addition, in conducting its reviews this year, the Department staff placed greater emphasis on the appropriateness of the going concern assumption on which 14

financial statements were based in companies which showed warning signs regarding their financial position. The staff also examined disclosures in board of directors' reports regarding changes in the economic environment (including exchange rate fluctuations of foreign currencies vs. the NIS, changes in commodity prices, inflation rate increases in Israel, etc.) and the effects of the capital market crisis on reporting corporations. These examinations were made following notices on these matters published in July and October 2008. The Department also examined the implementation of the disclosure directives issued by the ISA, including those regarding the approval procedures for financial statements, corporations' liabilities status, and disclosure of the expected cash flows for repayment of reporting corporations' liabilities. Following discussions between ISA staff members, companies and their accountants, most companies decided to correct and clarify their reports of their own accord. At other times, the staff became convinced after hearing a company's position. Other cases are still pending. In addition to board of directors' reports and financial statements, periodic reports also include information on the corporation, its subsidiaries and senior officers. The Department reviews this information in order to verify its compliance with the Regulations and with information reported by the corporation throughout the year. When necessary, corporations are asked to correct faults found by the Department. In addition, each report is checked against a computerized tagging list and - if a fault is discovered - the corporation is asked to correct it. In October 2007, Chapter H(3) of the Law went into effect, authorizing the ISA to impose monetary sanctions on reporting corporations, underwriters and interested parties in violation of the various provisions of the Israeli Securities Law and Regulations. It also authorizes the ISA to impose monetary sanctions on corporations which have failed to file their financial statements in a timely fashion as required by law. For more information regarding monetary sanctions imposed on corporations for failing to file on time, see Section "Enforcement - monetary sanctions" in this chapter below. The following tables present data on corporations which failed to file their periodic reports on the dates required by law, and information regarding corporations which failed to file interim financial statements as required by law.

1 Table 1: Periodic Reports - Delinquent filing Reporting No. of Total no. of No. of No. of No. of No. of Year companies companies companies companies companies companies required to that failed that failed that failed that failed that failed to report to report to report to report to report report by the final 7 days 14 days 30 days 60 days after reporting after final after final after final final date date date date date # % # % # % # % # %

2004 2 683 162 23.7 106 15.5 100 14.6 92 13.5 78 11.4 3 2005 745 272 36.5 239 32 228 30.6 20 26.8 158 21.2 4 0 2006 753 117 15.5 78 10.3 78 10.3 76 10 73 9.7 5 2007 861 136 15.8 115 13.4 107 12.4 99 11.5 83 9.6 6 2008 839 145 17 78 9.2 78 9.2 78 9.2 76 9 7

1 The final date for filing periodic reports is three months after the balance sheet date (or three days from an accountant signing his opinion on the financial statements, and, in any case, at least fourteen days prior to convening the general meeting in which the statements are to be presented, the earlier of the two). In this table, statements which were granted extensions were not taken into account. (For more information on filing extensions - see Table 5 below). 2 The 2004 annual report was the first to have been filed in accordance with the Barnea regulations' extended format. Reporting delays are apparently due to adjustments of reports to the requirements of these regulations. 3 Including 60 corporations under liquidation, temporary liquidation, receivership, etc. 4 Including 62 corporations under liquidation, temporary liquidation, receivership, etc. 5 Including 65 corporations under liquidation, temporary liquidation, receivership, etc. 6 Including 71 corporations under liquidation, temporary liquidation, receivership, etc. 7 Including 76 corporations under liquidation, temporary liquidation, receivership, etc. 16

Table 2: Interim Financial Statements - Delinquent filing8 No. of No. of No. of No. of No. of No. of companies companies companies companies companies companies required that failed to that failed that failed that failed to that failed 9 to report report by to report 7 to report report 30 to report 60 final days after 14 days days after days after reporting final date after final final date final date date date # % # % # % # % # % I 05 649 115 10 17.7 95 14.6 94 14.5 91 14.0 80 12.3 II 05 667 109 11 16.3 86 12.9 83 12.4 81 12.1 80 12.0 III 05 675 130 12 19.2 100 14.8 94 13.9 85 12.5 65 9.6 I 06 697 120 13 17.2 106 15.2 102 14.6 99 14.2 96 13.7 II 06 708 101 14 14.2 82 11.5 76 10.7 69 9.7 67 9.4 III 06 718 85 15 11.8 71 9.8 70 9.7 67 9.3 66 9.1 I 07 772 105 16 13.6 80 10.3 78 10.1 78 10.1 78 10.1 II 07 803 114 17 14.1 85 10.5 82 10.2 81 10 78 9.7 III 07 806 98 18 12.1 78 9.6 73 9 71 8.8 71 8.8 I 08 797 114 19 14.3 90 11.3 89 11.2 84 10.5 82 10.3 II 08 806 108 20 13.4 80 9.9 79 9.8 76 9.4 76 9.4 III 08 801 107 21 13.4 84 10.5 83 10.4 77 10 76 9.5 I 09 776 98 22 12.6 83 10.7 83 10.7 80 10.3 78 10

8 This table includes only delays due to failure to file on time and takes into account filing extensions. 9 Corporations reporting under Chapter E(3) are not bound by US law in filing interim financial statements and so are not included. 10 Including 62 corporations under liquidation, temporary liquidation, receivership, etc. 11 Including 63 corporations under liquidation, temporary liquidation, receivership, etc. 12 Including 63 corporations under liquidation, temporary liquidation, receivership, etc. 13 Including 65 corporations under liquidation, temporary liquidation, receivership, etc. 14 Including 63 corporations under liquidation, temporary liquidation, receivership, etc. 15 Including 64 corporations under liquidation, temporary liquidation, receivership, etc. 16 Including 65 corporations under liquidation, temporary liquidation, receivership, etc. 17 Including 65 corporations under liquidation, temporary liquidation, receivership, etc. 18 Including 65 corporations under liquidation, temporary liquidation, receivership, etc. 19 Including 71 corporations under liquidation, temporary liquidation, receivership, etc. 20 Including 71 corporations under liquidation, temporary liquidation, receivership, etc. 21 Including 74 corporations under liquidation, temporary liquidation, receivership, etc. 22 Including 77 corporations under liquidation, temporary liquidation, receivership, etc. 17

II 09 787 93 23 11.8 82 10.4 82 10.4 80 10.1 79 10 III 09 780 94 24 12 86 11 86 11 85 10.9 85 10.9

PROSPECTUSES AND PRIVATE ALLOCATIONS Prospectuses In 2009, the business sector25 raised about NIS 2,475 million through the issue of shares and convertible securities, of which NIS 2,321 million were raised locally. This, as compared to NIS 3,116 million in the previous year, raised entirely on the local market. This year, the business sector raised NIS 29,300 million through the issue of bonds, as compared with NIS 16,565 million in the previous year. Furthermore, the 26 business sector raised NIS 970 million through the exercise of warrants, as compared with NIS 1,154 million in the previous year. 27 In total, the business sector raised NIS 32,745 million in 2009, of which NIS 32,591 million were raised locally, as compared with NIS 20,835 million raised in 2008 (all locally). In 2009, the Government raised about NIS 69 billion (gross) through the issue of bonds, as compared with NIS 53 billion last year. 28 The distribution of local capital raised through shares and convertible securities by sector, in NIS millions, in current prices, is as follows: Industrial companies - 557.8 (24.0%) compared with 1,683.7 (54.0%) in 2008; real estate companies - 644.3 (27.8%) compared with 216.7 (7.0%) in 2008; investment companies - 283.1 (12.2%) compared with 1,095.2 (35.2%) in 2008; insurance companies - 325.8 (14.0%) compared with 15.0 (0.5%) in 2008; oil exploration companies - 244.7 (10.6%) compared with 0.8 (0.0%) in 2008; trade and services companies - 115.4 (5.0%) compared with 104.1 (3.3%) in 2008; banks - 149.9 (6.4%) compared with 0.0 (0.0%) in 2008.29

23 Including 77 corporations under liquidation, temporary liquidation, receivership, etc. 24 Including 77 corporations under liquidation, temporary liquidation, receivership, etc. 25 Figures cited in this chapter are taken from TASE reports. 26 Including the exercise of warrants by subsidiaries. 27 In shares, convertible securities, bonds and exercise of warrants. 28 Not including capital raised overseas. 29 Figures in brackets are percentages of the overall sum of issuances on the local market in 2009 and 2008, respectively. 18

Table 3: Capital raised and allocations through shares, convertible securities and bonds, 2008-2009 (NIS millions, in current prices) 2008 2009 Shares and convertible securities: Local issues 3,116 2,321 Foreign issues 0 154 Issues to employees 0 0 Allocations on the local market 2,267 2,267 Foreign allocations 12,535 875 Exercise of warrants 1,154 970 Total number of shares, convertibles and exercised 19,072 6,587 warrants Issue of bonds: Issue of corporate bonds 15,436 29,051 To: subsidiaries 0 0 Issue of structured bonds 829 249 To: subsidiaries 0 0 Issue of certificates of deposit 300 0 To: subsidiaries 0 0 Total bonds issued 16,565 29,300 Allocations of bonds: Allocations of corporate bonds 2,417 3,244 To: subsidiaries 214 0 Allocations of structured bonds 951 766 To: subsidiaries 951 766 30 Allocations of certificates of deposit 12,109 0 Total allocations of bonds 15,477 4,010

31 Institutional bonds 2,279 2,735 Total capital raised and allocations 53,393 42,632

30 Certificates of deposits were only allocated to subsidiaries. 31 Starting May 2004, following the start of trading in "TACT Institutional". 19

During the reporting year, 149 applications were submitted to the ISA for permits to 32 publish corporate prospectuses. 113 permits were granted, including nine permits 33 for applications submitted in 2008 and four permits for initial public offerings (for comparison with previous years, see Table 4 below). Details of applications processed by the ISA in 2009 appear in Appendices A and B of this report.

Table 4: No. of applications for permits to publish prospectuses vs. permits granted in 2004-2008 Year No. of No. of permits IPOs 34 applications granted submitted 2005 244 35 174 36 51 2006 247 178 69 2007 362 276 37 96 2008 144 91 38 8 2009 149 104 3

Applications for permits to publish prospectuses are reviewed by a team comprised of accountants and lawyers. According to the accepted procedure for full reviews, draft prospectuses are first reviewed by the team, following which meetings are held with representatives of the offeror, where the ISA's comments are presented. Following review by the ISA team, draft prospectuses are referred to one of the ISA's prospectus committees for discussion and approval. Such committees, which are comprised of members of the ISA and convene as necessary, are authorized to grant permits to publish prospectuses. Committees may demand additional drafts which elaborate on subjects which, in the committee's opinion, require more information, where further disclosure or corrections are needed, or where the accounting in the prospectus should be amended before a permit can be granted. When necessary, additional meetings are held with the offeror's representatives and additional drafts are submitted. When the committees' requirements are met, the permit is granted.

32 Of these, 10 applications were withdrawn by the applicants, one issue failed, and four applications expired. 33 Not including initial offers that were not for capital raising. 34 Does not include companies that published prospectuses abroad after receiving an exemption from a permit from the ISA (under Section 40(c) of the Law. This Section was revoked in 2000). 35 In 42 cases, the ISA decided to apply the partial or abbreviated review procedure for the draft prospectus. 36 Includes one case where the corporation canceled the issuance after making a public offer. 37 Including 69 shelf prospectuses. 38 Including 63 shelf prospectuses. 20

Offering securities under a shelf prospectus Staff Position No. 25-103, Offering Securities Under a Shelf Prospectus, was published on July 27, 2009. This position was published following requests by reporting corporations to include a greater variety of securities in the shelf prospectuses which they can offer based on shelf registration reports, including securities offered in special ways. The ISA staff found that in those cases where securities were offered in special ways, there were doubts as to whether fair disclosure was made regarding the method and components of the offer, which would allow the public to decide whether to accept future offers to purchase securities based on the shelf prospectus. These doubts regarding fair disclosure are due to the fact that securities offered under a shelf registration report do not require a permit from the ISA. Therefore, the ISA does not review the adequacy of information associated with that particular offering method or with the specific class of securities prior to the offer being made under the shelf prospectus. In certain cases, this may lead to investors considering the purchase of securities under a shelf prospectus which does not contain all the important details necessary for making an investment decision. The staff believes that there may be types of offers and classes of securities which should not be included under the shelf prospectus provisions. The staff has therefore expressed its position, whereby public offers of securities made according to the following alternative methods, require a permit from the ISA (and cannot be made by way of a shelf prospectus offer without the ISA having reviewed the disclosures accompanying such an offer):  Offering of shares by a reporting corporation which is a private company as defined by the Companies Law;  A non uniform offering of securities (i.e., an offer to a particular group of people) to be carried out through one of the following methods (and which was not detailed in the shelf prospectus): o By way of an exchange purchase offer; o By way of an arrangement pursuant to Section 350 to the Companies Law;  A offering of rights to purchase securities by way of a shelf registration report, which is not one of the following: o Rights offering to purchase shares, bonds or warrants to shares, listed for trade on the Stock Exchange at the time of entitlement to the rights; o Rights offering to purchase exercisable warrants in a security listed for trade on the Stock Exchange at the time of entitlement to the rights. Private offerings The Securities Regulations (Private Offering of Securities in a Listed Company) of 2000 (hereinafter – the "Private Offering Regulations") determine three levels of disclosure: exceptional private offerings, which require the most extensive disclosure; substantial private offerings; and insubstantial private offerings, as defined in the Private Offering Regulations. An exceptional offering is an issue of

securities granting 20% or more of the total voting rights in a company before the offering, or an offering resulting in the offeree becoming a controlling shareholder of the company. A substantial offering is an issue to a party holding 5% or more of the issued capital or the total voting rights in the company, or to a party that will hold that amount after the offering, and any offering to a director or general manager that is not an exceptional offering. Any other private offering that is neither exceptional nor substantial is an insubstantial private offering. The authorization mechanism required of a company to carry out private offerings is specified in the Companies Law of 1999 (hereinafter - the "Companies Law"), according to the total issued capital, the consideration paid (by way of cash and securities or otherwise) and the characteristics of the offeree. According to the Companies Law (following Amendment 3 which came into affect about a year ago), a general meeting is only required to approve an offering after its approval by the board of directors if it constitutes a "substantial private offering" as defined in the 39 Companies Law. The Companies Law further requires a general meeting approval for any private offering in which the controlling shareholder has a personal interest, whether or not it constitutes an exceptional transaction. This approval is to be granted under a special mechanism prescribed by the Companies Law. In 2009, 126 immediate reports pertaining to private offerings (exceptional and substantial) were submitted to the ISA, compared with 134 in 2008 and 170 in 2007. The reports are reviewed by the ISA staff as part of the ongoing review of each company's reports. According to the provisions of the Private Offering Regulations, the ISA is authorized to request explanations, details, information and documents, and - if necessary - instruct that the immediate report be amended. The ISA exercises its power in cases where, in its opinion, the details provided in an immediate report are incomplete or unclear. In such cases, the company issues an amended immediate report and the shareholders are issued an amended notice regarding the private offering, which includes the details and clarifications required. In certain cases, and subject to the Regulations, the ISA may order a postponement of the shareholders' meeting of no less than three business days and no more than twenty-one days from the date of publication of the amended report.

39 According to the Companies Law, a "substantial private offering" is an allocation where one of the following transpires: (1) An offer of 20% or more of the voting rights in a company when all or part of the consideration is not in cash or securities listed for trading, or is not according to market conditions (as defined under the amended version of the Law) and as a result of which the holdings of securities by a principal shareholder (i.e. - a shareholder holding 5% or more of the issued capital or voting rights of a company) shall increase, or which shall result in an individual becoming a principal shareholder following the issue. (2) An offer which shall result in an individual becoming a controlling shareholder in the company. In addition, Amendment 3 broadened the definition to include offerings of a public company to sell dormant securities, which is not a public offering (i.e. - selling dormant shares outside the course of trading on the Stock Exchange). 22

TRANSACTIONS WITH A CONTROLLING SHAREHOLDER The Companies Law of 1999 (hereinafter- the "Companies Law") specifies special mechanisms for approving certain transactions that public companies seek to carry out (hereinafter - "Controlling Shareholder Transactions"), and the Securities Regulations (Transaction Between a Company and a Controlling Shareholder therein) of 2001 (hereinafter – the "Controlling Shareholder Regulations") determine disclosure requirements that apply to reporting corporations in connection with the aforesaid transactions. The Companies Regulations (Allowances in Transactions with Interested Parties) of 2000 (hereinafter - the "Allowances Regulations"), state that when certain conditions are met, a transaction does not require the approval of a general meeting unless shareholders who hold at least 1% of the issued capital or the voting rights in the company demand that a general meeting be convened. A transaction carried out according to the Allowances Regulations requires fair disclosure according to the Securities Regulations (Periodic and Immediate Reports) of 1970. Controlling Shareholder Transactions include extraordinary transactions carried out with a controlling shareholder or in which a controlling shareholder has a vested interest, private offerings in which a controlling shareholder has a vested interest, as well as approval of terms of employment or service of a controlling shareholder or a relative thereof (see Section 270(4) of the Companies Law). Following the publication of the Goshen Report by the Committee for the Review of a Corporate Governance Code in Israel, which submitted its conclusions to the ISA Chairman on December 12, 2006, an exposure draft to Amendment 10 of the Companies Law was issued in 2008, implementing the Goshen Report's recommendations. After the ISA staff submitted its comments to the exposure draft in 2008, the amendment was submitted to the Ministers Committee in 2009, after being signed by the Minister of Justice. During the reporting year, 418 immediate reports were submitted in accordance with the Controlling Shareholder Regulations (hereinafter - "Conflict of Interest Regulations"), as compared with 354 reports submitted in 2008, and 340 reports submitted in 2007. The aforesaid reports pertained to numerous and varied transactions, and were mainly concerned with approval of appointments and terms of employment, indemnification and management fees. Other reports filed in accordance with the Controlling Shareholders Regulations dealt with acquisition of operations, goods or equipment from a controlling shareholder; acquisition of shares in another corporation of a controlling shareholder; sale of operations or assets to a controlling shareholder; guarantees; deposits; financing agreements; provision of various services; insurance arrangements; acquisition of knowledge, etc. The Corporate Finance Department invests much effort in reviewing various issues related to transactions with controlling shareholders. Issues include determining whether transactions are extraordinary; whether transactions between companies and other parties constitute transactions in which a controlling shareholder has a 23

vested interest; determining whether shareholders are interested parties regarding the approval of a transaction; whether an asset or activity in a transaction are material; whether the approval process of a transaction by various company organs was proper, etc. As in years past, this year emphasis was placed on examining voting results in general meetings. As part of its work on this subject, the ISA staff contacted companies and requested information regarding voters in general meetings. This information included, inter alia, details of voter connections with the company and with its controlling shareholder. In some cases, companies were required to publish immediate reports detailing this information. The reports are reviewed by the ISA staff as part of the ongoing review of each company's reports. This year too, the ISA staff notified some of the companies that transactions carried out with a controlling shareholder or with another party are subject to the special approval mechanism prescribed in the Companies Law. As a result, these companies were required to submit reports according to the Conflict of Interests Regulations.

PURCHASE OFFERS The Securities Regulations (Purchase Offer) of 2000 (hereinafter: "Purchase Offer Regulations") require the filing of a purchase offer specification in three cases: 1. An ordinary purchase offer, i.e. - an act of an offeror intended to induce holders of a listed company's securities to sell securities to the offeror; 2. A complete purchase offer, as defined in Section 336 of the Companies Law; 3. A special purchase offer, as defined in Section 328 of the Companies Law. An individual seeking to make a purchase offer to the shareholders of a listed company must do so by means of a written specification, as prescribed by the Purchase Offer Regulations. In 2009, 44 specifications of purchase offers to shareholders in listed companies were published (as compared to 36 in 2008, and 28 in 2007). Eight purchase offers constituted special purchase offers (compared to three in 2008). Five constituted ordinary purchase offers (compared to four n i 2008); and the rest constituted complete purchase offers. During the reporting year, three public companies went private (compared to nine in 2008) following proceedings set out in Section 350 of the Companies Law. Under the Purchase Offer Regulations, the ISA is authorized to demand explanations, details, information and documents regarding information included in a purchase offer specification, and regarding any other matter which the ISA believes should be included in the specification pursuant to the Regulations. Furthermore, the ISA may even demand that the specification be amended. Thus, offerors were required to include various details in their specifications, such as the offeror's agreements with other parties, financing, notices given by holders of securities in the target company to the offeror regarding their intent to accept the purchase offer, etc. 24

Furthermore, offerors were required to provide information regarding the counting of dormant shares, exclusion of offerees, vested interests of offerees, offerors holding over 90% of a company's issued and paid-in share capital, joint holding by offerors, etc.

BOND SETTLEMENT AGREEMENTS AND BOND TRUSTEES In recent years, there has been extensive debt raising by means of public bond offerings, as an alternative to bank-issued credit. The global credit crunch and its local effects may have adversely affected the issuing companies' ability to repay and recycle their debts. In 2009, 48 corporations initiated debt settlement proceedings with their bondholders. Following the ISA Plenum's decision in late 2008, which established the credit officer mechanism as a means for reporting corporations to reach debt settlement agreements, and after obtaining the public's comments regarding the decision, two clarifications to the aforesaid decision were published during the reporting year. 40 The first clarification, published in January 2009, included clarifications regarding the initial decision, including by way of questions and answers in the following matters: Inside information - the ISA's position regarding the structural separation required of corporations under Section 52B(b) to the Securities Law, in order not to be regarded as having inside information, despite a director or employee having access to inside information or being in possession of such information (so called "Chinese Walls"). Clarification that the ban on using inside information also applies to credit officers and trustees, and clarifications regarding the interactions of the ISA's clarifications for restricting the use of inside information and Rule 4 of the Antitrust Commissioner's Position Paper 08/1, establishing trade restrictions for representatives; financing - details regarding the ISA's recommendations for proper financing agreements in debt ettlement s proceedings; composition of the representatives and identity of the credit officer - the ISA's position regarding the proper composition of the bondholders' representation and restrictions on conflicts of interest between the representatives due to the holding of other securities of the corporation; collaboration between series in appointing credit officers and representatives; trustees - the trustees' functions and duties prior to the representatives' appointment, and in their activities for reaching debt settlements, etc. 41 The second clarification was published in September 2009, following inquiries by institutional entities due to systematic and statutory difficulties in implementing the structural separation mechanism. This clarification provided an additional method

40 Corporate Finance Decision 1-2009(b) - Laying the Groundwork for Formulating Bond Settlements After Public Comment - Additional Clarifications to Plenum Decision and Answers to Questions. http://www.isa.gov.il/Download/IsaFile_3437.pdf 41 Corporate Finance Decision 1-2009(c) - Laying the Groundwork for Formulating Bond Settlements - Additional Clarifications to Plenum Decision and Answers to Questions. http://www.isa.gov.il/Download/IsaFile_4089.pdf 25

for structural separation in institutional entities which established a separate non- tradable credit mechanism pursuant to the Ministry of Finance Capital Market Division's circular. This circular clarified the nature of the structural separation required of institutional entities and allowed investment managers in institutional entities to be active in both trading and settlement agreement activities, subject to procedures and a specific internal enforcement program aimed at identifying and preventing the use of inside information in trading carried out by these institutional entities.

DIRECTIVE PURSUANT TO SECTION 36A(B) OF THE SECURITIES LAW - DISCLOSURE REQUIREMENTS FOR DEBT SETTLEMENT AGREEMENTS Due to the large number of debt settlement agreements and the lack of an adequate statutory foundation regarding disclosure requirements for corporations offering debt settlement agreements to their bondholders, both in proceedings pursuant to Section 350 of the Companies Law and in deed of trust changes pursuant to Section 35G to the Securities Law, the ISA amended its directive from 2002 regarding this issue. The directive established several disclosure levels according to the nature of the proposed agreement and the corporation's position. Settlements which will not require disclosure under the directive - settlements benefiting the bondholders; early repayment to an amount that is not less than the adjusted value of the bonds; settlements including non-material changes in the economic terms of the debt certificates, except for changes in the terms for immediate repayment (e.g., changes in the linkage mechanism or a short postponement of the principal or interest repayment date so as to formalize a comprehensive debt settlement agreement). Corporations reaching agreements due to financial difficulties, including corporations meeting any of the terms prescribed in the directive, will be required to provide expansive disclosure set out in the directive. This disclosure will include, inter alia, details required under Regulations 7 and 38 to the Companies Regulations (Application for a Compromise or Arrangement) of 2002, as well as the following additional details: a. Cash flows in the three years prior to the agreement and the board of directors' explanations for the circumstances preventing the corporation from repayment according to the terms of the bonds, explanations concerning the reasons for the corporation being in such a position, and whether the corporation has considered other actions in lieu of changing the terms of the bonds. b. The tax consequences of the agreement for the corporation and for the bondholders. c. Intentions or plans to negotiate agreements with other material creditors and settlements made with other material creditors in the six months prior to the approval of the agreement.

d. Description of the securities offered under the agreement pursuant to Chapter 3 of the Securities Regulations (Details, Structure and Form of Prospectus and Draft Prospectus) of 1969. e. A legal opinion pursuant to Section 17(a)(3) of the Securities Law, if new securities are issued under the agreement. f. Publication of financial statements as required by law. g. The settlement report is to be signed by the majority of the corporation's directors and at least one external director. h. The trustee or the holders of at least 10% of the par value balance of the bonds may request any additional information directly required for supporting a decision. A corporation may deny such a request if it believes that the information is not required, that the request was submitted in bad faith, or if the information constitutes a trade secret or its disclosure may harm the corporation. Reporting corporations not implementing the agreement due to financial difficulties (i.e., do not meet any of the criteria prescribed in the directive) will be required to provide limited disclosure, which would include those details prescribed in Regulation 7 of the Companies Regulations (Application for a Compromise or Agreement) of 2002, as well as the above additional details. The directive states that corporations may include information by reference to particular sections in their reports filed in accordance with the Securities Law. Furthermore, several staff position papers were published concerning the summoning and conduct of bondholder meetings. These position papers included, inter alia, reference to the following matters - the extent of detail required for matters on the meeting's agenda, and whether resolutions may be adopted on matters not listed in the summons to meeting; the date on which holders are to be notified that a holders’ meeting is being summoned; the date on which a report on the results of the holders meeting is to be issued; whether continued holders meetings are possible and under what terms, and the extent of reporting required for objections to the agreement.

ONGOING PROCESSING OF DEBT SETTLEMENT AGREEMENTS As part of its ongoing processing of debt settlement agreements, the ISA reviews, inter alia, the disclosure made by companies both pursuant and prior to the settlement, the need for issuing a prospectus as part of the agreement so as to guarantee the proposed offerees' interests, and the feasibility of issuing the proposed securities and their listing for trade as required by law. In court-sanctioned agreements made in accordance with Section 350 of the Companies Law, the ISA has often been requested to present its position regarding the manner of summoning class meetings. Furthermore, the ISA occasionally presented its position to the court of its own accord, pursuant to Section 35O(b), in matters where the ISA considered it its duty to protect the interests of investors in securities.

TERMINATION OF REPORTING REQUIREMENTS Reporting Requirements for Struggling Companies (under Liquidation, Receivership, Stay of Proceedings) According to the Securities Law The ISA Plenum's decision of August 16, 2009 states that applications to the ISA for extensions in filing financial statements and immediate reports for corporations under stay of proceedings (hereinafter: "Application" or "Extension Application" and "Extension", respectively) shall be granted, according to the ISA's powers under Section 36(H) of the Law, subject to the corporation meeting all of the terms detailed below. This decision is intended to provide criteria and standards for the ISA in exercising its administrative judgment. When these criteria are met, the ISA shall grant companies under stay of proceedings extensions in filing financial statements and immediate reports, as per the powers granted the ISA under Section 36(H) of the Securities Law. This decision expands on the ISA's position in the matter, as expressed in its previous resolutions: 1. The previous position only applies to companies for which a liquidation order has been issued, while the current decision also applies to companies under stay of proceedings which meet the terms detailed below. 2. The previous position only referred to the date of filing the financial statements, while the current decision also pertains to extensions for filing immediate reports. It is hereby clarified that extensions in filing financial statements and immediate reports, according to the decision detailed below, shall not be granted automatically to struggling corporations under stay of proceedings. This is due to the fact that there may be cases where a corporation which has been issued a stay of proceedings order will continue to meet its reporting requirements and will continue filing its reports as prescribed by the Law and the Regulations. Maintaining reporting requirements, as aforesaid, has several advantages as detailed below. In order to be granted an extension under the present decision, corporations or persons acting on their behalf are required to contact the ISA by way of a written application for extension, detailing and explaining the specific reasons for the application, including reference to the terms and criteria for granting extensions, as detailed below. The ISA shall review each application and shall exercise its judgment in the matter. As part of this review, the ISA will examine whether the terms detailed below have been met, in whole or in part, and whether or not an extension should be granted under the circumstances. The aforesaid notwithstanding, it is hereby emphasized that the terms set forth in the current decision for granting extensions do not constitute an exhaustive list. In accordance with the ISA's powers as aforesaid, the ISA will also consider other applications on a case-by-case basis, and will grant such applications if it is indeed convinced that the corporation cannot file the report at the time prescribed by the

Regulations. Below is a summary list of the terms that the ISA will examine, when exercising its judgment, in granting extensions to struggling corporations: a. Conditions for receiving extensions 1. Stay of proceedings order - The corporation has been issued a stay of proceedings order by a court of law; 2. Court-appointed officer - As part of the stay of proceedings, the court has appointed a trustee, receiver, or any other officer for the corporation, who is supervising the proceedings (hereinafter - "Officer of the Court"). 3. The officer of the court has been given the power and responsibility for administrating the corporation, including filing reports on its behalf - The powers granted the organs and officers of the corporation under the Securities Law for administrating the corporation and filing reports have been 42 revoked and granted to the officer of the court. 4. The Officer of the Court's declaration regarding his powers and the corporation's reporting requirements - In extension applications filed by corporations and officers of the court with the ISA, the officer of the court will be required to confirm that according to the powers granted him by the court, he is authorized to act on behalf of the corporation, including: (a) in meeting of the corporation's ongoing reporting requirements and the filing of immediate reports and financial statements, during and at the end of the stay of proceedings period; (b) in filing an extension application with the ISA for the filing of corporate financial statements pursuant to Section 36(H) of the Law. b. Suspension from trading on the Tel Aviv Stock Exchange According to the ISA rules and directives, a corporation's securities shall be suspended from trading if it fails to file its financial statements after 30 days from the date on which these were due. This provision shall also apply to delinquency in filing financial statements by struggling corporations, as suspension of trading on the Exchange does not exempt a corporation from disclosure, and corporations are still considered reporting corporations so long as they do not meet the conditions for terminating their reporting requirements. c. Corporate reporting during the extension period: 1. Reports submitted to the court by the officer of the court During extension periods, instead of submitting periodic reports as prescribed by the Securities Law and Regulations, Officers of the Court acting on behalf of the corporation shall submit reports under an alternative

42 In companies which are administered as usual and by their existing organs, the "inability" argument under Section 36(h) of the Law shall not be granted, and such companies shall not be granted extensions in iling f their financial statements. 29

reporting model. These reports will include the following (hereinafter - "Alternative Reporting Model"): a) Periodic reports submitted by the Officer of the Court to the court (according to the Bankruptcy Regulations and the Companies Ordinance) - These reports will be submitted as immediate reports by the corporation and the officer of the court concurrently with their submittal to the court. b) Financial data - Financial reporting and data shall be submitted by way of immediate reports, concurrently with their submittal to the court by the officer of the court. These reports shall be filed as part of the periodic reports or any other material document which the officer of the court receives or submits to the court. It is hereby emphasized that if during the stay of proceedings period, investment decisions or voting decisions must be made by any security holder of the corporation, the extension shall be terminated and the corporation shall be required to publish full financial statements as prescribed by law. c) Immediate reports Types of reports - A corporation shall not be exempt from filing immediate reports. However, reportable events and matters shall be limited mainly to the actions and findings of the Officer of the Court regarding the corporation; Timing of immediate reports - In general, immediate reports shall be filed upon a report or document first being submitted to the court, or immediately after the company (including the officer of the court) has become aware of such submittal by a third party. As regards events constituting material events or matters according to Regulation 36 of the Statements Regulations, the Officer of the Court may delay reporting of such events until their announcement in a summary immediate report, issued weekly on the second trading day of the week. This weekly summary report shall detail all significant events and matters (as defined in Regulation 36 of the Periodic and Immediate Reports Regulations) that transpired in the previous week, unless an immediate report has already been filed for those events. It should be emphasized that the above immediate reporting method shall also apply to companies which have been issued a liquidation order. d) Immediate reports concerning extension applications and the ISA's position Immediate reports are to be made upon the officer of the court applying for an extension to the ISA as well as regarding the nature of the application. Furthermore, immediate reports are to be made upon

receiving the ISA's position on the application, with copies being submitted to the court. e) End of the extension period Extensions are to end at the earlier of the following times: 1) The stay of proceedings has ended - This leads to the termination of extension granted by the ISA and the re-application of the "ordinary" reporting requirements on the corporation, starting from this date forward. 2) The officer of the court submits a recommendation to the court that a composition of creditors be drafted and a creditors meeting be convened for corporation's re-structuring. The corporation and the officer of the court acting on its behalf must act to apply the "ordinary" reporting requirements as an inseparable part of their preparations for securing a composition of creditors and assisting the corporation in recovering and resuming its ordinary course of business. 3) The officer of the court has recommended that the court issue a liquidation order. In this case, the ISA's position expressed in its previous decisions may be applied. Thus, an extension can be granted for filing periodic statements according to the Securities aw L (including filing of financial statements) until the corporation's liquidation and dissolution are completed. However, reporting requirements for immediate reports shall remain in force as aforesaid. 4) Any of the above prerequisite conditions has not been met or is no longer met. 5) Holders of the company's securities are required to make a voting or investment decision. Extensions shall end so that full disclosure be made regarding the company's condition, a reasonable time prior to the voting or investment decision being made.

REGULATION The ISA's activities in 2009 have led to increased transparency in the capital market in areas that are critical for maintaining investor confidence: the global credit crisis, financial reporting, and corporate governance. THE GLOBAL CREDIT CRISIS AND THE OFF-BANK CREDIT CRUNCH IN ISRAEL This year too, the Department published disclosure directives in order to cope with the problems caused by the global crisis. These directives were as follows: 1. Guidance for accountants of public companies http://www.isa.gov.il/Download/IsaFile_3160.pdf

A directive requiring attention to critical and sensitive matters in light of the crisis, such as: examination of a going concern assumption, fair value, impairment provisions, reference to additional information nd a events subsequent to the balance sheet date. 2. Credit officers - Plenum decision In order to create additional ways of dealing with the challenges of re-organizing debts from bonds issued to the public in recent years, the SA I proposed a mechanism which it is considering to adopt into law. The proposed mechanism is designed to assist the various parties, and in particular bondholders (usually institutional bondholders), trustees, as well as the companies themselves. The mechanism comprises a series of decisions and clarifications related to interpretations of the Securities Law, inter alia, in matters related to a company's authority to delay the disclosure of information; interpretation of the term "use of inside information"; and debt recycling by publication of a prospectus. http://www.isa.gov.il/Download/IsaFile_3283.pdf 3. Unique disclosure to bondholders http://www.isa.gov.il/Download/IsaFile_3033.pdf Expansion of corporate disclosure requirements as aforesaid so as to provide concrete information for bondholders regarding a company's valuation, its liabilities and the meeting thereof, etc. 4. Disclosure of cash flows in companies showing signs of difficulty http://www.isa.gov.il/Download/IsaFile_3019.pdf In the past year, the ISA has contacted several corporations which issued bonds, requesting details on the sources to be used to repay their debt. Namely, the ISA requested information regarding those corporations' expected cash flows which are would allow interest and principal payments on the bonds (hereinafter: "Cash Flow Report"). This disclosure requirement was made following the review of financial statements or following immediate reports whose information mandated the request for cash flow reports. In addition to the individual inquiries made by the ISA staff, the ISA also issued a directive prescribing criteria requiring a board of directors' declaration regarding a corporation's solvency or the issue of a cash flow report. In 2009, this directive was anchored in the Securities Regulations (Periodic and Immediate Reports).

5. Disclosure regarding expected repayments A unique disclosure directive was determined for the filing of periodic reports. This directive increases a corporation's disclosure requirements regarding its liabilities according to expected repayment dates. When providing this disclosure, corporations are required to distinguish between various types of repayments (publicly-traded or privately-held bonds, local/foreign banks, etc.). 6. Protecting bondholders and expanding the role of trustees In 2009 an exposure draft was published for the amendment of the Securities Law and regulations, regarding the expansion of the duties and powers of trustees and unconditional rights for bondholders. 7. Increased disclosure upon distribution of dividends The ISA issued a directive whereby companies are required to detail the reasons for distributing dividends, including reference to distribution from revaluation profits, and compliance with the solvency test. 8. Self acquisition and sale of securities The ISA extended its directive regarding a corporation's reporting requirements for self acquisition plans, and regarding self buying and selling of securities by a reporting corporation.

REGULATION OF FINANCIAL REPORTING FAQs and Enforcement Decisions Regarding IFRS As of January 2008, all corporations subject to the Securities Law file reports in accordance with the International Financial Reporting Standards (hereinafter - "IFRS"). In order to promote uniform accounting, minimize uncertainty regarding the application of IFRS, assure fair disclosure in problem areas, and in order to provide answers to questions raised by reporting entities and accountants regarding IFRS, the Department's staff issued FAQs for matters pertaining to IFRS-compliant reporting, the application of the standards, and additional disclosures required under the Securities Regulations and directives issued pursuant to the Law. In 2009, the ISA staff issued the following two FAQs:

FAQ Subject FAQ 18 Accounting for debt settlement agreements, including debt swapping for shares or other capital instruments of a corporation FAQ 19 Accounting for the swapping of debt instruments with materially different terms.

Furthermore, with the amendment of the Securities Regulations and their adaptation to IFRS, as detailed below and in the legislation chapter, FAQ 11 was

revoked. FAQ 11 set forth principles for the inclusion of separate financial statements in the consolidated financial statements of reporting corporations. The FAQ was revoked following the establishment of provisions covering this matter in the Regulations. In addition, in order to maintain investor confidence in financial reporting, the ISA increased the number of reviews carried out for corporate financial statements. Accordingly, a significant portion of the Corporate Finance Department's ongoing work in 2009 was devoted to reviewing financial statements filed for 2008 (the first to be prepared according to IFRS), and to reviewing the application of IFRS in these statements. In light of these reviews, the ISA issued enforcement decisions detailing the measures taken in cases of incorrect financial reporting. Within this context, in 2009 the ISA issued accounting enforcement decisions on the following issues: Decision Subject

09-1 Estimating the recoverable amount for cash-generating units. 09-2 Accounting for salary payments made by a controlling shareholder for services rendered to the company. 09-3 Classification of land rights as investment property or as inventories. 09-4 Change of accounting policies regarding the presentation of interest payments in cash flows statements. 09-5 Significant influence and application of the equity method.

Adapting the Securities Regulations to IFRS As part of these preparations, the Corporate Finance Department increased its activities, including extensive mapping of existing statutory provisions for accounting principles and preparing an infrastructure of legislative amendments and accounting decision amendments. These activities are aimed at fully establishing IFRS in Israel. Thus, financial statements filed in Israel pursuant to IFRS can be used around the world, and can be filed in any country reporting according to IFRS. On December 7, 2009, the Knesset Finance Committee approved the proposed amendment to the Regulations, which included six regulation groupings: a. Securities Regulations (Annual Financial Statements) of 2009. These regulations supercede Securities Regulations (Preparation of Annual Financial Statements) of 1993; b. Securities Regulations (Periodic and Immediate Reports) (Amendment 5) of 2009, which supercede Securities Regulations (Periodic and Immediate Reports) of 1970;

c. Securities Regulations (Details, Structure and Form of Prospectus and Draft Prospectus) (Amendment 3) of 2009, which amend Securities Regulations (Details, Structure and Form of Prospectus and Draft Prospectus) of 1969; d. Securities Regulations (Private Offering of Securities in a Listed Company) (Amendment) of 2009, which amend Securities Regulations (Private Offering of Securities in a Listed Company) of 2000; e. Securities Regulations (Transaction between a Company and a Controlling Shareholder therein) (Amendment) of 2009, which amend Securities Regulations (Transaction between a Company and a Controlling Shareholder therein) of 2001; f. Securities Regulations (Presentation of Transactions between a Corporation and a Controlling Shareholder therein in Financial Statements) (Amendment) of 2009, which revoke Securities Regulations (Presentation of Transactions between a Corporation and a Controlling Shareholder therein in Financial Statements) of 1996.

PRE-RULINGS The pre-ruling procedure has been in use in the ISA in general, and in the Department of Corporate Finance in particular, for some time. In January and April of 2007, the ISA made decisions regulating the issue of pre-rulings and their publication. The procedure was updated in June 2008. The pre-ruling procedure allows companies to submit legal and accounting queries prior to taking action, in order to evaluate the proper course of action. Pre-rulings usually deal with complex issues that have innovative aspects or are broad in scope, where the answer is not self-evident. The ISA prioritizes queries according to urgency and necessity, in light of the abovementioned characteristics. There are two main kinds of queries: a. Request for a pre-ruling regarding a planned transaction. b. Request for a no-action letter, i.e. - a statement confirming that the ISA will not take any enforcement action against the company under the circumstances described in the request. According to a decision published by the ISA, pre-ruling queries must be submitted in keeping with the specified procedure as published (including the way to submit queries , information to be included in queries , publication of the query and the answer thereto). The query and the answer are published on the ISA website, following the criteria specified by the ISA. During the reporting year, 84 pre-ruling queries were filed with the Department, as compared to 128 in 2008. Twenty-five queries concerned accounting matters, as compared to 49 in 2008, and 59 were legal queries, as compared to 79 in 2008. Of these legal queries, six dealt with financial instruments, compared with 11 in 2008. Most accounting queries were related to: independence; accounting for indexed financial instruments; proforma information; accounting for business combinations; 35

measuring the fair value of financial instruments; date of transition to IFRS; income recognition; functional currency and reporting currency, etc. Most legal queries were related to: shelf prospectuses and self registration reports; an offering of securities constituting an offer to the public; underwriting; approval of transactions with senior corporate officers and controlling shareholders; personal interests of controlling shareholders; purchase offers and exchange purchase offers; private offerings; various settlement agreements, including bondholder agreements under Section 350 of the Companies Law, conditions for such settlements and the need for issuing a prospectus; competency of external directors; inside information; changes to deeds of trust; conflicts of interest pertaining to bond trustees; self- acquisition of securities; limited partnerships; delay in publication of immediate reports, etc.

STAFF AND PLENUM BULLETINS (SLBs, SABs) Disclosure Regarding Senior Officer Remuneration On March 11, 2009, the ISA published SLB 21-105 concerning disclosure regarding the remuneration of interested parties and senior officers. The SLB was published in light of a July 2008 amendment to Regulation 21 of the Securities Regulations (Periodic and Immediate Reports) of 1970 (hereinafter - the "Regulation" and "Regulations", respectively), dealing with disclosure of the remuneration of interested parties and senior officers, and clarifying how to implement the Regulation. The SLB clarifies that: a. Remuneration to interested parties shall require disclosure under sub-Section (a)(3) of the Regulation if it is given to an interested party in connection with services rendered as an officer in the corporation or in a controlled corporation, regardless of whether employment relations exist. b. In transactions involving benefits, a quantitative disclosure must be made regarding the benefit component, including explanations regarding its calculation. c. The disclosure required under sub-Section (a)(1) of the Regulation for senior officers who are controlling shareholders shall also apply for officers without significant influence on the controlling corporation. d. There are cases where the five individuals receiving the highest remuneration in the group are not senior officers of the corporation itself, but are senior officers in corporations controlled by that group. In such cases, additional disclosure must be made regarding the three senior officers receiving he t highest remuneration in the corporation itself, so that the number of senior officers for which disclosure is made according to the Regulation may amount to eight. e. In accordance with the Sixth Schedule to the Regulations, details must be provided in table form for the remunerations recognized in the financial 36

statements in the reporting year, even if these were not actually paid during the reporting year. f. In exceptional cases, according to the criteria specified in the clarification, corporations providing remuneration by way of options or warrants can present the total remuneration given to their officers in two summary columns - one summing the total remuneration given, excluding remunerations recognized in the financial statements for said options and warrants; and the other summing the total remuneration given, including remuneration recognized in the financial statements for said options and warrants. g. The disclosure required under Sub-Section (b) of the Regulation regarding remunerations not included in the remuneration table (as they were not recognized in the financial statements for that reporting year) shall be presented separately, both quantitatively and qualitatively. The main points of these clarifications were later established under Securities Regulations (Periodic and Immediate Reports) (Amendment 5) of 2009, which were approved by the Finance Committee on December 7, 2009. Independence - Assistance to audited entities in preparing financial statements In August 2008, a clarification to Ruling 18-105 was issued regarding the independence of auditors. The clarification concerns assisting audited entities in preparing financial statements. The clarification reinforces the existing independence principle, whereby the independence required of an auditor is not met whenever the accountant's objectivity or independence and ability to carry out an unbiased audit as per his best judgment are actually or seemingly not maintained. Thus, the independence requirement is not met whenever accountants provide audited entities with additional services which they themselves may be required to audit. The risk of an auditor auditing his own work, creating conflicts of interest between his role as auditor and his role as a provider of additional services to the audited entity may occur, inter alia, when an accountant assists the audited entity in preparing financial statements, even in the wording and editing thereof, except when awarding technical services only. This concern persists even when such actions are performed by another member of the auditor's firm. Therefore, the clarification emphasizes that in cases where the auditor assists the audited entity in preparing financial statements, particularly in the wording and editing thereof, including when these actions are performed by another member of the auditor's firm, the auditor's independence is deemed to have been compromised, since the auditor has a conflict of interests. Due to the previous lack of clarity on the issue, there may be cases where corporations will be required to make extensive preparations in order to meet the requirements set out in the clarification. For this reason, the clarification states that the ISA's staff shall not reject annual and interim financial statements for the sole reason that the auditor's independence may have been compromised due to violation of the clarification provisions, until the financial statements for the third 37

quarter of 2009. The abovementioned provisions shall be implemented no later than the 2009 annual financial statements. In light of the above, and in preparation for implementing the clarification, the ISA staff published a position paper in October 2009, dealing with two issues: a. Implementing the clarification in the financial statements of the audited entity’s consolidated companies. In this case, the ISA staff sought to clarify its position that whenever an auditor assists in preparing the financial statements of a consolidated company of the audited entity, its independence shall be deemed to have been compromised. b. Implementing the clarification in the financial statements of associates whose reports are appended to the reporting entity's statements. Here, the ISA staff clarified that the ISA shall not reject financial statements for the sole reason that the auditor's independence may have been compromised due to violation of the clarification provisions as regards associates’ accompanying financial statements. This position shall be maintained for periods ending December 31, 2009 or earlier. Clarification regarding accountant independence in implementing Israeli SOX In September 2009, a draft clarification to Ruling 18-105 was issued regarding the independence of auditors. The clarification pertains to services provided to audited entities for the implementation of Securities Regulations provisions regarding management's statement and assessment of the effectiveness of internal controls. In order to implement the Regulations, management and the board of directors must assess the effectiveness of the corporation's internal control processes, and present their conclusions as of the reporting date. Furthermore, under the Regulations, the auditor is also required to present his opinion regarding the effectiveness of the internal control processes. The actions required of management include: identifying and mapping those processes which are particularly material to financial reporting and disclosure (see below) and identifying the controls related to those processes; risk assessment and mapping existing internal controls; assessing the effectiveness of controls and analyzing existing control gaps; correcting control flaws and analyzing the effects of these flaws on the effectiveness of the internal control process (e.g. - which flaws constitute material weaknesses). To these ends, companies may enlist the services of various experts and consultants. The draft clarification concerns the matter of whether, and to what extent, auditors can assist companies in the implementation of these actions. According to binding publications concerning auditor independence, an auditor's participation in administrative decision making in an audited entity necessarily compromises that auditor's independence. It has further been determined that independence is not maintained when additional services are provided in matters which, by nature, may be audited by the auditor (self testing).

Therefore, the draft clarification states that auditors are prohibited from participating in the testing stage, where companies examine the effectiveness of their internal controls, as these services inevitably lead to the auditor auditing his own work. Furthermore, the draft clarification states that auditors are prohibited from making decisions which by nature must be made by a company's management in assessing the effectiveness of that company's internal controls. Such decisions include determining the risk embodied in business processes related to financial reporting and disclosure as part of the risk survey; internal control planning for the audited entity; monitoring the audited entity's control mechanisms; and determining that control gaps and significant flaws constitute material weaknesses. All these may not be carried out by the auditor, out of concern for his independence.

EXTENSIONS AND EXEMPTION APPLICATIONS Extensions According to the Securities Law, the ISA, or an authorized employee thereof, may extend the time prescribed in the Regulations for filing reports (hereinafter - "Granting extensions"), if it is convinced that the corporation is unable to file its report on time (see Table 5 below). The ISA places great emphasis on the timely filing of reports, and not merely on the disclosures included therein. As a result, the ISA exercises its power to grant extensions only in very exceptional cases. Currently, according to an amendment to the Securities Law which went into effect in October 2007, the ISA may impose monetary sanctions on corporations which are late in filing their reports. For more information on monetary sanctions, see Chapter IX below.

Table 5: Extension applications, 2005-2009 Report Year No. of No. of Extensions Extensions Extensions applications applications granted for granted granted 43 submitted denied up to 30 for 31-60 for more days days than 60 days

# % Q1 2005 3 2 67.0 - - 1 Q2 2005 3 2 67.0 1 - - Q3 2005 2 2 100.0 - - - Annual 2005 4 3 75 - 1 - Q1 2006 2 1 50 1 - - Q2 2006 8 4 50 4 - - Q3 2006 3 1 33 1 1 - Annual 2006 2 1 50 - 1 - Q1 2007 1 - 0.0 - 1 - Q2 2007 0 - - - - - Q3 2007 3 3 100 - - - Annual 2007 5 4 80 1 - - Q1 2008 1 - 0 - 1 - Q2 2008 1 1 100 - - - Q3 2008 5 3 60 - 2 - Annual 2008 11 7 63 1 - 3 Q1 2009 5 2 40 2 - 1 Q2 2009 3 1 33 - - 2 Q3 2009 5 3 60 - 1 1

Exemption Applications Pursuant to the powers granted to it under the Securities Law, the ISA may exempt corporations from certain reporting requirements. In 2009, 74 exemption applications were filed with the ISA, of which 16 were filed together with applications for permits to publish prospectuses. Sixty applications were fully approved, none were partially approved, four were cancelled or withdrawn by the applicants, and four were denied. By comparison, in 2008, 62 exemption applications were filed with the ISA, of which 22 were filed together with application for permits to publish prospectuses. In 2008, 54 applications were fully approved, none were partially approved, five were cancelled or withdrawn by the applicants, and two were denied.

43 In cases where one company submitted more than one application regarding a single report, all applications were deemed as one. The application was classified according to the last approved date. 40

ANNUAL CONFERENCE - CORPORATE FINANCE DEPARTMENT The ISA staff places great emphasis on maintaining transparency in the Department's activities. For this purpose, as well as due to the need for updates on matters on the staff's agenda and in order to minimize uncertainty in the market and share information, the Corporate Finance Department held its first annual conference in April 2009. The conference was entitled "Corporate Finance Conference - The Challenges Ahead". The conference included lectures, professional panels, and discussions of the legal and financial reporting challenges posed by the capital market in Israel, as follows: a. Corporate bonds, including the bonds market; bondholder rights; trustee responsibilities – powers and duties; corporate governance in bond companies; and self-acquisition of bonds. b. Corporate governance, including the business advantages of orporate c governance and control; management-board of directors relations; corporate governance from an international perspective; controlling shareholders and Amendment 10 to the Companies Law; senior officer remuneration and distribution of dividends. c. Reporting and disclosure, including challenges in applying standards and reporting requirements; IFRS in practice; valuations; new reporting and disclosure requirements for public companies; SOX for publicly traded companies; and new issues in reporting and auditing.

DUAL LISTING In November 2000, an amendment to the Securities Law went into effect, adding Chapter E3 concerning the dual listing of companies. Under the amendment and a later amendment from 2005, corporations traded on the NASDAQ, NYSE, AMEX, or LSE Main Market, Primary Listing may be listed on the TASE on the basis of reports identical to those filed by said corporations abroad. According to the amendment, companies that were dual-listed when the amendment went into effect ("Dual-Listed Companies") or companies registering for trade on the TASE n i the future, and subsequently on one of the aforementioned exchanges, may begin reporting according to Chapter E3 provided a majority of shareholders (non-controlling) agree. According to the amendment, companies wishing to register for trade under Chapter E3 must have traded on a foreign exchange for a minimum of one year prior to their listing in Israel. An exception was made for companies whose market capitalization is at least USD 350 million, which may be listed immediately. This amount was later amended so that the current requirement is a market cap of at least USD 150 million. In the reporting year, two dual-listed companies were listed for trading on the TASE (presently there are 49 dual-listed companies on the Stock Exchange), compared to one company in 2008 (for a total of 54 dual-listed companies on the TASE in 2008). In the reporting year, no companies made the transition to dual-listing, as was the case in 2008. In the reporting year, two companies transitioned from dual-listing, 41

compared to one company in 2008. In the reporting year, four dual-listed companies were delisted from trade on the TASE and continued to trade in the US only, compared to one company in 2008. In general, the provisions prescribed by the Securities Law apply to reporting under Chapter E3 both on civil and criminal levels. However, as far as the examination of reports is concerned, the ISA takes into consideration the fact that dual-listed companies are supervised by the SEC or the FSA, which implement some of the strictest supervision in the world. This constitutes the basis for the ISA's decision to grant allowances under Chapter E3, exercising its authority while taking into consideration the aforesaid. Therefore, in general, the ISA relies on the supervision of these foreign organizations. In addition, according to Chapter E3, in cases where the ISA considers exercising its authority, it will first contact the SEC or FSA, as appropriate.

AUDITS UNDER SECTION 56F OF THE SECURITIES LAW In implementing the ISA's supervision and enforcement strategy, the Corporate Finance Department carries out audits of reporting corporations. These audits are carried out, inter alia, under Section 56F of the Securities Law. According to this Section, audits of reporting corporations can be carried out by persons who are not ISA employees, including accountants, lawyers, land appraisers and other professional service providers. These audits are aimed at examining whether the provisions of the Law have been met. Furthermore, they are ntended i to complement the Department's ongoing supervision of reporting corporations and reports issued by them, so as to promote transparency and fair disclosure and uphold investor interests. During the reporting year, audits were carried out for at-risk corporations, as classified during the global financial crisis, and which can be audited according to the Law. These corporations include unsupervised financial entities, companies which may have macro effects on the nation's economy, and real estate companies.

NOTICES TO COMPANIES During 2009, the ISA staff issued notices to reporting corporations, regarding their reporting requirements by law: a. Clarification to the disclosure directive regarding fair value of investment property - Issued on March 10, 2009 and clarified which investment properties require disclosure as prescribed under the disclosure directive. b. Notice of updated disclosure provisions and new disclosure provisions for the 2008 periodic reports - Issued on March 2, 2009. This notice summarized the new and updated disclosure provisions which went into effect as of the 2008 annual reports, and which were initially applied in those reports.

c. Clarification to Regulation 10(b)(14) of the Securities Regulations (Periodic and Immediate Reports) - Issued on February 26, 2009, and clarified that reporting requirements under the Regulation apply to reporting corporations whose debt certificates, issued and offered to the public, are held by the public as of the date of the report. d. Clarification regarding designated reporting to debt certificate holders - Issued on February 24, 2009, clarifying that when an auditor's opinion includes a going concern clause, publication of an expected cash flow statement is not required. Furthermore, the ISA staff regularly issues notices regarding the handling of prospectuses and fees.

UNDERWRITER REPORTS In 2007, a comprehensive reform of public offering procedures went into effect. It includes, inter alia, a prohibition on offering securities in a tender with a maximum price; the option of accepting non-uniform offerings, similar to those accepted in Western capital markets; the option to file a separate report, at a later date, in order to obtain a permit to issue a prospectus regarding the price and number of securities offered and thus reduce offering expenses; and a comprehensive reform regarding underwriters' powers and the extent and quality of reporting required of them. From the moment the aforesaid reform went into effect, anyone wishing to act as an underwriter must first register with the Underwriters Registry, maintained by the ISA. The ISA is also authorized to strike underwriters from the Registry. Currently, 28 active underwriting companies are registered with the Underwriters Registry, as well as 39 inactive ones. 44In 2009, the Registry received two registration applications, compared to three applications in 2008 and 49 in 2007. Of all the applications received in the eporting r year, one underwriting company was registered in the Underwriters Registry. In 2009, six underwriters announced the cessation of their operations, compared to 13 in the previous year.

44 An inactive underwriter may not undertake underwriting commitments and is required to meet some of the qualification requirements of an active underwriter for a period of three years from the date of becoming inactive. In order to return to active status, it is required to undergo registration as any company seeking to register as an underwriter. 43

Table 6: Violations for which monetary sanctions were imposed in 2009 No. Violating party Violation and manner of Sections violated ISA decision calculating the fine [chapter and section of the fifth amendment to the Law] 1 Elran (D.D.) Delinquent filing of 2008 Section 36 along with Decision dated: Investments annual financial Regulation 7 of the September 9, Ltd. statements (two days Securities Regulations 2009 late). (Periodic and Immediate Monetary Fine: NIS 15,000 Reports) sanction to a Repeat violation fine: NIS total amount of 7,500 (Chapter A, Section 3) NIS 23,100 Continuing violation fine: NIS 600 Total: NIS 23,100

2 Elran (D.D.) Late filing of statements Section 36 of the Law, Decision dated: Investments for Q3/2008 Regulation 39 of the February 18, Ltd. Securities Regulations 2009 Fine: NIS 15,000 (Periodic and Immediate Monetary Total: NIS 15,000 Reports) sanction to a total amount of [Chapter A, Section 3] NIS 15,000 3 Elran (D.D.) Delinquent filing of 2008 Section 36 along with Decision dated: Investments financial statements (two Regulation 7 of the September 9, Ltd. days late). Securities Regulations 2009 (Periodic and Immediate Fine: NIS 15,000 Reports) Monetary Repeat violation fine: NIS sanction to a 7,500 (Chapter A, Section 3) total amount of Continuing violation fine: NIS 23,100 NIS 600 http://www.isa. Total: NIS 23,100 gov.il/Download /IsaFile_4620.PD F 4 Elran (D.D.) Late filing of statements Section 36 of the Law, Decision dated: Investments for Q3/2008 Regulation 39 of the February 18, Ltd. Securities Regulations 2009 Fine: NIS 60,000 (Periodic and Immediate Total: NIS 60,000 Reports) Monetary sanction to a [Chapter A, Section 3] total amount of NIS 60,000

5 Emilia Delinquent filing of the Section 56(C) of the Law, Decision dated: Underwriting underwriter's annual Regulations 11, 12 of the September 9, Ltd. report. Report filed 108 Securities Regulations 2009 days late. (Underwriting) Monetary Fine: NIS 5,000 [Chapter B, Section 8] sanction to a Continuing violation fine: total amount of NIS 10,700 NIS 15,700 Total: NIS 15,700

6 Afik Hayarden Delinquent filing of 2008 Section 36 along with Decision dated: Holdings (2006) annual financial Regulation 7 of the September 9, Ltd. statements (one day late). Securities Regulations 2009 (Periodic and Immediate Fine: NIS 15,000 Reports) Monetary Total: NIS 15,000 sanction to a (Chapter A, Section 3) total amount of NIS 15,000

7 Arazim Non-disclosure of Regulation 48(c)(7), Decision dated: Investments sensitivity analyses in Regulation 40(a), and September 9, Ltd. board of directors' report Sections 2009 of the Q2 and Q3/2008 2.f. and 2.g. of the statements and in the Second Schedule to the Monetary note concerning events Securities Regulations sanction to a after the balance sheet (Periodic and Immediate total amount of date for Q3/2008. Reports) NIS 30,000

Fine: NIS 15,000 [Chapter A, Sections 3, 4] http://www.isa. Total: NIS 30,000 gov.il/Download /IsaFile_4618.PD F 8 Boymelgreen Delinquent filing of 2008 Section 36 along with Decision dated: Capital Ltd. annual financial Regulation 7 of the September 9, statements (3 days late). Securities Regulations 2009 (Periodic and Immediate Fine: NIS 15,000 Reports) Monetary Continuing violation fine: sanction to a NIS 1,200 (Chapter A, Section 3) total amount of Total: NIS 16,200 NIS 16,200 9 Gilon-TAO Delinquent filing of the Section 56(C) of the Law, Decision dated: Underwriting underwriter's annual Regulations 11, 12 of the September 9, and Issuing Ltd. report (6 days late). Securities Regulations 2009 (Underwriting) Fine: NIS 5,000 Continuing violation fine: [Chapter B, Section 8] Monetary NIS 500 sanction to a Total: NIS 5,500 total amount of NIS 5,500

10 Globalicom- Delinquent filing of Section 36 of the Law, Decision dated: Trade Ltd. statements for Q3/2008. Regulation 39 of the February 18, Securities Regulations 2009 Fine: NIS 15,000 (Periodic and Immediate Continuing violation fine: Reports) Monetary NIS 1,800 sanction to a Total: NIS 16,800 [Chapter A, Section 3] total amount of NIS 16,800

11 Globalicom- Delinquent filing of 2008 Section 36 along with Decision dated: Trade Ltd. financial statements (31 Regulation 7 of the September 9, days late). Securities Regulations 2009 (Periodic and Immediate Fine: NIS 15,000 Reports) Monetary Repeat violation fine: NIS sanction to a 7,500 (Chapter A, Section 3) total amount of Continuing violation fine: NIS 40,500 NIS 18,000 Total: NIS 40,500 12 The Lesser Delinquent filing of 2008 Section 36 of the Law, Decision dated: Group Ltd. financial statements (one Regulation 7 of the September 9, day late). Securities Regulations 2009 (Periodic and Immediate Fine: NIS 240,000 Reports) Monetary Total: NIS 240,000 sanction to a (Chapter A, Section 3) total amount of NIS 240,000

13 Dorot Delinquent filing of 2008 Section 36 of the Law, Decision dated: Properties and financial statements (78 Regulation 7 and September 9, Holdings Ltd. days late). Regulation 39 of the 2009 Delinquent filing of Securities Regulations Q1/2009 financial (Periodic and Immediate Monetary statements (8 days late). Reports) sanction to a total amount of Fine: NIS 15,000 [Chapter A, Section 3] NIS 125,400 Repeat violation fine 1: NIS 7,500 Continuing violation fine 1: NIS 46,200 Repeat violation fine 2: NIS 7,500 Continuing violation fine 2: NIS 34,200 Total: NIS 125,400 14 Development Delinquent filing of 2008 Section 36 of the Law, Decision dated: Company financial statements ( 63 Regulation 7 and September 9, Founded by days late) + Regulation 39 of the 2009 Federation of for Q1/2009 (3 days late). Securities Regulations Contractors in (Periodic and Immediate Monetary Israel Ltd. Fine: NIS 30,000 Reports) sanction to a Repeat violation fine 1: total amount of NIS 7,500 (Chapter A, Section 3) NIS 83,400 Continuing violation fine

1: NIS 37,200 Repeat violation fine 2: NIS 7,500 Continuing violation fine 2: NIS 1200 Total: NIS 83,400

15 Israel Land Failure to file a timely Section 36 of the Law Decision dated: Development report on the issue of a and Regulations 30, 36, March 24, 2009 Insurance temporary injunction 37A2 of the Securities Company Ltd. prohibiting the company Regulations Monetary from executing its general (Periodic and Immediate sanction to a meeting resolution for Reports) total amount of granting a loan of NIS 30 NIS 120,000 million to a company [Chapter A, Section 3] controlled by the http://www.isa. controlling shareholder. gov.il/Download /IsaFile_3965.pd Fine: NIS 120,000 f Total: NIS 120,000 16 Hamashbir Delinquent filing of 2008 Section 36 of the Law, Decision dated: Lazarchan Ltd. financial statements (one Regulation 7 of the September 9, day late). Securities Regulations 2009 (Periodic and Immediate Fine: NIS 60,000 Reports) Monetary Total: NIS 60,000 sanction to a [Chapter A, Section 3] total amount of NIS 60,000 17 Landmark Delinquent filing of 2008 Section 36 along with Decision dated: Group Ltd. financial statements (80 Regulation 7 of the September 9, days late). Securities Regulations 2009 Fine: NIS 60,000 (Periodic and Immediate Continuing violation fine: Reports) Monetary NIS 184,800 sanction to a Total: NIS 244,800 (Chapter A, Section 3) total amount of NIS 294,300 Delinquent filing of Q1/2009 financial statements (46 days late). Fine: NIS 15,000 Repeat violation fine: NIS 7,500 Continuing violation fine: NIS 27,000 Total: NIS 49,500

18 Multimatrix Delinquent filing of Section 36 of the Law, Decision dated: Ltd. statements for Q3/2008 Regulation 39 of the February 18, Securities Regulations 2009 Fine: NIS 15,000 (Periodic and Immediate Repeat violation fine: NIS Reports) Monetary 7,500 sanction to a Continuing violation fine: [Chapter A, Section 3] total amount of NIS 600 NIS 23,100 Total: NIS 23,100 http://www.isa. gov.il/Download /IsaFile_3654.pd f 19 Malrag Ltd. Delinquent filing of Section 36 of the Law, Decision dated: statements for Q3/2008 Regulation 39 of the February 18, Securities Regulations 2009 Fine: NIS 60,000 (Periodic and Immediate Continuing violation fine: Reports) Monetary NIS 26,400 sanction to a Total: NIS 86,400 [Chapter A, Section 3] total amount of NIS 86,400

http://www.isa. gov.il/Download /IsaFile_3655.pd f 20 Atia Group Ltd. Delinquent filing of 2008 Section 36 along with Decision dated: financial statements. Late Regulation 7 of the September 9, filing of two days. Securities Regulations 2009 (Periodic and Immediate Fine: NIS 15,000 Reports) Monetary Continuing violation fine: sanction to a NIS 600 (Chapter A, Section 3) total amount of Total: NIS 15,600 NIS 15,600

21 Pilat Media Delinquent filing of 2008 Section 36 of the Law, Decision dated: Global PLC Ltd. financial statements (2 Regulation 7 of the September 9, days late). Securities Regulations 2009 (Periodic and Immediate 9.9.2009 Reports) Fine: NIS 60,000 Continuing violation fine: (Chapter A, Section 3) Monetary NIS 2,400 sanction to a Total: NIS 62,400 total amount of NIS 62,400 22 Financitech Ltd. Delinquent filing of Section 36 of the Law, Decision dated: statements for Q3/2008 Regulation 39 of the February 18, 2008 Securities Regulations 2009 (Periodic and Immediate Fine: NIS 15,000 Reports) Monetary Total: NIS 15,000 sanction to a [Chapter A, Section 3] total amount of NIS 15,000

http://www.is a.gov.il/Down 48

load/IsaFile_3 656.pdf 23 First S.B.S. Delinquent filing of Section 36 of the Law, Decision dated: Holdings Ltd. statements for Q3/2008 Regulation 39 of the February 18, (formerly Y.A.D. Securities Regulations 2009 Electronics Ltd.) Fine: NIS 15,000 (Periodic and Immediate Continuing violation fine: Reports) Monetary NIS 10,200 sanction to a Total: NIS 25,200 [Chapter A, Section 3] total amount of NIS 25,200 http://www.isa. gov.il/Download /IsaFile_3657.pd f 24 Shtang Delinquent filing of Section 36 of the Law, Decision dated: Construction Q1/2009 financial Regulation 39 of the September 9, and statements. Late filing of 2 Securities Regulations 2009 Engineering days. (Periodic and Immediate Ltd. Reports) Monetary Fine: NIS 15,000 sanction to a Continuing violation fine: (Chapter A, Section 3) total amount of NIS 600 NIS 15,600 Total: NIS 15,600

25 Caprice Jewelry Delinquent filing of Section 36 of the Law, Decision dated: Ltd. statements for Q3/2008 Regulation 39 of the February 18, Securities Regulations 2009 Fine: NIS 15,000 (Periodic and Immediate Total: NIS 15,000 Reports) Monetary sanction to a [Chapter A, Section 3] total amount of NIS 15,000

One of the components of the ISA's supervision strategy over the capital market is to increase the involvement of gatekeepers, who act as overseers of various activities and reporting carried out by the corporations. Underwriters are, among others, part of this supervision chain. However, in recent years the number of offerings accompanied by underwriters has diminished, for a variety of reasons. As a result, for most prospectuses, the underwriters did not fulfill their function as gatekeepers. The ISA staff has published various proposals for discussion, including the re- involvement of gatekeepers in prospectuses. Another or alternative key player in offerings is the distributor. During the year, information has come to the ISA's attention that various parties have entered the market and effectively acted as distributors, without being authorized to do so under the Law and the Regulations. The ISA takes these cases very seriously and has already taken action against several of these organizations.

ENFORCEMENT - MONETARY SANCTIONS

Chapter H3 of the Securities Law, which provides for monetary sanctions,45 authorizes the ISA to impose monetary sanctions on reporting corporations, underwriters and interested parties for certain violations of the Law and Regulations. The amendment to the Law authorizes regulations determining criteria for reducing the sanctions prescribed by the Law. An initial proposal for these regulations was approved by the ISA Plenum and submitted to the Ministry of Justice for approval. According to Section 52O of the Law, the ISA will impose a monetary sanction on violators of any of the provisions specified in Amendment 5. The ISA collects the fines and transfers them to the State Treasury. The ISA has imposed monetary sanctions as provided by the Law since 2008. In 2009, monetary sanctions were imposed on 23 corporations and two underwriters, compared with 19 corporations and one interested party in 2008. The following table details the monetary sanctions imposed during the reporting year:

FINANCIAL INSTRUMENTS General Today, there is a great number and variety of financial instruments available on the market. Financial instruments include various indexed products (ILNs, covered warrants, short certificates, commodity certificates, various complex certificates, etc.), deposit certificates, contract certificates, structured bonds, and more. The most prominent financial instruments are ILNs, which account for approximately one 46 quarter of the daily trading volume on the Stock Exchange. A financial instrument is a security whose value and yield are derived from an underlying asset or reference index. These instruments are issued by special purpose companies (SPC), which offer them to the public and list them for trade on the TASE. Companies issuing financial instruments are usually privately-held reporting companies which are currently only subject to fair disclosure policies according to the Securities Law. Therefore, they do not come under the various provisions of the Companies Law for public companies requiring, inter alia, approval of transactions with controlling shareholders, appointment of external directors, appointment of internal auditors, etc. Despite the similarity between companies issuing financial instruments and mutual funds, they are diametrically different from a regulatory perspective. This difference is due to the fact that companies issuing financial instruments are only subject to fair disclosure and reporting requirements according to the Securities Law, while mutual funds are regulated and supervised under the Joint Investment Law. In light of this

45 Chapter 8(3) of the Law, concerning monetary sanctions, went into effect on October 1, 2007. 46 Public holdings in indexed products reached a record value of NIS 47.6 billion in November 2009. 50

regulatory arbitrage and the development of the financial instruments market, former ISA Chairman, Mr. Moshe Terry, established an inter-departmental team to examine the issue. This team examined the regulation needed in light of the significant increase in the offering and marketing of financial instruments to the public. In October 2007, the team published its interim recommendations. Following these recommendations, the Department of Corporate Finance and the Investments Department are working on the regulation and of the indexed products segment and its transition from regulation and reporting according to the Securities Law to regulation according to the Joint Investment Law. On November 15, 2009 the ISA Plenum approved the proposed draft amendment to the Joint Investment Law (hereinafter - "Amendment 14"). Amendment 14 aims to regulate the activity and supervision of indexed products. In addition, Amendment 14 lays the legal groundwork for regulating a new indexed product, similar to the American exchange traded fund (ETF), which will be known as an Index Linked Fund (ILF). Under the proposed amendment, and following its enactment, three types of alternative indexed products shall be offered in Israel: tracking mutual funds, ILNs, and ILFs. As part of the ISA's preparations for the changes expected to follow the enactment of Amendment 14, the ISA Chairman decided that in early 2010 the "Financial Instruments Unit" responsible for this field will be dministratively a and professionally transferred from the Corporate Finance Department to the Investments Department. This transfer requires numerous adjustments, including the preparation of a future supervisory mechanism, enactment of regulations, etc. These adjustments are currently being examined by the Unit staff. Concurrent with these regulation activities, the Unit is also acting to expand the existing disclosure requirements, and regularly works with companies issuing financial instruments, as follows:

EXPANDING DISCLOSURE REQUIREMENTS AND INCREASING TRANSPARENCY ISA directives regarding financial instruments - In 2008, four ISA directives were issued (for more information, see Chapter VII): a. Disclosure of the valuation of ILNs and indexed products in immediate reports; b. Disclosure of effective costs for investors in ILNs as opposed to direct investment in the underlying assets; c. Disclosure of other financial details related to indexed products; d. Disclosure of index descriptions in indexed products. During the reporting year, the Unit placed great emphasis on full implementation of these directives by companies issuing financial instruments, whether through examinations of company prospectuses or through examination of their quarterly statements. In light of the complexity of the directives and the numerous details which companies are required o t present thereunder, financial instrument companies submitted pre-ruling applications to the Unit regarding proper presentation of data, as detailed below. In response to these applications, the Unit published its position on the Corporate Finance Department website, according to the pre-ruling procedure. In addition, these directives were extended for another year in 2009. Disclosure of credit risks and market risks - Following the crisis affecting capital markets in Israel and abroad, and in order to minimize investor uncertainty, it is extremely important to increase transparency through various disclosure requirements regarding the financial position of ll a SPCs offering financial instruments to the public. The fact that financial instruments are issued by SPCs have limited economic capabilities by definition, the legal structure through which they were established, and the fact that they are still currently subject to reporting requirements without being subject to regulation and supervision under the Joint Investment Law, mandate increased disclosure regarding the main risks embodied in their operations. In particular, disclosure is required regarding market and credit risks. Thus, and in accordance with the Unit's activities in the previous year, the Financial Instruments Unit continued to promote transparency and fair disclosure among these companies, mainly as regards their risks, in both their ongoing reports and in their prospectuses. Thus, issuers of financial instruments are required to provide full and detailed disclosure in their quarterly and annual statements regarding the assets backing their liabilities to holders, reflecting their exposure to credit risks. This includes disclosure regarding deposits with foreign banks, broker collateral, borrowings, notes, etc. They are further required to provide full disclosure for each certificate series separately, detailing the market risks affecting the underlying assets and liabilities for each series. This disclosure is to include sensitivity analyses and fair value at risk. Fair value at risk is disclosed both at the individual certificate level and at the overall company level. Uniform reporting by companies issuing financial instruments - In 2009 the Unit placed particular emphasis on applying the ISA's directives requiring uniform

reporting by issuers of financial instruments. This uniformity enables easier reading and comparison of certificate term highlights and index descriptions, and assists readers in focusing on the main changes in the certificates carried out by the issuers during the quarterly reporting periods. In order to guarantee this goal, the Unit examined the disclosures in the condensed statements of all ETN issuers during 2009.

ONGOING WORK WITH FINANCIAL INSTRUMENT COMPANIES DURING THE REPORTING YEAR Processing prospectuses and amended prospectuses - Sixteen financial instrument- related public offering prospectuses and shelf prospectuses were processed, with emphasis on fair disclosure and complete and meticulous application of ISA directives and requirements. In addition, 14 financial instrument-related amended prospectuses were processed, which were mainly concerned with the addition of new series to company prospectuses, including examination of certificate terms, economic formulae, index descriptions, etc. Pre-ruling queries - Six queries regarding pre-rulings related to financial instruments were filed on various matters. These included queries regarding the application of various ISA directives, such as "Disclosure of economic and other details regarding indexed products" and "Disclosure of index descriptions for indexed products"; one query concerning the establishment of a call center for investment consultants during an open prospectus, etc. Public inquiries - The Unit replied to nine financial instrument-related inquiries submitted by the public. These inquiries concerned various matters, such as the fair value of financial instruments; the behavior of various certificates, such as short certificates and complex certificates; etc. The financial instruments market is undergoing significant and extensive changes. Following these changes, financial instruments will be subject to regulation and supervision under the Joint Investment Law. The ISA, the issuers of financial instrument indexes and other parties are investing significant efforts in this process. These organizations aim to change the legal structure of these investment instruments and regulate their activities from an operational perspective as well as regarding risk management and supervision. Alongside this complex process, and in light of the uniqueness of this field in recent years, extensive disclosure provisions have been prescribed, which grant the financial instruments field a separate status alongside real corporations. In the coming years, as today, special emphasis will be placed on laying the groundwork for regulating and overseeing the transition to supervision, along with continuous examination of the ongoing operations of these companies.

V Investment Department A. Mutual Funds 1. General At the end of 2009, the number of mutual funds stood at 1202, all open-end funds. During the year, 161 new open-end mutual funds were created. 144 funds ceased operations, of which 67 were liquidated, with the rest being merged with other mutual funds. The large number of liquidations and mergers, the highest in any calendar year so far, continues the trend started by the global economic crisis in late 2008. The crisis prompted a change in the mutual fund managers’ landscape, as it broke out following the regulatory changes which have characterized recent years. These changes, along with the global crisis, led organizations to recognize the need for streamlining operations and join forces, so as to leverage economies of scale. Organizations have met this need mainly through mergers and acquisitions. At the end of the reporting year, there were 32 active mutual fund managers (six ceased operations). The decrease in the number of fund managers is a result of the aforesaid process, where a relatively large number of fund managers merged with a smaller number of other fund managers, and several other managers liquidated their funds and ceased acting as fund managers. Consequently, the number of active companies left in this sector decreased. The number of active mutual fund trustees remained unchanged year-on-year, and stood at seven at the end of 2009. The value of assets under management by mutual funds at the end of 2009 (see table 7) totaled NIS 133.2 billion, compared to NIS 98.1 billion at the end of 2008. 1This sharp increase in the value of assets under management was mainly due to excess purchases (NIS 21.1 billion), and partly due to the sharp increase in the value of assets managed by mutual funds following the economic recovery.

Table 7: Number of mutual funds and value of assets under management, 2005-2009 Year Number of funds Value of assets (NIS billions) 2005 918 124.8 2006 1035 111.8 2007 1167 120.4 2008 1185 98.1 2009 1202 133.2

1 In current prices. 54

2. Permits to hold means of control in fund managers and icensing l of fund managers and trustees Permit applications are handled pursuant to the Permits to Hold Means of Control in Fund Managers and Licensing of Fund Managers Procedure, available on the ISA website. Thirteen applications for permits to hold the means of control in a fund manager were considered and approved during the reporting year; some were applications by new entities to purchase the means of control in existing fund managers, while the majority were applications for amending the terms of an existing permit following structural changes in the holding group, or following the merger of investment firms.2 Two applications for means of control were filed by banks, as collateral, within the meaning thereof under Section 23B(e) of the Joint Investment in Trust Law of 1994 (hereinafter - the "Mutual Funds Law"). During the reporting year, several permits were granted subject to special conditions, as follows: 1. In one case, a permit was given subject to a terminating condition subsequent, whereby the permit would expire 90 days from the date of occurrence of any of the events listed and pertaining to an ongoing investigation by US enforcement authorities. The permit was restricted after the applicant entity informed the ISA of enforcement proceedings instituted against it in the US. During the year, the condition subsequent was indeed met, and the permit holder ceased holding the means of control in the fund manager and was excluded from all management functions or influence over the fund manager. 2. In another case, the permit was restricted to one year, due to pending legal actions. 3. In yet another case, where the permit holder passed away and his estate was party to a merger, there was uncertainty regarding the identity of the successors. The ISA Licensing Committee decided it would be preferable to avoid granting the estate a permit to hold the means of control, and to exclude the executors of the estate from influencing the merging fund managers. During the reporting year, no applications to approve a fund manager were filed. Company applications to act as a trustee for a fund manager are handled pursuant to the Mutual Fund Trustee Approval Procedure, which is also available on the ISA website. One such application was received in 2009, and it is still pending approval. 3. Prospectuses a. Granting permits to publish prospectuses The prospectus of an open-end mutual fund remains valid for a period of up to twelve months from the date of publication. In order to ensure continuity in the offering of mutual fund units to the public, fund managers must publish a prospectus at least once a year.

2 The number of permits was higher, as applications are generally filed jointly for all holders of a fund manager, while permits are personal and given to each holder separately.

In 2009, 1222 permits to publish prospectuses were granted, 161 of which were for prospectuses of mutual funds offering their units to the public for the first time (compared to 1223 permits in 2008, of which 90 were for initial public offerings). This increase in the number of permits granted to new mutual funds is the result of the capital market's recovery from the economic crisis. Furthermore, there is a growing trend of applications for permits for new mutual funds acting as tracking funds. This trend is due to increased competition between the mutual fund sector and the ILN sector, reduction of the distribution fees for bond- tracking funds, and the publication of the proposed amendment to the Mutual Funds Law, which is to allow the issue of commercial tracking mutual funds (ILFs). Two funds were granted permits to publish their prospectuses twice during 2009. Five funds were refused permits and therefore cannot offer their units to the public. b. preparations for implementing the Joint Investment in Trust Regulations (Details, Structure and Form of a Prospectus) of 2009 (hereinafter - "Prospectus Details Regulations") On September 16, 2009, the Knesset Finance Committee approved the proposed amendment to the Prospectus Details Regulations. The proposed changes mainly concern the structure of prospectuses, the matching of information disclosed in prospectuses to changes in capital market and fund operations, expanding the types of information included in prospectuses, increasing the period for which information is provided, and making prospectuses more "investor-friendly". The new Regulations are expected to apply for prospectuses dated July 2, 2010 or later. During the reporting year, the Investment Department began preparations for implementing the Regulations as aforesaid. A work plan was formulated for implementing the Regulations, and appropriate forms were prepared, which will be used for permit applications to publish prospectuses according to the new format. In addition the Investment Department developed applications which will serve as tools for examining prospectuses. 4. Reports Mutual fund managers and trustees submit reports to the ISA under the Mutual Funds Law. During 2009, trustees and fund managers filed 30,204 reports (compared to 42,178 in , 2008), according to the following breakdown:3 4

29,711 Reports required of mutual fund managers under the Law and Regulations (compared to 41,625 in 2008), 493 Reports required of mutual fund trustees under the Law and Regulations (compared to 553 in 2008).4

3 Reporting of separate events in a number of funds consolidated in one form for the sake of convenience is counted as a number of reports. 4 Due to a calculation error, the number stated in the 2008 report was incorrect. 56

Additional reporting-related actions during the reporting year: a. The ISA exercised its authority under Regulation 22(a) to the Joint Investment in Trust Regulations (Reports) of 1994, and amended the monthly reporting form. b. In order to improve supervision over mutual fund managers and portfolio managers meeting their duties under the Mutual Funds Law, and in order to streamline the control of trading, mainly in the activities of institutional entities, mutual fund managers were required to report to the ISA data which would allow identification of trade transactions by name: Identification by name of ID numbers for fund accounts managed by fund managers, of split accounts used by fund managers, and of fund manager nostro accounts. 5. Fund manager participation in general meetings Section 77 of the Law requires fund managers to participate and vote in general meetings of a corporation whose securities are held by their fund, if the meetings are called to approve decisions that may harm the interests of unit holders, including approval of transactions with interested parties, and proposals that may favor the interests of unit holders. Section 77(c) of the Law requires fund managers who participated in such general meetings to submit a report to the ISA and the Stock Exchange regarding their vote at the meeting. Reports filed revealed the following interesting information: fund managers attended not only meetings for which their attendance was required but also meetings which they were not required to attend. Table 8 provides data regarding fund managers' participation in general meetings required as aforesaid.

Table 8: Participation of fund managers in general meetings called to approve decisions requiring their participation Year No. of Participation by Participation by Participation by meetings less than 30% of 30-70% of more than 70% of managers managers managers No. of % No. of % No. of % meetings meetings meetings 2006 547 121 22.1% 88 16.1% 338 61.8% 2007 785 177 22.6% 112 14.3% 496 63.1% 2008 548 57 10.4% 145 26.5% 346 63.1% 2009 705 91 12.9% 212 30.1% 402 57.0%

6. Onsite audits of mutual fund managers During 2009, the ISA audited mutual fund managers as follows: a. Eight in-depth audits of mutual fund managers by Investment Department staff and five accounting firms specializing in the field. The audits focused on controls, investment management, securities revaluations, supervision of third-party investment managers.

b. Fund managers were required to report regarding the implementation of recommendations issued by the ISA following in-depth audits carried out in 2008 (seven audits in all). c. In-depth inspection of securities transactions in two fund managers and several special examinations. d. In-depth investigation of compliance with equity and insurance requirements, including examination of financial statements and insurance policies for some fund managers and trustees. Two general audits of all fund managers were completed, covering the following issues: 1. Fund manager control environment. 2. Revaluation of securities under board of directors' guidance. General audits were initiated for all fund managers regarding investment management and use of split accounts. 7. Supervision of mutual fund trustees The ISA increased supervision of fund trustees, as part of the reinforcement of its supervision over mutual funds. The ISA: a. Reviewed trustees' procedures regarding ongoing control over fund manager activities. b. Examined trustee staffing, including the skills of employees charged with carrying out trustee duties. c. Examined how fund trustees reacted to lapses by fund managers. d. Performed both broad and spot inspections of trustees to examine various issues which arose during routine supervision of fund managers. e. Followed-up on trustees' quarterly reports. f. Cooperated with the Association of Trustees on various issues. 8. Regulation activities: In 2009, the Investment Department drafted and promoted bills and legislation amendments as follows: a. Primary legislation 1. Joint Investment in Trust Bill (Amendment 13) of 2008 - This bill, addressing a large number of issues, was approved by the Ministerial Committee for Legislation on June 28, 2009. 2. Joint Investment in Trust Bill (Amendment 14), 2009 - This bill, regulating the ILN and ILF sector, was approved by the ISA Plenum of November 15, 2009. For full details, see Chapter 7.

58 b. Regulations During the year, the following regulations were published: Joint Investment in Trust Regulations (Distribution Commission) (Amendment), 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 234], Joint Investment in Trust Regulations (Assets that may be Bought and Held by a Fund and their Maximum Amounts) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 232], Joint Investment in Trust Regulations (Buying and Selling Prices of Fund Assets and Value of Fund Assets) (Amendment, 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 234], Joint Investment in Trust Regulations (Details, Structure and Form of a Fund Prospectus) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 192], Joint Investment in Trust Regulations (Reports) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 230]. For full details, see Legal Counsel, Primary and Secondary Legislation Passed or Approved in 2009. c. Directives under Section 97(b) of the Law Section 97(b) of the Joint Investment Law authorizes the ISA to issue directives regarding the operation and management of fund managers and trustees, of officers therein, and of any person employed thereby. This authority is aimed at guaranteeing proper management of fund managers and trustees and safeguarding unitholder interests. During the year, the ISA issued the following directives: 1) Directive to fund managers concerning remuneration of outside directors: In light of the great responsibility borne by directors in mutual fund management firms, the time and resources which they must invest to examine various matters on board of directors' agendas (especially in the current conditions, which pose special challenges and require directors to be more available, original, professional, experienced, and responsible), and in order to enable fund managers to recruit capable directors and provide directors with suitable remuneration in light of their responsibilities, fund managers were issued a directive regarding remuneration of outside directors. This directive increases the remuneration to which outside directors are entitled. The directive applies the Companies Regulations (Rules Regarding Remuneration and Expenses for an Outside Director) of 2000, on mutual fund managers, mutatis mutandis in light of the particular characteristics of the mutual fund sector. The directive went into effect on February 22, 2010. 2) Directive to mutual fund managers concerning the cessation of unit offerings for funds under liquidation: From the moment of a fund's liquidation, the fund manager's activities are not ordinary activities serving the purpose for which the fund was established. Under these circumstances, fund managers' activities are aimed primarily at realizing assets and meeting demands for repayment received from unitholders. The ISA believes, that once notice has been given of a fund's liquidation, no additional unitholders should be admitted, as they may not be 59

aware of reports regarding the expected liquidation and may find themselves locked into a fund managing non-marketable assets. The directive aims to protect unitholders in accordance with Section 74 of the Law, and therefore requires fund managers which notify of their fund's liquidation according to Section 106 of the Law, to simultaneously give notice that the fund units are no longer being offered to the public, and to issue a report to that effect. The directive went into effect on October 3, 2009. 3) Directive to mutual fund managers regarding fund names disclosing possible exposure to non-investment grade bonds: The directive concerning mutual fund names disclosing possible exposure to non-investment grade bonds (corporate bonds rated BBB or lower, or any equivalent rating, or which are unrated) aims to improve current disclosure through fund names, investment policies and advertisements regarding possible exposure to such bonds. According to the directive, managers whose funds implement an investment policy whereby the fund's possible level of exposure to non-investment grade bonds exceeds its maximum exposure level to shares, as indicated by the fund's share exposure level, will be required to add an exclamation mark alongside their fund's exposure profile, as part of its name. This symbol will indicate to investors that a fund may be exposed to such bonds at rates which are higher than its maximum exposure to shares. The directive went into effect on March 1, 2010. d. Staff bulletins The Investment Department issues staff bulletins, in which it states its opinion in interpreting statutory provisions on general matters pertaining to several entities or to the market in general. These bulletins concern statutory provisions which, in the Investment Department's opinion, are not sufficiently clear, require additional clarification, or are general in nature and so require specification. During the reporting year, the Investment Department issued four circulars, on various matters pertaining to the Mutual Funds Law. e. Pre-rulings The Investment Department receives pre-ruling inquiries, usually by supervised entities, seeking the ISA's position on the implementation of statutory provisions in certain forward-looking cases. Furthermore, the Investment Department receives no-action requests due to deviations from statutory provisions in certain forward-looking cases. Beginning July 1, 2007, such requests are subject to the ISA's pre-ruling procedure, which appears on the ISA website. In addition, the ISA accepts general requests to clarify its interpretation of various legal issues. During the reporting year, 44 pre-ruling requests concerning the Mutual Funds Law were received by the Investment Department. All requests have been fully addressed. 9. Enforcement measures concerning fund managers a. Dismissal of Fund Manager Officers The ISA decided to dismiss a fund manager officer following his indictment and after he was given an opportunity to present his case. The dismissal was carried out in accordance with the ISA's authority under Section 23(a) of the Mutual

Funds Law. Following the ISA's decision as aforesaid, the fund manager appealed to the court, but subsequently resigned its position and withdrew its appeal. b. Transfer of Fund Management to Other Managers In another case, the ISA applied to the court and requested that a fund manager be required to transfer management of the funds to another manager, in accordance with Section 12(c) of the Investment in Trust Law or - if another manager for the funds could not be found - the ISA requested that the funds be liquidated in accordance with Section 104(d) of the Law. This application to the court was made following a breach of trust between the fund manager and the trustee for the managed funds. This breach of trust caused the trustee to resign and the fund manager could not find a replacement trustee six months after approval of the resignation. The court dismissed the ISA's application on grounds of lack of authority, but expressed its opinion that the fund manager's inability to find a replacement trustee and its failure to rectify the issue within a reasonable period of time may cause the fund's management to entail recurring violations, as stated in Section 15(b) of the Mutual Funds Law. This section grants the ISA the authority to demand that the funds be transferred to another manager. The ISA contacted the fund manager and demanded that it rectify the aforesaid flaw. The fund manager decided to liquidate all funds under management, and ceased serving as a fund manager. (See Chapter 7) Civil fines Under Section 114 of the Law, violators of any of the provisions of that Section will be subject to civil fines. The ISA collects the fines and transfers them to the State Treasury. Section 117(b)(2) of the Mutual Funds Law grants the ISA the authority to waive fines on violations of Sections 114 and 115 of the Law in certain exceptional cases. During 2009, the ISA imposed fines on ten fund managers, for 15 violations of the Law (see Table 9). During the reporting year, the ISA did not exercise its authority under Section 117(b)(2) of the Law. According to Table 9: All fines imposed were paid in full, except for Fine No. 7. This fine has yet to be paid, and the fund manager has appealed the fine in court. Table 9 details, inter alia, the types of violations for which fines were imposed during the reporting year:

Table 9: Violations for which fines were imposed in 2009, including sections violated and fine amounts Company Violation for which fine Sections violated Fine Date name was imposed in Mutual Funds imposed Law 1 Modelim 1. Violated Section 60 of 1. Section NIS December Mutual the Law: Conducted an 14(b)(10a) of the 116,100 9, 2009 Funds Ltd. off-exchange transaction Law in a managed fund 2. Section 114(a)(6) without prior approval of of the Law the fund's board of directors or committees.

2. Despite the above, reported that the transactions were approved by the board of directors and were supported by the external director. Thus, the fund manager reported misleading information. 2 Migdal Violation of Section Section 114(a)(6) of NIS December Mutual 73(b)(2) of the Law: A the Law 38,700 8, 2009 Funds Ltd. newspaper advertisement made on behalf of the fund manager included misleading information. 3 Migdal 1. Violation of Section 1. Section NIS March 8, Mutual 73(b)(1) of the Law: The 114(b)(16)(b) of 154,800 2009 Funds Ltd. website of a company the Law providing investment management services for 2. Section a fund managed by the 114(b)(16)(a) of the fund manager advertised Law data regarding the yield of a fund managed by the fund manager, in violation of the Joint Investment in Trust Regulations (Calculation of Yield) of 1995.

2. Violation of Section 73(a) of the Law: The advertisement was not approved by the trustee. 4 Sigma Violation of Section 43(b) Section 114(a)(4a) NIS December P.C.M. of the Law: Revalued of the Law 38,700 8, 2009 Mutual securities held in two Funds funds under management Manageme according to board of nt Company directors' instructions, (1992) Ltd. without obtaining the trustee's approval for the instructions, as required under Regulation 14B(a) of the Joint Investment in Trust Regulations (Buying and Selling Prices of Fund Assets and Value of Fund Assets) of 1994. 5 Halman- 1. Violated Section 60 of 1. Section NIS December Aldubi the Law: Conducted 114(b)(10a) of the 116,100 8, 2009 Mutual several off-exchange Law Funds Ltd. transactions in a number 62

of funds under 2. Section 114(a)(6) management without of the Law prior approval by the board of directors or committees of the fund manager.

2. Despite the above, the fund manager reported the transactions as approved in accordance with a procedure approved by the trustee, while such approval was not given prior to carrying out the transactions. Thus, the fund manager reported misleading information. 6 Alumot - Violation of Section 61 of Section 114(c)(4)(b) NIS December Sprint the Law: Deviation from of the Law 154,800 8, 2009 Mutual the fund's investment Funds policies. Manageme nt Ltd.

7 Nova Star 1. Violation of Section 1. Section 114(a)(6) NIS June 15, Mutual 73(b)(2) of the Law: The of the Law 116,1006 2009 Fund fund manager's website Manageme included misleading 2. Section nt Ltd.5 information on the 114(b)(16)(a) of the redemption price of one Law of the funds under management.

2. Violation of Section 73(a) of the Law: The advertisement was not approved by the trustee. 8 Millennium Violated Regulation 3(a) of Section 114(a)(7) of NIS March 8, Mutual the Joint Investment in the Law 38,700 2009 Funds Ltd. Trust Regulations (Reports), 1994: A delay of about one month in issuing an immediate report concerning the valuation of a security held in a

5 In a report dated September 2, 2009, the fund manager announced the cessation of his duties as fund manager effective that date. 6 The fund manager appealed the fine in court. As of the date of publication of this annual report, the appeal has yet to be decided. 63

managed fund according to board of directors' instructions. 9 Gaon Ongoing violation of Sections 114(b)(12) NIS March 8, Mutual Section 62 of the Law: and 115(a) of the 80,496 2009 Funds Law Manageme For a period of about five nt Ltd. weeks, a fund managed by the fund manager held a foreign bond at a rate exceeding 10% of the fund's net asset value, in violation of Regulation 5(a) of the Joint Investment in Trust Regulations (Assets that may be Bought and held by a fund and their Maximum Amounts), 1994. 10 Tamir Violation of Section 64 of Section 114(b)(13) NIS March 9, Fishman the Law: The fund of the Law 77,400 2009 Mutual manager purchased Funds Ltd. options for a managed fund despite there not being any written instructions from the investment committee, in violation of Regulation 10(a) of the Joint Investment in Trust Regulations (Options, Futures Contracts and Short Sales) of 2001. 11 Clal Finance Violation of Section Section NIS March 8, Mutual 80(a)(1) of the Law: 114(b)(17a1) of the 77,400 2009 Funds Charged a managed fund Law Manageme fees exceeding the nt Ltd. maximum amount prescribed in the fund agreement and stated in the prospectus.

Charts: Chart 1: Number of mutual funds, 2005-2009

Number of Funds

Chart 2: Value of fund assets, 2005-2009

Value of Assets (NIS billions)

Value of assets

B. Investment Advisors, Investment Marketing Agents and Investment Portfolio Managers 1. General Licensed individuals At the end of the reporting year, there were 5783 licensed individuals (1034 of whom were portfolio managers, 4228 were investment advisors, and 521 were investment marketing agents).

Table 10: Licenses granted to individuals - portfolio managers, investment advisors and investment marketing agents Investment Year Portfolio Investment marketing managers advisors agents (since 2006) 2005 172 351 2006 184 404 260 2007 226 666 202 2008 230 375 191 2009 212 365 151

Total licenses 2017 6187 804 granted

Table 11: Number of applicants added each year

Year Number of applicants

2005 2500 2006 4003 2007 3140 2008 2605 2009 2060

Licensed corporations At the end of the reporting year, there were 214 licensed companies (of which 176 were portfolio management companies, 16 were investment advice firms, and 22 were investment marketing firms). Following are details regarding the value of assets under management by licensed portfolio management companies as of December 31, 2009. The data are based on reports submitted by companies according to Section 27(a) of the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law of 1995 (hereinafter - the “Advice Law") and Regulation 8 of the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Equity and Insurance) of 2000.

Chart 3: Total value of assets under management by portfolio management companies, 2004-2009

140 127.6 115.5 118 118 120 102.7 100 74.8 80 60 40 20 0 2004 2005 2006 2007 2008 2009

2. Licensing During the year, 728 licenses were issued to individuals (212 to portfolio managers, 365 to investment advisors, and 151 to investment marketing agents). Furthermore, 18 licenses were issued to companies (ten to investment portfolio management companies, six to investment advisory firms, and two to investment marketing firms). 18,855 individuals are currently at various stages of the licensing process, of whom 3740 are pending licensing as retirement fund advisors.7 During 2009, 36 company licenses were revoked at the licensees’ request, of which: Thirty portfolio management companies, and six investment marketing firms. Examinations As part of the licensing of investment advisors, investment marketing agents and investment portfolio managers under the Advice Law, two examination sessions were held in May and November 2009, on the following subjects: a. Securities laws and professional ethics, b. Accounting, c. Statistics and finance, d. Economics, e. Professional A (formerly: Analysis of Securities and Financial Instruments), f. Professional B (formerly: Portfolio Management for Portfolio Management License Applicants). 7323 exams were held for 6086 examinees, of whom 3867 passed (see Table 12 below).

7 Such licenses are granted by the Ministry of Finance, but applicants must pass four out of the ISA's six licensing exams. 67

Chart 4: Licensing examinees (by exam units), 2004-2009

10000 8852 8957 9000 8480 8000 7323 7000 5597 6000

5000 4012 4000 3000 2000 1000 0 2004 2005 2006 2007 2008 2009

Table 12: Exam success rates in 2009 Subject Number of Rate of examinees success (%) Professional ethics 11 91 Securities laws and professional ethics 1393 86 Accounting 837 66 Statistics and finance 859 48 Economics 997 49 Professional A 1627 63 Professional B 688 61

In September 2009, a petition was filed with the Jerusalem District Court, serving as the Administrative Court, against the ISA for the disqualification of two questions in the Professional A exam conducted in accordance with the Advice Law. In November 2009, the court issued its ruling rejecting the petition (for details see Legal Counsel, Judicial Proceedings Involving the ISA). Exemption from Examinations The Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Services Regulations (Application for icense, L Examinations, Internship and Fees) of 1997 (hereinafter - The "Licensing Regulations") specify that candidates holding a relevant degree, within the meaning of thereof under the Regulations, are entitled to exemptions from examinations. 8During the reporting year, 3781 applications for exemptions were processed, of which 3600 were approved.

8 Until May 2007, according to the Regulations, applicants who completed relevant academic courses were also entitled to exemptions.

Chart 5: Processing of exemption applications, 2004-2009

14000 12384 12000

10000

8000

5845 6000

4025 3582 3777 3600 4000

2000

2004 2005 2006 2007 2008 2009

Internship The abovementioned licensing egulations r also regulate the ompulsory c internship for all applicants. During the reporting year, 535 internship applications were approved, of which 239 were for investment advising, 100 for investment marketing, and 196 were for portfolio management.

Chart 6: Processing of internship applications, 2004-2009

1400 1268

1200

1000 857 804 800 666

600 506 535

400

200

2004 2005 2006 2007 2008 2009

Licensing denied due to credibility considerations As part of the ISA's examination of a license application submitted by a portfolio management company, the ISA required the decision of the Disciplinary Committee. The ISA Disciplinary Committee decided that the ontrolling c shareholder and officer in the applicant company violated his duties under Sections 11, 12, 18(b) and 20 to the Advice Law. By virtue of its powers under Section 8(c)(2) of the Advice Law, the ISA decided not to grant the applicant company a license at that time, but determined that its decision shall be valid for one year. Online processing of licensing inquiries through the ISA website In order to improve the quality and availability of services provided by the ISA, the ISA decided near the end of the reporting year that licensing-related matters will be handled solely through the ISA website. To this end, designated resources

were established, in order to assure that every inquiry will be reviewed and answered as quickly as possible. 3. Supervision Supervision over investment advisors, investment marketing agents and portfolio managers focused on the following issues: A. Auditing During the reporting year, three types of audits were conducted: 1. Cross-sectional audits examining one particular issue in a large number of companies. 2. Company audits, examining specific matters in licensed companies and individual investment advisors employed by banking corporations. 3. Audits examining compliance with the Prohibition on Money Laundering Law. Compliance audits and 14 company audits were carried out in company offices and bank branches. Cross-sectional audits and 20 company audits were carried out by correspondence, where companies or banks were required to submit documents to the ISA. 1. Cross-sectional audits a. During 2009, audits were completed in 26 portfolio management companies, examining their compliance with Sections 13, 17 and 26(a) of the Advice Law regarding agreements and periodic reports sent to clients, with special emphasis on client portfolios including non-marketable securities. b. During 2009, audits were completed in 31 companies examining the compliance of portfolio management companies with Sections 12, 13 and 26(a) of the Advice Law regarding the matching of investment policies to instructions given by risk-averse clients. c. During the year, the Investment Department initiated a cross-sectional audit of licensed companies' and freelance investment advisors' compliance with Section 13 of the Advice Law and the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Recording Transactions and Advice) of 2007, concerning agreements and recording of advice. The audit includes 17 licensed investment advice or investment marketing firms and seven individual investment advisors. The audit is still ongoing. d. During the year, all licensed companies were requested to fill out a questionnaire regarding the implementation of ISA directives on recording client instructions and needs in an agreement. Out of a total of 214 responses, 20 companies replied that they do not have clients to which the ISA's directives apply. e. At the end of 2008 and in early 2009, following the cessation of insurance companies' providing professional liability insurance for licensees, there was a short period of time in which licensees could not obtain insurance as required by law. Concurrently with the ISA's efforts to resolve the matter, all 70

companies needing to renew their insurance during this period were required to notify the ISA of their insurance status, and issue reports pursuant to Section 27(c) of the Law if they did not meet the statutory insurance requirement. The ISA required these companies to inform their clients of their insurance status, and granted an extension to resolve the matter. During the second quarter of the year, following the entry of new insurers into the market, the matter was finally resolved. However, a number of companies have announced the cancellation of their license due to significant increases in insurance premiums. 2. Company audits a. During the reporting year, six portfolio management company audits were completed. These audits examined one or more of the following issues: agreements with clients; duty of trust; identification of client needs and adapting services accordingly; documenting client needs and signing of written agreements; fair disclosure; notifications on conflicts of interest; notifications on high-risk transactions and obtaining consent for such transactions; notifications on interests in financial assets; prohibition on incentives; client agreement to receive fee refunds; periodic reports; existence of internal enforcement mechanisms ensuring compliance with the Law and quality of advice. In addition to these audits, four audits initiated in 2009 are still ongoing. b. In the reporting year, 17 audits were completed among investment advisors employed by banks. These audits examined one or more of the following issues: Computerized advice systems (the main focus of these audits); duty of trust; identification of client needs; adapting services to client needs; fair disclosure; notifications to clients regarding conflicts of interest; disclosure of interests in financial assets; prohibition on preferential treatment; notifications to clients regarding high-risk transactions; prohibition on accepting incentives; keeping record of investment advice sessions; supervision and guidance of advisors; duties of trust, care and proficiency. In addition to these audits, seven audits initiated in 2009 are still ongoing. 3. Audits examining compliance with the Prohibition on Money Laundering Law During the reporting year, the Investment Department conducted 14 audits in this matter with portfolio management companies, and five with non-bank Stock Exchange members. All audits were outsourced to third-party contractors. The audits examined the companies' compliance with the Money Laundering Prohibition Order, including: identification requirement; verification of identifying details; statement regarding controlling shareholder and beneficiary; identification in person; keeping of identifying documents; regular and special reporting to the Money Laundering Prohibition Authority; the existence of a computerized database. B. Monitoring of investment advisor activities in banks In addition to specific audits carried out in banking corporations, in 2009 the Investment Department used information from ISA sources and information 71

requested from the banks in order to examine activities carried out in the banks' accounts. This examination was carried out as part of a cross-sectional review of investment advice activities n i banking corporations. Following these examinations, banks were required to provide explanations or investigate transactions in securities which were found to be unusual or unreasonable. C. Enforcement of reporting requirements and examination of reports In 2009, the ISA enforced reporting requirements in the following matters: 1. Full, accurate and timely filing of annual reports in accordance with Section 27(a) of the Advice Law. 2. Reporting any failure to comply with the terms of the license in accordance with Section 27(c) of the Advice Law. 3. Reporting of licensed staff by banks in accordance with Section 27(c3) of the Advice Law. Furthermore, companies whose annual reports indicated that they failed to meet equity and/or insurance requirements at the end of the reporting year were required to take the necessary corrective action immediately so as to comply with the Law. Failure to do so would lead to revocation of the license. D. Examination of alleged violations of the Advice Law The Investment Department investigates alleged violations of the Advice Law. These investigations are carried out following public complaints or following suspicions that arise during the ordinary course of the Investment Department's operations. In addition to conversations with those persons submitting complaints, investigations include meetings with those persons, contacting banks and Stock Exchange members for further information, and a detailed examination of the findings. At the end of these investigations, a decision is made regarding the course of action for each case, bearing in mind, inter alia, public interest, reliability of the information, and the quality of evidence. During the reporting year, 103 cases of possible criminal and/or disciplinary violations were investigated, of which 28 cases from the previous year. Of the 83 cases investigated, 73 cases were closed, as follows: - 5 cases were transferred to other departments. - 4 cases were submitted for auditing. - In 6 cases the ISA issued letters to relevant persons concerning identified flaws. - In 2 cases civil fines were imposed. - 9 cases were forwarded to other authorities. - 47 cases were closed for one or more of the following reasons: no violation of the Law was found; lack of evidence; non-cooperation by the complaining party or inability to contact the complaining party; lack of public interest due to the time that elapsed between the violation and the filing of the complaint or because the complaint was diminutive.

- At the end of 2009, 30 cases were still under investigation. E. Professional conference for licensees In October 2009, the Licensee Supervision Unit held a professional conference for licensees. The conference concerned the ISA directive requiring licensed corporations to establish operational and managerial procedures. The directive is effective starting February 2010 and the conference was intended to clarify the directive's requirements, provide licensees with a better understanding of the directive and help them prepare for its implementation. The four conference sessions were attended by approximately 200 licensees from portfolio management companies, investment advice firms, and investment marketing firms. After the conference, the ISA published a circular on its website, summarizing all the questions raised during the conference, as well as the ISA's answers to those questions. F. Professional conference for Stock Exchange members – Prohibition on Money Laundering In April 2009, the Licensee Supervision Unit held a professional conference for CEOs and money laundering prohibition compliance officers in non-bank Stock Exchange members. The conference focused on the importance of proper mechanisms for assuring compliance with the Prohibition on Money Laundering Law, with a special emphasis on extraordinary reports. During the conference, Stock Exchange members were given tools to use in order to achieve compliance with the Law. The conference was attended by 30 representatives of various Stock Exchange members. G. Training In order to improve compliance by licensed companies, the ISA continued providing training to all new companies in 2009. Training was conducted by Investment Department supervisors near the date on which the license was granted and after coordinating the training with each company separately. Training was carried out in person with the management and employees of each company. During training sessions, the company's representatives reviewed the main points of the Advice Law and the Prohibition on Money Laundering Law, including each company's duties towards its clients and towards the regulatory authorities. Furthermore, company representatives received information on problems and flaws found in audits conducted in other companies, along with information on avoiding those pitfalls. Training is conducted in small groups, which allows training supervisors to address specific questions raised by company representatives. In 2009, 16 training sessions were carried out, emphasizing companies' duties to act first and foremost for the benefit of their clients, and further stressing the need for internal company controls and enforcement.

4. Regulation Activities In 2009, the Investment Department drafted and promoted bills and legislation amendments as follows: A. Primary Legislation 1. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Bill (Amendment 11) of 2000. This bill, covering a variety of issues, was approved by the 17th Knesset on its first reading on July 30, 2008. Following the change of government, on May 17, 2009, the Ministerial Committee for Legislation approved continuity. An amended version of the Bill was submitted to the 18th Knesset's Finance Committee for second and third readings. After the reporting period, the bill was enacted into law following its approval on its second and third readings, and was published in the Official Gazette. 2. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Bill (Amendment 12), 2008. One of the goals of this amendment is to change the insurance requirement from a licensing prerequisite to a requirement for providing investment advice, investment marketing and investment portfolio management services (hereinafter - "Services"). Another goal is to regulate various ILN-related aspects of these services, and match the regulation for ILNs to that which applies to mutual funds. The bill was approved by the Knesset on its first reading on July 30, 2008, and is currently pending review by the Knesset Finance Committee prior to its second and third readings. After the reporting period, the bill was enacted into law following its approval on its second and third readings, and was published in the Official Gazette. For full details, see Legal Counsel, Proposed Primary and Secondary Legislation. B. Regulations 1. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Application for License, Examinations, Internship and Fees) (Amendment) of 2009. The proposed regulations institute licensing and internship changes, and aim to increase professionalism among licensees under the Advice Law, along with streamlining and simplifying the licensing process. In addition, changes are proposed in the fee system applied to licensees and applicants. The regulations have been submitted to the Knesset Finance Committee. 2. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Reports to Clients) of 2009, and Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Reports to the ISA) of 2009. The proposed regulations aim to regulate the fair disclosure required of licensees under the Advice Law. The regulations were approved by the ISA Plenum on August 16, 2009. 3. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Foreign Providers) of 2009. The proposed regulations provide for a foreign service providers register that will be established following the enactment of Amendment 11 to the Law. The regulations were approved by the ISA Plenum on September 6, 2009.

For full details, see Legal Counsel, Proposed Primary and Secondary Legislation. C. Directives in accordance with Section 28 of the Advice Law Section 28(b) of the Advice Law authorizes the ISA to issue directives regarding the operation and management of licensees, officers in licensees and all persons employed by licensees, in order to assure the proper conduct of licensees. During the year, the ISA issued the following directives: 1. Directive to licensed corporations on the manner of reporting changes in the identity of controlling shareholders and officers: On March 24, 2009, a directive issued to licensed corporations went into effect. The directive concerned the manner of reporting changes regarding the identity of controlling shareholders and officers in accordance with Section 27(c) of the Advice Law. The directive states that licensed corporations must report to the ISA within seven days of a decision to add and/or change officers or controlling shareholders in the corporation. These reports are to detail the names of officers and/or controlling shareholders who have completed their tenure or were added and/or appointed in the corporation. 2. Directive to licensed corporations requiring the establishment of operational and managerial procedures: On August 25, 2009, a directive to licensed corporations was published in the Official Gazette requiring that they establish operational and managerial procedures. The directive requires licensed corporations to formalize their operations through procedures and requires that corporate officers be familiar with procedures that are relevant to their duties and understand the importance of implementing those procedures. The directive specifies those matters for which procedures must be established. Thus, for example, licensed corporations must establish procedures for implementing their requirements by law and their procedures, training and internal enforcement mechanisms, resolving conflicts of interest, and preventing preferential treatment of clients. The directive does not provide an exhaustive list of procedures, and licensed corporations must regulate operations through additional procedures, as necessitated by the nature of their business. The directive went into effect on February 24, 2010. D. Staff bulletins The ISA publishes staff bulleting stating its position on interpretations of the law in matters with broad ramifications, which pertain to a number of queries or to the market as a whole, and which the ISA deems insufficiently clear, in need of further clarification, or to broad and in need of specification. During the reporting year, the ISA published 11 staff bulletins on various matters concerning the Advice Law and Regulations and the Prohibition on Money Laundering Law - concerning Stock Exchange members and portfolio managers. These included Q&As on various issues, combining answers to individual pre- ruling queries and the broader ISA position on the issue at hand. E. Pre-rulings During the reporting year, 28 pre-ruling requests concerning the Advice Law were received by the Investment Department. Two requests are still pending. 75

5. Enforcement Activities Concerning Licensees A. Revocation and suspension of licenses following ISA decisions 1. Revocation/suspension due to failure to meet the terms of the license By virtue of its powers under Sections 7(a)(6) and 8(a)(6) of the Advice Law, the ISA suspended the licenses of 43 individuals due to failure to meet the insurance requirement. Furthermore, the ISA decided to revoke an investment marketing firm’s license, by virtue of the ISA's authority under Section 10(a)(2) of the Advice Law. This license was revoked after the company failed to meet the equity requirement. In addition, the ISA suspended the licenses of 115 individuals for failure to pay annual fees, in accordance with Section 41(b) of the Advice Law. 2. Suspension of licenses due to credibility issues a. The ISA decided to suspend a portfolio manager's license, in accordance with Section 10(c) of the Advice Law, after he was indicted for severe violations of the Securities Law, the Advice Law and the Mutual Funds Law and Regulations. The accused portfolio manager traded a number of shares with the intent of increasing their price, inter alia, through self-dealing, abuse of Stock Exchange trading methods and creating false representations of real transactions and real trading volumes, which in fact related to self-dealing between that manager's accounts. The portfolio manager appealed the decision, and the license suspension was stayed pending the outcome of the appeal. Later, the portfolio manager withdrew his appeal with the court, and the ISA's decision went into effect. (See Chapter 7). b. The ISA decided to revoke a company's portfolio management license by virtue of its authority under Section 10(a)(1) or under Section 10(a)(3) of the Advice Law. The license was revoked after having been granted due to false representations made to the ISA and following the violation of one of the license terms. B. Disciplinary proceedings - disciplinary decisions During the reporting year, the Investment Department passed two disciplinary decisions, as follows; 1. On November 3, 2008, an application for declaratory relief was filed with the ISA Disciplinary Committee, stating that under existing circumstances, an investment advice licensee is "unworthy" to act as such, under Sections 32(b) and 10(a1) of the Advice Law. The application was filed after the ISA found that during civil proceedings taking place in a district court (and to which the licensee was not a party), facts were established raising serious concerns over the licensee's conduct, including violation of the Advice Law. Namely, these facts concerned the licensee's management of an investment portfolio. On March 18, 2009, a hearing of the ISA Disciplinary Committee took place regarding the aforesaid matter, and on April 2, 2009, the ISA Disciplinary Committee decided that the court ruling cannot suffice for the Committee to determine the existence of circumstances entitling the ISA to revoke the investment advisor's license. 76

2. A disciplinary complaint was filed against a portfolio management company (hereinafter - "Respondent 1") and its executives (licensed investment advisors and portfolio managers. Hereinafter - "Respondents 2 and 3") for undertaking to provide 16 of heir t clients with low-risk investment management services. However, during June and July of 2005, the Respondents violated their above obligation and exposed the clients to a higher risk level. So doing, the Respondents violated their duty to adapt the transactions carried out on behalf of clients to the instructions given by those clients and their needs. Therefore, the Respondents violated their duty of care and acted in a level of proficiency unbefitting a reasonable licensee under similar circumstances. A decision dated November 9, 2008 states that the Respondents violated their duties under Sections 12 and 20 of the Advice Law, and so committed disciplinary offenses under Section 30(a)(1) of the Law. On February 18, 2009, a decision was made regarding the penalties to be imposed on the Respondents: Respondent 1 - revocation of license for a period of 10 years. For each of Respondents 2 and 3 - a fine of NIS 60,000, suspension of their portfolio manager license for a period of 18 months, and suspension of their investment advisor license for a period of nine months. 3. A disciplinary complaint was filed against a licensed investment advisor for exceeding his clients' permissions by purchasing options in sums greater than those approved by his clients, in addition to his engaging in option writing. During the course of his activities, the Respondent did not have the adequate means and time to engage in MAOF futures contracts and options market activities, which require continuous and ongoing monitoring of the capital market, and immediate real-time response when necessary. These facts were not made clear to clients. As part of a settlement, the Respondent admitted the facts of the disciplinary complaint. The ISA Disciplinary Committee determined that he had violated Sections 11, 12, 14 and 25(b) of the Advice Law, and so committed a disciplinary offense under Section 30(a)(1) of the Law in his dealings with four of his clients. The following penalties were imposed: revocation of license for a period of 10 years, and a fine of NIS 65,000. 4. A disciplinary complaint was filed against a portfolio management company (hereinafter - "Respondent 1"), its managers (hereinafter - "Respondents 2 and 3"), and its employees ("Respondents 4 and 5") for violating their duties under Sections 11, 12, 18(b) and 20 of the Advice Law. The violations concerned, inter alia, the Respondents' management of client portfolios in violation of those clients' explicit instructions, changing the portfolio management method, and increasing portfolio risk levels by adding a high-risk MAOF futures contracts and options market strategy, which required the clients' prior written approval. Thus, the Respondents committed a disciplinary offense under Section 30(a)(1) of the Law. On August 26, 2008, the ISA Disciplinary Committee decided that the Respondents committed disciplinary offenses under Section 30(a)(1) of the Law. On January 19, 2009, the ISA Disciplinary Committee decided to impose the following penalties: on Respondent 1 - a fine of NIS 10,000; on Respondent 4 - a reprimand and a fine of NIS 75,000. The ISA Disciplinary Committee decided to publish its decision without disclosing the names of the Respondents. The Respondents and the 77

Attorney General (through the Taxation and Economics Department) appealed the ISA Disciplinary Committee's findings. The appeal is still pending decision. 5. Appeal of an ISA Disciplinary Committee decision - The ISA Disciplinary Committee found a portfolio management company (hereinafter - "Respondent 1") and a licensed portfolio manager (hereinafter - "Respondent 2") to be in violation of Sections 11, 12, 13, 18 and 20 of the Advice Law. The Respondents had violated the Law by failing to sign written agreements with clients, failing to adapt investments to client instructions, failing to obtain clients' prior approval to high-risk options transactions, and received a fee refund for transactions carried out on behalf of clients without their prior approval. In so doing, the Respondents committed disciplinary offenses under Section 30(a)(1) of the Law. On December 23, 2007, the ISA Disciplinary Committee decided to impose the following penalties: on Respondent 2 - revocation of license for a period of 10 years and a fine of NIS 10,000; on Respondent 1 - revocation of license for a period of 10 years and a fine of NIS 1,000. The parties appealed the ISA Disciplinary Committee's decision. The Respondents appealed the ISA Disciplinary Committee's decision to impose fines and its decision to publish the decision. Furthermore, the Attorney General (through the Taxation and Economics Department, hereinafter - the “State") appealed the low sum of the fine imposed on the Respondents. On April 20, 2009, the Tel Aviv District Court ruled on these appeals. The District Court rejected the Respondents' appeal, accepted the State's appeal and imposed a fine of NIS 50,000 on Respondent 2, and a fine of NIS 10,000 on Respondent 1. C. Civil Fines Imposed Under Chapter G1 of the Law According to Section 38A of the Advice law, the ISA Chairman may impose civil fines on anyone violating the provisions of the Law. The ISA collects the fines and transfers them to the State Treasury. The ISA imposed fines on fifteen companies and two investment advisors in accordance with this Section, as detailed below:

Table 13: Violations for which fines were imposed in 2009 and fine amounts Company Violation for Sections Fine imposed Date name which fine was violated in imposed Advice Law

1 Clal Finance Receipt of fee 17(a) NIS 1,566,000 December 30, Batucha refunds without 2009 Investment obtaining client Management approval as Ltd. required. 2 Tova Weiss Prohibited 4(a) NIS 26,100 October 22, purchase 2009 securities by an investment advisor 78

3 Rom Raanana Failure to comply 12+13 and NIS 27,000 October 22, Consulting with the directives 2009 and directives and regarding Investment the Law the Ltd. regarding identification identification of of client client needs. needs

Failure to include 26(d) insurance details in reports to clients. 4 I.B.I. - Amban Delinquent filing 27(a) NIS 45,821 April 5, 2009 Asset of report. Management Ltd.

5 Alternative Delinquent filing 27(a) NIS 23,829 April 5, 2009 Investment of report. Portfolio Management and Advice Company Ltd. 6 Africa Israel Failure to report 27(c) NIS 100,620 April 5, 2009 Investment failure to comply Portfolio with licensee Management insurance Ltd. requirements. 7 Israel Union Failure to record 25 NIS 65,000 April 5, 2009 Bank Ltd. advice sessions. 8 Michal Yirmi Failure to record 25 NIS 3,000 April 5, 2009 advice sessions. 9 Vardan Failure to comply 12+13, 28(b) NIS 63,000 April 5, 2009 Investment with the House Ltd. directives and 26(a) the Law regarding identification of client needs.

Failure to emphasize high- risk transactions in reports to clients. 10 Sigma P.C.M. Failure to 13(c)(5) NIS 18,000 April 5, 2009 Capital disclose Markets Ltd. marketing 26(a) activities and preference of assets with company interests. 79

Failure to emphasize high- risk transactions in reports to clients. 11 Golden Delinquent filing 27(a) NIS 106,502 April 5, 2009 World of annual report. Investments Ltd. 12 A.L. Priority Failure to report 27(c) NIS 128,794 April 5, 2009 Asset failure to comply Management with licensee Ltd. insurance requirements.

13 K.Z.I. Delinquent filing 27(a) NIS 30,341 April 5, 2009 Investment of annual report. Management Ltd. 14 Camalia Delinquent filing 27(a) NIS 51,703 April 5, 2009 Capital of annual report. Market Ltd. 15 Karniel Failure to comply 12+13, 28(b) NIS 33,000 April 5, 2009 Investments with the Ltd. directives and 13(d) the Law regarding 26(a) identification of client needs.

Failure to document changes in investment policy.

Failure to emphasize high- risk transactions in reports to clients. 16 Rubicon C M Failure to file 27(a) NIS 29,102 April 5, 2009 Capital annual report. Markets Ltd. 17 Rambam Delinquent filing 27(a) NIS 150,466 April 5, 2009 Capital of annual report. Markets and 27(c) Investments Failure to report Ltd. failure to comply with licensee insurance requirements.

Fines were appealed in three cases: 1. Rambam Capital Markets Ltd. vs. ISA (Miscellaneous Appeals 247/09, Jerusalem District Court). The court rejected the appeal with the appellant's consent, prior to a decision being made. The court added its recommendation that if the company present the ISA proof of insurance as required, the ongoing violation fine would be repealed. 2. A.L. Priority Asset Management Ltd. vs. ISA (Miscellaneous Appeals 1075/09, Tel Aviv District Court). As part of the appeal, the company requested a postponement in paying the fine. At the company's request, the appeal was stricken during the hearing concerning the postponement of the fine, prior to the court giving its decision on either the request or the appeal. 3. Golden Worlds Investments Ltd. vs. ISA (Miscellaneous Appeals 267/09, Jerusalem District Court). The appeal was stricken after the parties reached a settlement, whereby the fine will only include the base amount (NIS 15,480), without additions for ongoing violation. For full details regarding these proceedings, see Legal Counsel, Judicial Proceedings Involving the ISA. D. The Committee for Monetary Sanctions Under the Prohibition on Money Laundering Law In light of the audits conducted in portfolio management companies, in 2009 the ISA imposed fines on four companies where violations of the Prohibition on Money Laundering Law and Orders were found. The ISA collects these fines and transfers them to the estates account of the Public Trustee, crediting a fund established under the Dangerous Drugs Ordinance.

Table 14: Violations for which monetary sanctions were imposed in 2009 and the amounts of these sanctions

Company name Violation for Sections violated Sanction Date which sanction (Prohibition on imposed was imposed Money Laundering Order) 1 Formula Verification of Sections 3,4 and NIS 105,000 December identifying 15(a) 16, 2009 details, statement regarding beneficiary and database. 2 Peilim Verification of Sections 3,4 and NIS 166,000 December identifying 15(a) 16, 2009 details, 81

statement regarding beneficiary and database. 3 Ayalon Verification of Sections 3, 4, 7, 9 NIS 520,000 December identifying and 15(a) 16, 2009 details, keeping of records, statement of beneficiary, reports to Money Laundering Prohibition Authority and database. 4 Harei Sapir Verification of Sections 3, 4, 6, 8 NIS 276,000 December identifying and 15(a) 16, 2009 details, statement of beneficiary, identification in person, reports to Money Laundering Prohibition Authority and database.

VI Department of Supervision over the Secondary Market The Department of Supervision over the Secondary Market coordinates supervision and control over proper and fair conduct and trading on the Tel Aviv Stock Exchange. Department Responsibilities 1. Supervision of Trading on the Stock Exchange Since the start of 2008, trading data sent from the Stock Exchange to ISA computer systems allow unequivocal identification of accounts trading in securities. In addition, supervised entities (fund managers and investment managers) are required to submit identifying details for the accounts through which they trade in securities. This assists the ISA in its control and supervision of these entities. During the reporting year, the Department promoted the submittal of identifying details for the accounts through which trading is carried out by entities supervised by the Ministry of Finance Capital Market Division (provident funds, pension funds, etc.). Furthermore, the Department promoted an initiative that will allow ISA computer systems to identify all trading transactions carried out by issuers of indexed products. During the reporting year, an inter-departmental ISA work team developed a system based on BI (business intelligence) technologies. The system is designed to automatically identify irregular transactions according to predefined parameters and algorithms. 2. Supervision over the Stock Exchange clearing houses On March 25, 2009, the ISA and the Bank of Israel signed a memorandum of understanding, which establishes the method for supervision and for the transfer of information between the two authorities in this matter. After signing the memorandum of understanding, the ISA and the Bank of Israel established a joint work team, which discusses and promotes initiatives relating to the supervision of the Stock Exchange clearing houses. 3. Supervision over the Stock Exchange Members Department and the Stock Exchange The Department receives ongoing reports from Stock Exchange Members and the Supervision Department concerning significant and irregular events, and regarding the level of exposure and financial stability of non-bank Stock Exchange members. 4. Nostro Account Trading Floors On May 24, 2009, the ISA Plenum approved a draft bill aimed at regulating nostro account trading floors in Israel. Soon after the ISA Plenum's approval, the draft bill was published for public comment. In the past year, and concurrent with the promotion of relevant legislation, the Department studied the operation of these floors, including their regulation overseas. An exposure draft of the bill was recently approved by a ministerial committee.

5. Stock Exchange rule making activities Changes in the Stock Exchange rules and regulations As part of the ISA's supervision over the proper and fair management of the Stock Exchange, the ISA's recommendation is required for any changes to the Stock Exchange rules. The ISA's approval is also required for Stock Exchange proposals to establish regulations which elaborate on various matters covered by the rules. Therefore, the ISA discussed and approved Stock Exchange proposals for amendments to its regulations, and recommended the adoption of amendments proposed by the Stock Exchange to its rules as follows: 5.1 On January 27, 2009: a. The ISA approved an amendment to the price schedule (appended to the regulations) for correcting the prices of mutual fund units. b. The ISA recommended that the Minister of finance amend the ules r for transactions by institutional clients with member nostro accounts. c. The ISA recommended that the Minister of Finance amend the Stock Exchange rules, while simultaneously approving the amendment of the regulations for requiring companies to register all its shares in the name of the nominee company. d. The ISA approved an amendment to the price schedule (appended to the regulations) for listing fees for securities not listed for trade (unlisted securities) with a multiple-installment amortization schedule, and for commercial papers. e. The ISA recommended that the Minister of Finance amend the Stock Exchange rules concerning the conversion period for convertible securities listed for trade. f. The ISA recommended that the Minister of Finance amend the Stock Exchange rules, while simultaneously approving an amendment to the regulations, concerning proper insurance for non-bank Stock Exchange members. g. The ISA recommended that the Minister of Finance amend the Stock Exchange rules, while simultaneously approving an amendment to the regulations, concerning a trial period for Stock Exchange membership applicants. h. The ISA recommended that the Minister of Finance amend the Stock Exchange rules, while simultaneously approving an amendment o t the regulations, concerning the cancellation of transactions due to errors. i. The ISA approved an amendment to the Stock Exchange regulations concerning unlimited exchange rate fluctuations in the opening trading stage. j. The ISA approved an amendment to the Stock Exchange regulations concerning cancellations of extraordinary orders on the first day of trading in a security. 5.2 On April 2, 2009: a. The ISA recommended that the Minister of Finance amend the Stock Exchange rules, while simultaneously approving an amendment to the regulations, concerning repo transactions by NBCMs. b. The ISA approved an amendment to the price schedule (appended to the Stock Exchange regulations) for fees charged on repo transactions. 84

c. The ISA recommended that the Minister of Finance amend the Stock Exchange rules, while simultaneously approving an amendment to the regulations, concerning notifications to clients. d. The ISA approved an amendment to the regulations concerning market makers in share warrants. 5.3 On May 24, 2009: a. The ISA recommended that the Minister of Finance amend the Stock Exchange rules, while simultaneously approving an amendment to the regulations, concerning composite certificates. b. The ISA recommended that the Minister of Finance amend the Stock Exchange rules, while simultaneously approving an amendment to the regulations, concerning monetary sanctions imposed on Stock Exchange members. c. The ISA approved an amendment to the price schedule (appended to the Stock Exchange regulations) for permission to use indices. d. The ISA approved an amendment to the price schedule (appended to the Stock Exchange regulations) canceling the processing fee for approvals concerning votes in general meetings of foreign companies. e. The ISA approved an amendment to the Stock Exchange regulations concerning the preservation rules for companies traded on the primary list - temporary provision. f. The ISA approved an amendment to temporary Stock Exchange regulations under Section 46A of the Law concerning contract certificates. 5.4 On July 19, 2009: a. The ISA approved an amendment to the Stock Exchange regulations concerning changes in the terms of bonds and convertible bonds - temporary provision. b. The ISA approved an amendment to the price schedule (appended to the Stock Exchange regulations) for clearing fees charged on repo transactions. c. The ISA approved an amendment to the Stock Exchange regulations concerning remote membership - correction of clerical error. d. The ISA approved temporary regulations under Section 46A of the Law concerning seniority of Stock Exchange membership applicants. e. The ISA approved an extension of temporary Stock Exchange regulations under Section 46A of the Law concerning contract certificates. f. The ISA approved an amendment to the price schedule (appended to the Stock Exchange regulations) for fees charged on "NIS-Based Government" bonds.

5.5 On September 6, 2009: a. The ISA approved an amendment to the Stock Exchange regulations concerning corporate equity calculations used to determine a company's annual fees. b. The ISA approved an amendment to the Stock Exchange regulations concerning preservation rules for indexed products - correction of clerical error. c. The ISA approved an amendment to the Stock Exchange regulations concerning the value of collateral for securities and financial assets. 5.6 On September 13, 2009: a. The ISA recommended that the Minister of Finance amend the Stock Exchange rules concerning the suspension of trading in a security following failure to file financial statements. 5.7 On November 9, 2009: a. The ISA approved an amendment to the Stock Exchange regulations concerning allowances in the threshold conditions for Stock Exchange indices - temporary provision. 5.8 On December 10, 2009: a. The ISA approved an amendment to the Stock Exchange regulations concerning proper insurance for non-bank Stock Exchange members. b. The ISA approved an amendment in the Stock Exchange regulations concerning NBCM reporting on measures for ensuring proper financial reporting and disclosure (ISOX). c. The ISA approved an amendment to the Stock Exchange regulations concerning preservation rules - temporary provision. d. The ISA approved an amendment to the Stock Exchange regulations concerning rule changes for "supervised companies" and "non-supervised companies" - correction of clerical error. The ISA recommended that the Minister of Finance amend the Stock Exchange rules, while simultaneously approving an amendment to the regulations, concerning rule changes for "supervised companies" and "non-supervised companies".

VII Legal Counsel

Throughout the reporting year, the ISA Legal Counsel Department provided extensive legal support to all departments of the ISA. The Department’s work included providing ongoing counsel to the ISA’s various departments and handling certain issues and inquiries which affected the departments' activities. Additionally, legal support included participation in various work groups. The Legal Counsel Department's support also included providing ongoing counsel to the Plenum and to the ISA committees, primarily on statutory interpretation and implementation, promoting legislation, addressing latitudinal issues that have clear legal aspects and aiding in implementing the legislation and rules that are relevant to the ISA's ongoing activity. The Legal Counsel Department also coordinates and spearheads legal proceedings in which the ISA is involved, and addresses public inquiries on an ongoing basis. Main legal issues that are fundamental to the ISA's activity, in which the Department was involved, in cooperation with other departments, include: 1. Administrative enforcement - The Department formulated an administrative enforcement model to serve as a complementary alternative to criminal procedure. This model is aimed at providing the ISA with an additional enforcement tool that is more effective and more suitable for use in statutory violations that the ISA is charged with enforcing. For more details, see Section 18 - Proposed Legislation. In addition, the Legal Counsel Department supported efforts to establish enforcement alternatives to the ISA, such as a supervised entity appointing an independent investigator to examine activities which called for ISA intervention, and taking action based on the investigator's recommendations. The ISA places great emphasis on in-depth examination - in both legal and accounting matters - by independent investigators, in cases where appropriate. Independent investigations may enable examinations in cases where the ISA, for various reasons, does not wish to exercise its powers of enforcement, and avoid flaws remaining unrectified in supervised corporations. However, it should be made clear that such an investigation will not be carried out by the ISA, and shall not detract from the ISA's powers by law, including conducting investigations, imposing sanctions, and filing indictments as applicable. In cases where the ISA is not satisfied with the investigation, for example if it is professionally inadequate or f i the investigation is found o t be partial and superficial, the ISA may exercise its various powers. 2. Establishing a financial section within the district courts - The Department is drafting legislation on this issue. For more details, see Section 17 - Proposed Legislation. 3. Proposal to change the ISA's power structure and grant the ISA authority to enact rules - Rule Making Power. The proposal was approved by the ISA Plenum. For more details, see Proposed Legislation below. 4. Formulating emergency arrangements involving the ISA in light of the financial crisis. 87

5. Collaboration with the Corporate Finance Department in an inter-authority work group, including the Ministry of Justice, for laying the legislative groundwork for securitization in Israel. 6. Formulating an outline for supervising accountants auditing public companies - in collaboration with the Corporate Finance Department. 7. Implementation of ISA-appointed committee recommendations: a. Implementation of the Goshen Committee recommendations regarding corporate governance in listed companies - An outline was approved, according to which the recommendations will be formulated into a generic corporate governance code, to be appended to the Companies Law. Companies will be able to adopt the code voluntarily, as-is or with changes, and the ISA will be authorized to require disclosure regarding its implementation. b. Implementation of the Procaccia Committee recommendations regarding the regulation of trading floors - The recommendations were adopted, with certain changes, by the ISA Plenum, and then formulated into a proposed amendment to the Securities Law and Regulations. Meetings and discussions were held with relevant persons outside the ISA, after which the draft amendment was submitted to the Minister of Finance for approval. For more details, see Proposed Legislation, Section S below.

Legislation 1. Primary and secondary legislation passed or approved in 2009 a. Securities Law (Amendment 38) of 2008, concerning the secure email system (establishing the YAEL System) [Sefer HaHukkim (Book of Laws) 2204, p. 284] The Amendment was published on July 27, 2009, and is due to come into effect along with the regulations enacted by the Minister of Finance by his powers under the Amendment. The Amendment is designed to adapt the Securities Law to current technology, and enable the ISA to serve notices, requests, orders or any other documents which the ISA is authorized to serve to supervised entities using a secure email system, subject to such terms and characterizations as provided in the Amendment and its corresponding Regulations. This serves to complement the 2003 amendment concerning the requirement to report to the ISA using an electronic reporting system (MAGNA). The proposed system is the first of its kind in Israel, and is based on state of the art technologies. The system will provide technology-based solutions for complex issues, including unequivocal identification of authorized email users, information security and e-signatures. In the future, similar systems are to be implemented for all documents sent from government bodies to the public, as part of the "e-Government Initiative”. The IT infrastructure for the proposed arrangement was developed by the ISA together with the Ministry of Finance.

Secondary legislation b. Securities Regulations (Periodic and Immediate Reports) (Amendment 2) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6755, p. 510]; Securities Regulations (Details, Structure and Form of a Prospectus and Draft Prospectus) (Amendment 2) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6755, p. 515]; Securities Regulations (Shelf Registration of Securities) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6755, p. 516]; Securities Regulations (Electronic Signature and Reporting) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6755, p. 516]. The Regulations were published on February 18, 2009, and most of them take effect on that date. The Regulations were designed to increase transparency to the benefit of holders of debt certificates (bonds), and broaden disclosure on matters of importance in assessing a company's debt risk. This increase in transparency and disclosure was required due to the growing volume of debt raised from the public through the issue of debt certificates, and in light of the fact that the previous disclosure requirements prescribed by the Law and the Regulations were inadequate. Furthermore, the Regulations were enacted due to the significant effect of the global financial crisis on corporations' ability to meet their debt obligations. Among other things, the Regulations state that annual board of directors' reports must include various data, including details of debt obligations, details on the how a corporation is to meet the terms of its obligations, and the value of pledged assets serving as security against those obligations. If corporations make a public offering, their prospectuses shall be subject to these same disclosure requirements. The Regulations further state that when a corporation shows one of the warning signs indicated in the Regulations (signs which raise concern for the corporation's ability to meet its obligations towards the debt certificate holders in the two years following the reporting date), that corporation shall be required to detail its liabilities and expected cash flows for repayment for the next two years. An exception to this requirement is provided when the board of directors determines that there is no reasonable concern that the corporation will default as aforesaid. The Regulations also determine the circumstances requiring immediate reporting on the debt certificates outstanding, and the inclusion of valuations for assets pledged as security against the corporation's obligations under the debt certificates. Finally, the Regulations determine that quarterly board of directors' reports must detail any material changes that occurred since the annual board of directors' report, and not only exceptionally material changes as was previously required. A similar test was also prescribed for changes in shelf registration reports which require disclosure. c. Securities Regulations (Exception with regards to Bank Shares in the Arrangement) (Temporary Provision) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6755, p. 516] The Regulations were published on February 18, 2009, and apply retroactively starting October 31, 2008. 89

The 1983 Bank Shares Arrangement led to the enactment of the Arrangement Bank Shares Law of 1983, which provided for the transfer of shares in the leading Israeli banks to government ownership. The government was granted limited ownership rights. Thus, for example, the right to appoint directors and voting rights are granted to an external committee, whose members are elected by a public committee. Due to the unique nature of the ownership right granted the government, Securities Regulations (Exception with regards to Bank Shares in the Arrangement) (Temporary Provision) of 1993 were enacted concurrently with the law's publication. The temporary provision exempts banks under the arrangement, including companies in which the arrangement banks constitute principal shareholders, from the disclosure requirements for prospectuses and ongoing reporting concerning the relationship between bank subsidiaries or affiliates and the State or government corporations. Since then, the temporary provision has been periodically extended. The last extension expired on October 31, 2008. As part of the Regulations' amendment, the temporary provision was extended for a further three years. d. Securities Regulations (Periodic and Immediate Statements) (Amendment 3) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6789, p. 1076] The Regulations were published on June 30, 2009, and take effect 30 days from that date. These Regulations mainly concern the formalization of the ISA's two disclosure directives issued in accordance with Section 36A of the Securities Law: 1. Financial statements approval procedure Users of financial statements rely on the information contained therein, taking into account that the statements were properly and duly approved. Therefore, there is great importance in providing disclosure regarding the financial statements' approval procedure, and particularly regarding the nature of this procedure and the parties involved. For this reason, the ISA issued a directive on July 23, 2007, requiring certain disclosures in board of directors' reports regarding corporate approval procedures for financial statements. The disclosure directive stated that board of directors' reports shall provide details regarding the financial statements' approval procedure, including the corporate organs responsible for overall supervision and their actions prior to approving the financial statements. Due to the importance of this information to investors, the directive was formalized under the Regulations. 2. Disclosure regarding independent directors Section 219(e) to the Companies Law of 1999, added as part of Amendment 8 to the Law in July 2008, states that companies may include a provision in their articles of association whereby a prescribed number of independent directors are to serve on their boards. Companies may further prescribe the percentage of independent directors out of all serving directors. Section 219(e) of the Companies Law further states that companies may adopt in their articles of association the independent board rule proposed by the Law, which prescribes a minimum percentage of independent directors. Independent directors are to meet the eligibility requirements for external directors, but may be appointed or dismissed as are ordinary directors. Additionally, the Amendment to the Companies Law added Section 224B(a), whereby any director appointed to the board of directors of a public company shall be required to declare that he 90

possesses the necessary skills and is able to devote the time necessary to carry out his duties as director. These statements are to detail the necessary skills. With the above in mind, on May 1, 2009, the ISA issued disclosure directives for periodic and immediate reports regarding compliance with these new provisions. The directive requires public companies to disclose the inclusion of an independent directors provision in their articles of association, and their compliance with such provision. Public companies are further required to disclose whether their directors have met the aforementioned declaration requirement. The Regulations formalized the disclosure directive and established the requirement for periodic and immediate reporting. By force of the references made in Securities Regulations (Details, Structure and Form of a Prospectus and Draft Prospectus) of 1969 to he t above Regulations, similar disclosure requirements also apply for prospectuses. e. Securities Regulations (Underwriting) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6789, p. 1078] Securities Regulations (Offer of Securities to the Public) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6789, p. 1078] The Regulations were published and take effect on June 30, 2009. In July 2007 a series of comprehensive legislative changes went into effect. These changes were aimed at updating and improving the primary market (the underwriting reform). Certain elements of the reform were set forth under a two-year temporary provision, effective until July 2009. These elements include the non-uniform offering method, conflicts of interest restrictions on this method, and conflicts of interest restrictions for offerings of any kind. During the implementation term of the aforesaid temporary provision, the ISA gathered many accounts, mainly through numerous meetings with underwriters, of the conduct of the fferings o and underwriting market in general, and following the enactment of the reform in particular. These inquiries indicated that the temporary provision adequately addressed issues pertaining to conflicts of interest. In light of these findings, the Regulations were amended so that the temporary provisions concerning conflicts of interest, as well as the provisions concerning the non-uniform offering method and the corresponding conflicts of interest restrictions, were formalized as a permanent arrangement. f. Securities Regulations (Annual Fee) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6813, p. 1346] The Regulations were published and took effect on September 17, 2009. In light of the changes to the financial statement disclosure requirements, whereby consolidated financial statements present minority interest as part of a company's equity, the definition of "equity" was amended so as to clarify that the calculation of the corporation's annual fee evel l will be calculated according to equity alone, without taking into account minority interest. The Amendment also reduces the annual fee for 2009 by 10%, similar to the fee reduction announced by the ISA in previous years.

91 g. Joint Investment in Trust Regulations (Distribution Commission) (Amendment of 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 234] The Regulations were published on December 30, 2009, and take effect 30 days from that date. The Amendment was designed to subject bond index tracking funds to a prohibition similar to that which had already been established on the collection of distribution commissions for tracking fund units. Tracking funds are designed to yield results that are similar to a shares or commodities index. The aim of the prohibition on collecting distribution fees is to reduce fund management costs and so reduce management fee deductions. This, in turn, will allow these funds to successfully compete with ILNs. h. Joint Investment in Trust Regulations (Assets that may be Bought and Held by a Fund and their Maximum Amounts) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 232] (hereinafter – the "Assets Regulations") Joint Investment in Trust Regulations (Buying and Selling Prices of Fund Assets and Value of Fund Assets) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 234] (hereinafter - the "Prices Regulations") The Regulations were published on December 30, 2009, and take effect 30 days from that date. The Assets Regulations are designed to remove the obstacles facing money market funds and allow their continued development. These are extremely low-risk funds, with a very limited choice of permissible investment options. Among other changes, the permitted holding ratios for fixed-term deposits were changed, as were the restrictions on holding commercial papers. Additionally, the Regulations canceled the requirement to deposit assets with the Stock Exchange clearing house. Instead, the Regulations now make the fund manager responsible to be satisfied with the safekeeping of the whole of the fund's assets. Following this amendment, an amendment was made in the Prices Regulations regarding the revaluation of fixed- term deposits. i. Joint Investment in Trust Regulations (Details, Structure and Form of a Fund Prospectus) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 192] The Regulations were published on December 10, 2009, and take effect on June 10, 2010. Funds whose units are continuously offered to the public and are callable by a unit holder ("Open Funds") publish their prospectuses once a year. Since the enactment of the Securities Regulations (Details, Structure and Form of a Mutual Fund Prospectus) of 1969, 40 years ago, the capital market in Israel has undergone extensive changes. As a result, prospectuses prepared according to the aforesaid Regulations do not provide investors with all the information required to support investment decisions. Therefore, new regulations were enacted, which supersede and repeal the old regulations. Changes focus mainly on changing the structure of prospectuses, making them more accessible to investors; significantly expanding on the details which must be included in prospectuses; and extending the period for which information is provided.

92 j. Joint Investment in Trust Regulations (Reports) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 229] The Regulations were published on December 10, 2009, and take effect on June 10, 2010. The Regulations require fund managers who did not publish a prospectus for the fund under their management for a year, to file an annual report including all information required under a prospectus, except for the unit offering chapter. This is in contrast to the situation prior to the Regulations' amendment, where the only ongoing reporting required of fund managers were monthly reports. These monthly reports mainly included data regarding fund cash flows during the month, and the funds' liabilities and assets as of the last trading day of the month. Furthermore, fund managers were not required to file financial statements or any other periodic report providing a full picture of their fund's operations (financial statements are included under prospectuses, which are usually published annually). k. Joint Investment in Trust Regulations (Financial Statements for Funds)(Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6834, p. 230] The Regulations were published on December 10, 2009, and take effect on June 10, 2010. The Regulations superseded the Joint Investment in Trust Regulations (Preparation of Annual Reports) of 1970, and applied IFRS as well as additional requirements. The old regulations, enacted almost 40 years ago, required, inter alia, that mutual funds file their financial statements in a rigid format prescribed in the schedule appended to the regulations. Over the years, as generally accepted accounting principles evolved, a gap formed between the old regulations and accepted practice as regards the financial statements of mutual funds. In addition, the regulations did not include an independent filing requirement. Reports were filed as part of prospectuses, and when a prospectus was not published, neither were the financial statements. This mandated the replacement of the old regulations with the new ones. l. Securities Regulations (Periodic and Immediate Reports) (Amendment) of 2009 [Kovetz HaTakanot (Collection of Regulations) 6841, p. 319]. The Regulations were published on December 24, 2009, and take effect starting with the 2010 periodic reports. As part of the implementation of the Goshen Committee recommendations concerning the formulation of a corporate governance code in Israel (hereinafter – the "Goshen Committee"), the amendment to the Regulations was intended to partially adopt, mutatis mutandis, certain provisions of the US Sarbanes-Oxley Act (SOX), for assessing the effectiveness of internal controls over corporate financial reporting and disclosure. This adoption of American legislation was aimed at improving the quality of financial reporting and disclosure, by requiring corporate managements and boards of directors to provide audited reports on the effectiveness of internal controls over financial reporting and disclosure. This requirement was designed to strengthen internal controls in reporting corporations, and correct material weaknesses that were found in these internal control processes. With the proposed amendment, the ISA joins various other regulating bodies in Israel 93

- the Supervisor of Banks, the Commissioner of Capital Market, Insurance and Savings, and the Government Companies Authority - in adopting the SOX provisions for management statements and assessments regarding the effectiveness of internal controls, and the application of these provisions, mutatis mutandis, on the supervised organizations. m. Securities Regulations (Annual Financial Statements) of 2009; Securities Regulations (Periodic and Immediate Reports) (Amendment 5) of 2009; Securities Regulations (Details, Structure and Form of Prospectus and Draft Prospectus) (Amendment 3) of 2009; Securities Regulations (Private Offering of Securities in a Listed Company) (Amendment) of 2009; Securities Regulations (Transaction between a Company and a Controlling Shareholder therein) (Amendment) of 2009; Securities Regulations (Presentation of Transactions between Corporation and Controlling Shareholder in Financial Statements) (Amendment) of 2009 The Regulations were approved by the Knesset Finance Committee on December 7, 2009. Application is planned to commence with the financial statements for the period ending December 31, 2009. These amendments mainly deal with adapting the Securities Regulations to IFRS, whereby, starting January 2008, companies are required to report according to the Israeli Accounting Standards Board's decision of November 2005, and according to Accounting Standard No. 29 which was issued following that decision. IFRS includes an entire system of principles for recognition, measurement, presentation, and disclosure, some of which differ from those prescribed under Israeli GAAP and the regulations enacted under the Securities Law. These differences required a re- examination of all Securities Regulations so as to identify and correct any provisions which may contradict or be rendered superfluous by the adoption of IFRS. It was also necessary to examine the need for additional disclosure requirements, in addition to those prescribed under IFRS, n i order to provide for complete and satisfactory disclosure in financial statements according to the ISA. The amendment focuses on three levels: Cancellation of regulations and provisions which conflict with IFRS; terminological and material adaptation of the remaining regulations to IFRS; and the addition of new regulations and provisions complementing the provisions of IFRS. Furthermore, several additional amendments were made to the Regulations, which were not due to the Regulations' adaptation to IFRS, but rather to clarifications according to ISA practice. 2. Proposed legislation and secondary legislation Proposed primary legislation a. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Bill (Amendment 11) of 2008 The Bill was approved by the 17th Knesset on its first reading on July 30, 2008. Following the change in government, the Ministerial Committee for Legislation approved continuity on May 17, 2009.

An amended version of the Bill was submitted to the 18th Knesset's Finance Committee for second and third readings. The amendment covers a number of issues: Enabling investors in Israel to receive portfolio management, investment advice and investment marketing services from parties authorized to provide such services in their home country, even if they do not hold an Israeli license. These parties may render their services through a licensed corporation, and the authorized corporation is required to oversee the foreign party's activities. The Bill also imposes civil liability on the authorized corporation for the foreign party's actions; Canceling the residency or citizenship requirements for granting licenses to individuals. As part of the understanding that globalization diminishes the distinction between Israeli citizens and residents and non-citizens and non-residents, the Bill proposes to replace the residency or citizenship requirement with one that guarantees that the provisions of the Law (including court decisions) can be enforced on the license applicant. The Bill further seeks to guarantee the applicant's ability to meet the requirements of the Law. Israeli citizenship will serve as peremptory evidence for the applicant meeting the aforesaid requirement. This amendment was also necessary in light of reservations expressed by OECD representatives as to the residency or citizenship requirement of the current legislation; The addition of individuals with large asset portfolios or capital market expertise and skills to the list of clients that do not require a service provider to hold a consultancy license. This exemption is due to the fact that such clients are capable of acquiring professional assistance in making investment decisions or making such decisions on their own. Therefore, they do not require the Law's protection as embodied in the licensing requirement. Furthermore, the Bill adds an exemption from marketing and portfolio management licensing requirements for capable clients, including capable individuals as aforesaid;The Bill further proposes that the ISA be granted the authority to enlist the aid of third parties in supervising license holders' compliance with the Law, similar to the authority granted the ISA under the Securities Law and the Joint Investment Law. b. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Bill (Amendment 12) of 2008 The Bill was approved by the Knesset on its first reading on July 30, 2008, and is currently pending review by the Knesset Finance Committee prior to its second and third readings. The Amendment is aimed at regulating two issues: First, changing the insurance requirement from a prerequisite for obtaining a license to a prerequisite for providing investment advice, investment marketing, and investment portfolio management services (hereinafter - "Services"). This change is designed to allow individuals meeting all the other licensing conditions prescribed by the Law to be granted licenses even without meeting the insurance requirement. Second, regulating various ILN-related aspects of Service provision by amending and broadening the definition for ILNs, and comparing the regulation for ILNs to that which applies to mutual funds.

c. Joint Investment in Trust Bill (Amendment 13) of 2008 The Bill was approved by the Ministerial Committee for Legislation on June 28, 2009, and is expected to be published as a Bill in the Official Gazette in the near future. The Bill covers a large number of issues. The main issues covered by the Bill are regulating the offering of foreign fund units in Israel, so as to improve competition in the funds sector in Israel. Improved competition is intended to enable the Israeli market to integrate in the global market and attract foreign players. For the first time in Israel, foreign fund managers will be able to offer their units to the Israeli public according to a prospectus published abroad, while waiving the application of Israeli law (under the dual-listing model). This option will be granted, provided that the foreign funds meet the criteria set forth in the Regulations concerning, among other things, the following: the law under which the foreign fund was established, or which applies to its operations; supervision of the foreign fund; the characteristics of the fund and fund manager. In addition, the Bill proposes that the capability conditions for trustees and their reporting requirements be changed, so as to guarantee, among other things, the trustees' independence of fund managers and their compliance with reliability requirements. These changes are further intended to clarify and establish the supervision requirements of fund trustees, thus increasing supervision over fund managers. Additional matters which are to be regulated under the Bill: Laying the groundwork for increasing control, supervision and auditing of fund managers; revoking the requirement to convene general meetings in order to adopt certain extraordinary resolutions, such as fund mergers and splits; imposing a mandatory tender requirement for agreements to conduct transactions in fund assets (brokerage services) and restricting agreements for such services being provided by parties with ties to the fund manager or the trustee (these amendments were concurrently covered by a private bill submitted by MK Amnon Cohen); changing the fund liquidation mechanism in order to make it more efficient and balanced; guaranteeing the disclosure of critical information regarding material changes in the fund to the unit holders; the addition of numerous statutory provisions whose violation is subject to civil fines, increasing these fines on the one hand, while establishing different fine brackets according to the value of assets under management, and granting the Minister of Finance the authority to prescribe tests for reducing these fines. d. Securities Bill (Amendment 39) of 2010 - Mutual Recognition Agreement with the French Securities Authority The draft Bill was derived from a broader exposure draft published on February 12, 2008, and was approved separately by the Ministerial Committee for Legislation on December 6, 2009. The Bill is designed to lay the necessary legislative groundwork for implementing a mutual memorandum of understanding signed in late January 2008 between the ISA and the French Securities Authority (AMF). The memorandum of understanding serves to open Israeli and French markets to trading in securities issued by French and Israeli companies, respectively, with mutual reliance by both Authorities.

Underlying the Agreement was Section 20 of the European Union Prospectus Directive, aimed at establishing principles and mechanisms for positive cooperation, according to which companies listed on Euronext Paris or on the Tel Aviv Stock Exchange will be able to list their securities on both stock exchanges. This arrangement is in line with the EU's "Single Passport" concept. The Amendment will enable foreign corporations which meet certain requirements to list their securities in Israel according to the dual-listing arrangement (Chapter E3 of the Securities Law), based on a prospectus duly approved in their country of origin. The principle requirement is that the offered securities be listed (or will be listed in the future) for trade on a foreign exchange included in the Seventh Schedule which is proposed to be added to the Law. Listing may be done simultaneously on both exchanges, or listing in Israel may follow after the listing abroad. For now, the ISA is proposing to open this option only for Euronext Paris as a preliminary step towards expanding the arrangement to additional markets. Expansion of the arrangement will entail the examination of the relevant laws and regulators, with a commitment to continued assurance of the interests of Israeli investors. e. Courts Bill (Amendment 59) (Economic Jurisdiction) of 2010 - District Court Economic Sections The Bill was approved by the Ministerial Committee for Legislation on November 15, 2009, and is expected to be published as a bill in the Official Gazette in the near future. The Bill aims to improve and treamline s criminal, administrative, and private enforcement of the Securities Law and the Companies Law. This goal is to be achieved by establishing an economic section in the Tel Aviv-Jaffa District Court, where most judicial proceedings in these matters take place. The economic section will hear all economic matters brought before the court. Establishment of the economic section is required in order to enable effective management of legal actions according to economic law, and in order to assure consistent court decisions which will minimize uncertainty and promote stability in economic matters. Furthermore, the Bill proposes that actions concerning economic matters will be heard by district courts. The Bill is in line with the Goshen Committee recommendations, published in December 2006. f. Streamlining ISA Enforcement Procedures Bill (Legislative Amendments) of 2010 - Administrative Enforcement The Bill was approved by the Ministerial Committee for Legislation on December 6, 2009, and is expected to be published as a bill in the Official Gazette in the near future. The Bill aims to provide the SA I with enforcement alternatives, while creating efficient and effective tools for non-criminal enforcement in addition to criminal enforcement. Through this bill, the ISA seeks to streamline enforcement, shorten the time between the violation and the corresponding sanction, and match the level of punishment to the violation. As a result, the criminal procedure will only be exercised when appropriate. The amendment proposes two new enforcement mechanisms - administrative enforcement and contingent cessation of proceedings. 97

Administrative enforcement is designed to handle violations of the securities laws which do not go above negligence. Generally, these cases are to be handled by an administrative committee, while more severe violations are to be handled through the criminal procedure. In order to address administrative violations, an administrative committee will be established, which will be authorized to impose various sanctions, including monetary fines and restriction of business for specified periods of time. The Law is to allow arguments to be presented before the committee. Due to the committee's limited power to impose sanctions and the administrative nature of the proceedings, violators will not be granted defenses given to persons indicted under criminal proceedings. Upon the Amendment's approval, it will establish three parallel enforcement mechanisms: First, the ISA's procedure for imposing monetary sanctions, which is intended to address violations which can be investigated relatively easily. Here, the amendment proposes to increase fines, to enable sanctions to be imposed on individuals, to clarify the ISA's authority to exercise judgment in reducing fines subject to the applicable regulations, and to differentiate between different levels of sanctions. Second, the administrative enforcement procedure, which allows the administrative enforcement committee to impose a series of sanctions addressing violations which require significant investigation. However, this procedure is not intended for the more severe violations which require proof of knowledge or intent. Third, the criminal procedure, which is designed to address severe violations, and which must be completed before prison sentences may be imposed. The ISA proposes an additional mechanism - contingent cessation of proceedings. The ISA Chairman will be authorized to decide not to initiate administrative or criminal proceedings. Instead, a contingent cessation of proceedings arrangement will be negotiated with violators. This proposal means that if the suspect meets his obligations under the arrangement, he will not be prosecuted for his actions. The suspect's consent to the enforcement agreement will not constitute an admission of any offense or violation, and will not be used as evidence against him. The State Attorney's Office will also be granted this authority for cases submitted to it (prior to submitting an indictment). g. Securities Bill (Amendment) (Nostro Account Trading Floors) of 2010 The draft exposure bill was published on October 20, 2009. In Israel there is extensive activity in foreign currency and its derivatives, which takes place in an OTC format. Most activities are carried out by the banks and are supervised by the Bank of Israel. However, in addition to these activities, there are trading floors in Israel which allow investors to trade with dealers on various financial assets (forex derivatives, indices, commodities, etc.). These trading floors are intended primarily for small-volume investors. These trading floors evolved following advances in the internet and e-commerce. The proposed amendment aims to regulate alternative trading floors in Israel. The Bill relies on the recommendations of the Procaccia Committee. At this time, the ISA has decided to focus on "nostro account trading floors", i.e. - floors where trading is carried out with the floor's nostro account, where the need for regulation is greatest. 98

However, the new bill does not deal with trading floors whose activities are similar to that of the Stock Exchange, i.e. - various traders trading amongst themselves. In the coming year, the ISA intends to formulate draft regulations which will describe in detail the requirements set forth under the Bill (including as regards the safeguarding of client funds, clarification of client needs, disclosure requirements, etc.). The ISA further intends to propose complementary legislation which will regulate the activities of all financial brokers on the market. h. Prohibition on Unfair Use of Information Bill (Legislative Amendments) of 2009 The draft exposure bill was published on October 20, 2009. Generation and gathering of information are an important and central goal in assuring efficiency in the capital market. Therefore, the law does not prohibit transactions where one of the parties possesses excessive information on the other party. Such prohibition would undermine the incentive to gather and generate the information. However, use of information in violation of the source of that information's trust constitutes abuse of excessive information which was not obtained through the trader's efforts. The Amendment aims to prohibit unfair use of information in violation of the information user's duty of trust towards the source of the information, and to prevent front-running by those managing other people's money and their employees. Front-running refers to conducting transactions in a security following advance knowledge of another party's intended actions in that security. Front-running is effectively a specific case of unfair use of information, for which the Amendment proposes to forego the requirement for proving a violation of the duty of trust. The Amendment further proposes that a uniform arrangement be made for restrictions on holdings and transactions in securities, which are currently prescribed under the Advice Law and the Joint Investment Law. This uniform arrangement stems from an understanding that, as regards the aforementioned restrictions, there is no point in distinguishing between ISA-supervised entities according to each of the above laws. i. Regulation of Rating Companies’ Activity Bill of 2009 An exposure draft of the law has been submitted to the Ministry of Finance for distribution. Around the world, rating companies engage in providing assessments on debtors' abilities to meet their liabilities or on other assets or activities. However, most rating companies focus on credit rating. This rating reduces the asymmetry between the information available to lenders and borrowers regarding borrowers' ability to repay their debt. Over the years, the rating companies' influence has increased, and today there is no doubt that they are among the most important organizations in the global markets. Through their rating mechanisms, rating companies express their opinion regarding the probability of various entities repaying their debt, and so provide an investment-supporting tool. Ratings determined by the rating companies affect the interest rate to which borrowers are subject. Furthermore, due to regulatory restrictions and voluntary restrictions on the assets of institutional entities, ratings also affect the issued debt's portion in institutional investors' investment portfolios.

Globalization, developments in financial engineering, and the Basel II Accord have all enhanced the role of the rating companies in recent years. During the "sub-prime crisis" and the subsequent credit crisis, flaws were uncovered in the activities of rating companies. These flaws were expressed mainly in the limitations embodied in rating methods, in problems concerning conflicts of interest and in the lack of transparency in the rating process. The main role played by rating companies in these crises resulted in unanimous agreement among regulators in the US and Europe as to the need to re-examine and increase regulation in this field. Following these events, it was decided that in Israel, too, there was room to update the regulation of rating company activities, and to increase the supervision over these companies. The Amendment aims to provide primary legislation, through a designated law, regulating the activities of rating companies. This law will subject rating companies to the ISA’s supervision, so as to protect investors and guarantee that the rating process and the rating itself are reliable, credible, equal, and independent. In light of international regulatory activities and the international nature of those rating companies operating in Israel, the Bill proposes that the principles underlying regulation in Israel will coincide with existing and expected regulation in Europe and the United States. j. Administrative Powers of the srael I Securities Authority Bill (Legislative Amendments) of 2008 The Bill was approved by the ISA Plenum on December 14, 2008. The Amendment aims to grant the ISA authority to issue administrative directives for all its supervised organizations, in a variety of fields and issues which are currently regulated under the Securities Law, the Advice Law and the Joint Investment Law. This arrangement is similar to the authority currently given to other regulators in Israel and abroad. The Amendment proposes a mechanism for issuing such directives, clarifying that this will not interfere with the ISA's authority to implement criminal enforcement against violators. As a complementary measure to this process, the regulations enacted by force of the above laws will be converted into administrative directives. Concurrently, and in order to assure the ISA Plenum's involvement in the administrative enforcement regulation process, the ISA proposes to clarify the responsibilities of the ISA Plenum, as opposed to those of other ISA organs. Additional amendments proposed under the Bill: Formalizing the ISA's activities in responding to public pre-ruling queries; consolidating the rules according to which the Stock Exchange operates, currently included in its rules, in directives and temporary directives, into a single rule book entitled "Directives". Finally, the Bill proposes to clarify when the ISA must allow a supervised entity a full hearing, and when written explanations are to be deemed sufficient. k. Securities Bill (Amendment) (Principal Shareholder Holdings) of 2008 The Securities Law defines the terms "principal shareholder", "holding", and "purchase". These definitions have certain implications prescribed by the Law and Regulations, particularly in examining which shareholders constitute principal shareholders, requiring a corporation to report on transactions with that shareholder and on that shareholder's holdings in the corporation's securities. These 100

requirements are based on the assumption that principal shareholders have a greater interest in examining the corporation's business. In addition, principal shareholders who are officers in a corporation may have relatively greater access to information on the state of the corporation's affairs and its plans. Such disclosure regarding transactions with principal shareholders and their holdings serve as indication for investors regarding the value that the principal shareholder attributes to the securities. Such disclosure also serves to dissuade principal shareholders from conducting transactions exploiting inside information in their possession. It also facilitates auditing of these matters. The Bill proposes amending the above definitions so that they cover additional cases, which fall under the scope of the aforesaid regulation. Among other things, as regards the definition for "holding", the Bill proposes that creditors be regarded as beneficiary holders of encumbered securities starting from the date on which such creditors first acted to exercise the liens, or starting from the date that they first exercised the voting rights attributed to the encumbered securities, the earlier of the two. As regards the definition for "principal shareholder" - this term is defined as a person with significant holdings (5%) in a corporation's capital or voting rights or as a person who holds a senior office in a corporation (general manager or director). The Bill proposes that the definition also include cases of holdings in securities convertible into shares, in rights to shares or debt, when the exercise or conversion of all the securities, rights or debts would result in holdings of 5% or more. As regards debt certificates, the Bill proposes that the definition include holdings of at least 15% in a debt certificate series, provided that the corporation's liability under the series constitutes at least 5% of its total liabilities. The Bill, and the proposed amendment to the associated regulations (detailed below in Section 34), were approved by the ISA Plenum on November 17, 2008. The Bill was submitted to the Ministry of Finance for publication of an exposure draft. l. Securities Bill (Amendment) (Debt Certificates) of 2009 The Bill was approved by the ISA Plenum on March 30, 2009. The great diversity in the holders of debt certificates, and the fact that each of them usually holds a relatively small percentage of the debt certificates of a particular series, often undermine the holders' incentive to invest the necessary efforts and resources in order to monitor their investment. Charging trustees with this responsibility, instead of each of the holders, may result in cost savings and more effective protection of the holders' interests. The importance of the trustees' role is even more evident in light of the credit crisis which affected both global economies and the local market in 2008. The proposed amendment aims to reinforce the status and roles of debt certificate trustees and to expressly anchor their duty to oversee issuers' compliance with their overall obligations towards debt certificate holders. The Amendment clarifies that trustees must act carefully and thoughtfully, without giving preference to the interests of one holder over another, and without any considerations that do not directly arise from the holding of debt certificates. The Amendment further proposes that a statutory trustees register be established, and to prescribe threshold and eligibility requirements for those seeking entry into the trustees register.

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Registration would be a prerequisite for trustees to serve as trustees for debt certificates issued to the public. Concurrently, the Amendment proposes that the status of debt certificate holders be reinforced, and that they be granted a number of cogent rights as regards debt certificates. This would be realized by determining certain circumstances which would grant holders grounds to call for the immediate repayment of the debt certificates. Furthermore, the Amendment proposes that the Minister of Finance be authorized to enact regulations providing for immediate reports by trustees to the holders. These regulations would also determine the contents of annual trusteeship reports, so as to allow holders to supervise trustee activities, and replace trustees when necessary. Complementing this amendment, the Ministry of Justice and the ISA acted to amend the Companies Law as regards debenture companies - exposure draft to Companies Law (Amendment 13) (Corporate Governance for Debenture Companies), 2010, providing for additional matters concerning debt certificates, including the terms for convening extraordinary holders meetings. m. Joint Investment in Trust Bill (Amendment) (ILNs and ILFs) of 2009 The Bill was approved by the ISA Plenum on November 15, 2009. The amendment concerns the regulation of the ILN and ILF sector. The Amendment is necessary in light of the accelerated development of passive investment nstruments i mainly tracking the securities, commodities and currency indices ("indexed products" or ILNs). Current legislation creates a regulatory arbitrage between products which are extremely similar in nature and purpose. While the regulation of mutual funds under the Joint Investment in Trust Law is detailed and binding, providing close supervision - ILNs, which offer an alternative to investing in mutual funds, are only subject to disclosure requirements. The Amendment aims to regulate the ILN market in a similar manner to that which currently applies to mutual funds, mutatis mutandis. The Amendment further proposes to regulate a new financial instrument, known as an "ILF". ILFs shall constitute tracking mutual funds, whose units shall be listed for trade on the Stock Exchange, and may only be purchased during the course of trading. The purpose of regulating ILFs is to establish a legal framework for a new financial instrument which will expand on the current financial instrument offering, allowing fair competition between alternative products and rendering competition more effective. Regulation is also expected to allow ILN issuers to participate in the operation of ILFs, if they so wish.

Proposed secondary legislation n. Securities Regulations (Fee for Application to Grant a Permit for Publication of a Prospectus) (Temporary Provision) (Amendment) of 2009 The Securities Regulations (Fee for Application to Grant a Permit for Publication of a Prospectus) (Temporary Provision) of 2005 grant a two year xemption e from prospectus fees to prospectuses offering commercial papers or shares of real estate investment trusts. The exemption is granted as these are two relatively new financial

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instruments, which may play an important role in updating the capital market. Therefore, the ISA sought to encourage their development. With the expiration of the temporary provision, it was extended for a further two years until January 1, 2010. During this period, very little use was made of the exemption, in light of the small number of public offerings of commercial papers or shares of REITs. As the ISA still sees the exemption as necessary for establishing these instruments in the market, it has proposed to extend the temporary provision by another two years. The amendment has been submitted to the Knesset Finance Committee. o. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Services Regulations (Application for License, Examinations, Internship and Fees) (Amendment) of 2009; Securities Regulations (Annual Fees) of 2009 The Advice Law mandates that licenses to provide investment advice, investment marketing and investment portfolio management services be granted subject to passing professional examinations and completion of internships. The proposed Regulations implement changes in the licensing examinations and in the internship programs. These changes are aimed at increasing the professional level of license holders, while simplifying licensing procedures. In addition, the Amendment proposes changes in the fee system applied to license holders and applicants. Among other things, the Amendment proposes that differential fees be applied to license holders, new fees be imposed, and existing fees be increased. Fee increases are designed, among other things, to negate the unreasonable gap between the fees charged from fund managers, which are substantially higher than those charged of license holders. The complementary amendment proposed for the Securities Regulations (Annual Fee) of 1989, reduces the annual fee paid by fund managers. The Amendment has been submitted to the Knesset Finance Committee. p. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Reports to Clients) of 2008 Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Reports to the ISA) of 2009 These Amendments seek to regulate the fair disclosure provided by license holders under the Advice Law through their reports to clients and the ISA. Currently, the reporting requirements prescribed by law for license holders are extremely limited. For example, the law does not require portfolio managers to provide clients with disclosure on the return yielded by the portfolio over a certain period of time. Nor is any disclosure required on whether the client gained or lost money over a given period. Furthermore, the reports currently sent to clients are not uniform in form or content. As a result, it is difficult for clients to locate essential information, even if such information is contained in the report. It is also difficult for clients to compare between different portfolio management companies. Uniform and comparable information is not available to potential clients either, who thus do not have adequate tools to choose between licensed companies as each company

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determines the content which it presents to potential clients and the manner of its presentation. The ISA, as a supervisory body, also lacks essential information for carrying out its supervision duties. Among other reasons, this is due to the fact that certain information is not required to be disclosed in real time. The amendment to the Regulations is designed to rectify the current flaws, and regulate license holders' reporting requirements on three levels: quarterly reporting provided by the portfolio manager to clients regarding the managed portfolio; annual reporting by the portfolio manager including details about the portfolio management company, which initially will be submitted as a report to clients and will subsequently be made available to the public; and periodic reporting to the ISA. The Amendment was approved by the ISA Plenum on August 16, 2009. q. Securities Regulations (Publication of Notices in the Press) (Amendment) of 2009 Amendment 35 to the Law re-examined the scope and form of publications required to be made in the press. The Securities Regulations (Publication of Notices in the Press) of 2008, which accompanied the amendment to the Law, changed the extensive publication requirements which were then scattered throughout the Law and the various Regulations. These requirements were replaced with a requirement to publish concise notices, mainly concerning company names, the types of reported events, and places where the full information is accessible. The experience gained in implementing the new format requirements shows that sufficient clarity can be maintained in notices, while sufficing with less stringent requirements for font size, space between lines and emphases. For this reason, the Amendment has been proposed to the Regulations. Concurrently, the Minister of Justice is promoting an amendment to the Companies Regulations (Notice of General Meeting and Class Meeting in a Public Company) of 2000. This amendment aims to create uniformity between the wording of notices required under the Securities Regulations and those required under the aforesaid Companies Regulations. The Amendment has been submitted to the Ministry of Finance. r. Securities Regulations (Periodic and Immediate Reports of Foreign Corporations) (Amendment) of 2009 Under the current Regulations, foreign corporations reporting according to Chapter E3 or Chapter E4 of the Law must file immediate reports at such times as prescribed by Israeli law. This is in contrast to periodic reports, which must be filed at such times as required by the applicable foreign law. This arrangement significantly encumbers corporations, in particular when the reporting entity must report at a time which does not fall within its business hours. In addition, corporations are vulnerable to possible claims of providing Israeli investors with preferential information whenever the report in Israel is filed first. Finally, the current arrangement does not coincide with the trend towards globalization in the capital market. The Amendment proposes to change the current situation and to determine that the timing for foreign corporations filing periodic and immediate reports will be determined by the foreign law. The Amendment further proposes to provide an extension, whereby in cases where no trading takes place on the Stock Exchange on the filing date prescribed by 104

the foreign law, the report will be filed up to half an hour before the start of trading on the Stock Exchange on the first trading day after its filing or publication abroad. The Amendment has been submitted to the Ministry of Finance. s. Securities Regulations (Signature Approver) of 2008; Securities Regulations (Secure Email) of 2008; The proposed amendment accompanies the Securities Law and concerns a secure email system (see Section A - Legislation) and aims to provide regulations for the ISA's establishment of a secure email account, as well as access authorizations for the account. The Amendment proposes, among other things, that all supervised entities appoint an individual who will be authorized to access the secure email account. The Amendment further proposes that applications to register authorized persons as aforesaid shall be submitted to the ISA for approval. The ISA's approval shall be given according to such terms and restrictions as detailed in the proposed amendment. The Amendment proposes to change the Securities Regulations (Signature Approver) of 2003 and apply the arrangements already in place regarding the MAGNA system, mutatis mutandis, to the secure email system. It is further proposed to regulate access authorizations to the secure email system by issuing private keys and electronic certificates defined in the regulations, as part of the proposed amendment. Finally, the Amendment proposes to regulate the procedures for transferring information during the issue of new electronic certificates, or upon renewal of an existing electronic certificate. The Amendments have already been submitted to the Minister of Finance and the Minister of Justice for approval of their submittal to the Knesset Finance Committee and the Science and Technology Committee. t. Securities Regulations (Stabilization of Prices) of 2008 and Securities Order (Amendment of the Fifth Schedule to the Law) of 2008 As part of the underwriting reform, the ISA decided to adopt rules enabling underwriters to stabilize the prices of securities in an offering, provided certain conditions are met. To this end, Section 54(a)(2) to the Securities Law was amended so as to determine that any person acting according to the stabilization regulations shall not be regarded as deceitfully influencing fluctuations in the prices of the stabilized securities. The proposed regulations complement this change and prescribe the rules referred to by the amendment to the Law. The ISA further proposes to amend the Fifth Schedule to the Securities Law, so as to enable financial sanctions to be imposed on underwriters who violate some of the Regulations. The Amendments were approved by the ISA Plenum on July 15, 2008, and were submitted to the Minister of Justice for approval. u. Securities Regulations (Underwriting) (Amendment) of 2009 Currently, companies may serve as underwriters in public offerings in Israel if they have registered as underwriters in Israel after having met the requisite conditions (hereinafter – the “Primary Method”). Alternatively, they may serve as underwriters if they are a foreign underwriter which meets the applicable conditions specified in the Regulations (including authorization to act as underwriters in the major exchanges in the US or UK). One of the conditions for employing the Primary Method 105

is the underwriter's incorporation in Israel. As the ISA believes that any underwriter which meets the requirements for Israeli underwriters should be granted entry into the Underwriters Registry, it proposes to cancel the requirement for incorporation in Israel. The Amendment was also requested by the OECD, as part of consideration of Israel's inclusion in the organization. Furthermore, the Amendment proposes to allow underwriters operating in other exchanges around the world, in addition to those listed above, to serve as underwriters in Israel, provided that - in addition to meeting the terms of the Regulations - the ISA and the foreign authority in the underwriter's country of incorporation have signed a memorandum of understanding. Such underwriters are also required to provide the ISA with confirmation that the law in their countries of origin allows Israeli court rulings to be enforced in their country of origin or in their place of business. The Amendment was approved by the ISA Plenum on September 6, 2009. v. Securities Regulations (Periodic and Immediate Reports) (Amendment) of 2010; Securities Regulations (Details, Structure and Form of Prospectus and Draft Prospectus) (Amendment) of 2010; Securities Regulations (Dates for Filing Notice of Principal Shareholder or Senior Officer) (Amendment) of 2010; The amendments concern a number of matters: 1) Changes concerning the disclosure requirement for principal shareholder holdings Several changes are proposed to the disclosure provisions regarding principal shareholders. These include: determining that the requirement to report changes in principal shareholder holdings (in prospectuses and as part of the ongoing reporting) shall also apply to changes in holdings in securities which are not shares or securities convertible into shares; that the disclosure requirement regarding principal shareholder holdings shall also apply to the holdings of senior officers; that when principal shareholders are companies, and there is no controlling shareholder in those companies, details will be provided for all principal shareholders in those companies; to expand the allowances granted to banks and insurers (cumulative weekly reporting) so as to also apply to broader institutional reporting groups (in Israel and abroad), so far as to prescribe monthly reporting requirements instead of weekly reports for these groups. The amendment for these matters accompanies the amendment to the Law (see under the Proposed Legislation section above). 2) Disclosure concerning self-acquisition plans The Amendment proposes that the Regulations establish an ISA directive issued pursuant to Section 36A(b) of the Law, whereby decisions concerning plans for the acquisition of securities by a corporation or a company under its control shall require an immediate report. This report is to include details such as the scope of the plan, its commencement date, the reasons behind it, etc. A similar reporting requirement shall be prescribed for the board of directors' report (quarterly and annual) concerning all acquisition plans reported during the reporting period or in effect at the reporting date, including details on the actual implementation of

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these plans. The Amendment further proposes that decisions to terminate or change plans will also require an immediate report. 3) Timing for filing immediate reports The Amendment proposes to revoke the limitation whereby corporations which filed immediate reports with the Stock Exchange in the half hour prior to trading or during the course of trading, must wait at least thirty minutes until they may publish the reported information through other channels. In light of the electronic reporting mechanism, this limitation is no longer justified. 4) Reporting changes in capital Regulation 31 of the Statements Regulations requires corporations to file immediate reports whenever changes take place in their registered or issued capital. For economic reasons, and subject to several limitations, the ISA proposes an allowance whereby changes of less than one percent in the issued share capital are to be reported in a monthly summary report. w. Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Regulations (Foreign Providers) of 2009; Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Services Regulations (Application for License, Examinations, Internship and Fees) (Amendment) of 2009 Amendment 11 to the Advice Law (see Section 14 under Proposed Legislation) proposes an arrangement whereby foreigners holding "foreign licenses" to provide investment advice, investment marketing or investment portfolio management services ("Foreign Providers") will be allowed to offer their services in Israel without obtaining an Israeli license. This, provided that the services are rendered through a corporation holding an Israeli license ("Licensed Corporation") to that corporation's clients. The Amendment proposes that Licensed Corporations be liable for foreign providers' services and shall be required to oversee these services. Section 10B to the proposed law prescribes the prerequisites for Licensed Corporations engaging the services of Foreign Providers. The proposed regulations provide for Licensed Corporations and Foreign Providers filing applications for inclusion in the Foreign Providers Registry. The regulations state the documents and details which Licensed Corporations and Foreign Providers are required to append to such applications. The Amendment further proposes reporting requirements for Licensed Corporations regarding Foreign Providers' activities, and that Licensed Corporations be required to pay additional fees for each Foreign Provider that they engage. The Amendment was approved by the ISA Plenum on September 6, 2009. x. Proposed Money Laundering Prohibition Order (Identification, Reporting and Record Keeping Requirements of Stock Exchange Members to Prevent Money Laundering and Terrorism Financing) of 2009, and Money Laundering Order (Identification, Reporting and Record Keeping Requirements of Portfolio Managers to Prevent Money Laundering and Terror Financing) of 2009, (hereinafter – the "Money Laundering Prohibition Orders")

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In 2008, the Minister of Finance submitted new Money Laundering Prohibition Orders to the Knesset Constitution, Law and Justice Committee. These new orders supersede the Money Laundering Prohibition Orders (Identification, Reporting and Record Keeping Requirements of TASE Members) of 2001, as well as the Money Laundering Prohibition Order Identification, ( Reporting and Record Keeping Requirements of Portfolio Managers) of 2001. Prior to the orders' approval, an audit report was received from Moneyval, an FSRB (FATF Style Regional Body) in Israel. The report indicates several issues in the Orders which must be corrected in order to comply with international money laundering prohibition standards. The new Money Laundering Prohibition Orders were amended accordingly. The main changes proposed are as follows: Requiring familiarization with clients; requiring that policies, tools and risk management processes be instituted as regards money laundering prohibition; adding a second schedule to each order detailing suspicious transactions; establishing terror financing prevention reporting requirements and expanding reporting requirements regarding unusual transactions. The proposal has been submitted to the Minister of Finance in preparation for its submittal to the Constitution Committee. 3. Directives in accordance with Section 36A of the Securities Law a. New directives During the year, the ISA issued the following directives in accordance with Section 36A of the Securities Law: 1) Disclosure of dividend distributions The directive was published and went into effect on August 6, 2009. Section 302 to the Companies Law of 1999, establishes a rule whereby companies may make distributions (i.e. - distribute dividends or self-acquire shares or securities convertible into shares), provided two conditions are met ("Distribution Tests"): The distribution is made from company profits ("Profit Test"), and there is no reasonable concern that such distribution will prevent a company from meeting its existing and expected obligations, when these become payable ("Solvency Test"). Regulation 37 of the Securities Regulations (Periodic and Immediate Statements) of 1970 requires that immediate reports be made for board of directors' decisions to make distributions, including details on the balance of profits before and after the distribution. This disclosure is to include information enabling investors to assess the effects of he t dividend distribution on a company's ability to meet its existing and expected obligations, when these become payable. Furthermore, the disclosure is intended to promote transparency in board of directors' actions, and in corporate decision making processes. The directive established disclosure requirements for board of directors' examinations of whether their companies meet the Distribution Tests, and particularly - their compliance with the Solvency Test. Immediate reports on distributions are required, among other things, to include information on the 108

distribution's effects on the distributing company's financial position, its equity structure, leveraging, liquidity, ability to continue existing operations, and its investment plans. Furthermore, separate details must be provided for cases where a board of directors, for the purpose of the distribution, relies on a company's ability to dispose of assets or on sources of income derived from subsidiaries. 2) Disclosure regarding debt settlements The directive is intended to supersede the ISA Plenum decision of December 2002, concerning corporate disclosure requirements upon approving court- sanctioned settlements in accordance with Section 350 of the Companies Law, 1999. The directive further regulates the disclosure format for out-of-court (i.e. - not in accordance with Section 350 of the Companies Law) debt settlements implemented through changes to deeds of trust. These latter settlements have become more common following the economic crisis. The directive defined debt settlements as changes in the terms of debt certificates, including the offering of other securities, which require the debt certificate holders' approval or an exchange purchase offer. The directive states that corporations experiencing financial difficulties, which are finding it hard to meet their original obligations towards the debt certificate holders and which are seeking to negotiate a debt settlement arrangement with these holders, must provide disclosure which will allow holders to make a decision whether or not to approve the debt settlement arrangement. Such disclosure must include, among other things, background information and the circumstances which led to the corporation struggling to repay its original liabilities; the alternatives considered by the corporation while trying to find a suitable solution; the terms of the proposed settlement; details regarding the sources of income which the corporation intends to use to repay its obligations under the new terms and explanations why the corporation's proposal is preferable for the holders over other alternatives (such as exercising collateral or filing a request for liquidation with the courts). For debt settlements not due to financial difficulties, more limited disclosure requirements were prescribed. The disclosure requirements in the directive are similar in nature to those prescribed in the Companies Regulations (Application for a Settlement or Arrangement) of 2002, which apply to the approval of court-sanctioned settlements in accordance with the Companies Law, with certain additions. b. Extended directives 3) Disclosure of all corporate obligations according to repayment dates The directive was published on November 30, 2008, and went into effect on December 10, 2008. The latest developments in global financial markets raised concerns regarding corporations' abilities to repay their obligations and recycle debt, further deepening the credit crunch – both worldwide and in Israel. In light of the aforesaid, the directive requires reporting corporations to specify repayment

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dates of corporate obligations, alongside interim and annual inancial f statements. The data will be reported on a special form on MAGNA and will be based primarily on information provided in the financial statements. The Minister's approval for extending the directive for another year was granted on November 11, 2009. 4) Disclosure of effective costs to investors in ILNs vs. direct investment in underlying assets The directive was published on December 10, 2008, and went into effect on December 31, 2008. ILN issuers are legally obligated to investors as to tracked indices. Such legal obligation varies from the return on direct investment in the underlying assets (bonds or shares) which can include other forms of remuneration such as dividends or interest, depending on the tracked index. Payments for the underlying assets are distributed by the securities included in the tracked index, and their receipt by the issuer of the certificate depends on the backing chosen by the issuer and the financial assets in which he invested. Non- payment of receipts on indexed assets, along with deductions from indexed asset payments (such as management fees), may constitute significant considerations when making an investment decision. The directive aims to inform investors about the abovementioned reduction in yield, as depicted in the expression "effective costs to investors vs. direct investment in underlying assets", while specifying requirements for estimating and disclosing the effective cost to investors in ILNs. The Minister's approval for extending the directive for another year was granted on November 11, 2009. 5) Disclosure of financial and other details pertaining to indexed products The directive was published on December 10, 2008, and went into effect on December 31, 2008. The Directive regulates disclosure requirements of various details in periodic and quarterly reports, to be presented in a uniform and comparable manner. For example, the proposed details will provide investors with data regarding the volume of ILNs held by the public for the purpose of evaluating the potential tradability of a specific ILN and comparing it to other ILNs, or specifying the ILN's conversion formula so as to allow investors to evaluate each component of the aforesaid formula and compare it to other ILNs. This directive shall apply to any report which concerns payment or charges to ILN holders, in any report permitted or required by law. The Minister's approval for extending the directive for another year was granted on November 11, 2009. 6) Disclosure of description of indices in indexed products The directive was published on December 10, 2008, and went into effect on December 31, 2008. The Directive regulates disclosure requirements pertaining to the description of tracked indices, including general information as well as the index currency, 110

method of calculating the index, underlying assets, etc. The disclosure shall be provided as part of periodic eports, r while changes pertaining to this disclosure shall be provided in quarterly and immediate reports. The Minister's approval for extending the directive for another year was granted on November 11, 2009. 7) Disclosure of self-acquisition plans and self-acquisition The directive was published and went into effect on December 16, 2008. It is highly important that investors know about self-acquisition plans or about the plans of a subsidiary to purchase securities of its parent company. This directive regulates disclosure requirements pertaining to such plans, and sets immediate reporting requirements as to the actual purchase or sale of bonds of or by a reporting corporation, or by a corporation under its control. As in the case of legislation proposals above, the ISA acts to promulgate the content of its directives in its regulations. The Minister's approval for extending the directive for another year was granted on November 11, 2009. 8) Disclosure of investment property The directive was published on February 22, 2009, and applies starting with the 2008 periodic reports. International standards allow investment property to be presented at fair value. Fair value is essentially based on estimates, assumptions, and various assessments. The directive requires corporations to provide disclosure allowing users of financial statements to compare trends and changes in the fair value of investment properties, calculation of fair value, and other relevant data. The directive was submitted to the Minister of Finance for extension by one year. 4. Judicial proceedings involving the ISA a. Civil proceedings handled during the year 1) Eli Shiri vs. ISA (Appeal 8070/08) An appeal against the ISA's decision in accordance with Section 14A of the Securities Law. The appeal concerns the ISA's decision not to initiate a criminal investigation following a complaint filed with the ISA regarding unlicensed portfolio management. 2) Sigalit Orion vs. ISA (Administrative Petition 1743/09) A petition to disqualify questions as to the ISA's authority pursuant to the Advice Law. 3) Administrative Petition 1883/08, Jerusalem District Court A petition submitted by a company following the ISA's alleged refusal to grant it an investment portfolio management permit according to the Advice Law. 4) Daniel Mulkandov vs. Sara Porush, Moshe Terry & ISA (Civil Case 1689/08) 111

A financial claim filed against the ISA, its former chairman and the former Head of the Mutual Funds Supervision Department (presently the Investments Department). The claim argues for damages due to the termination of an agreement between a fund manager and the claimant following statements made by the defendants. 5) Administrative Petition 9022/08, Jerusalem District Court An administrative petition filed against the ISA for refusing the petitioner an investment consultancy permit pursuant to the Advice Law. 6) ISA vs. Nova Star Trust Fund Management Ltd. (Originating Motion 6346/07, Jerusalem) In this case, the ISA requested that the fund manager be required to transfer management of the funds to another manager, in accordance with Section 12(c) of the Investment in Trust Law, or if another manager for the funds could not be found - the ISA requested that the funds be liquidated in accordance with Section 104(d) of the Law. 7) Baran Group vs. ISA (Administrative Petition 1092/09, Jerusalem) An administrative petition filed against the ISA for financial sanctions imposed on the petitioner following delinquent filing of an immediate report regarding the end of tenure of two external directors, in violation of the Securities Law. 8) Yaakov Rosenfeld vs. Greenstone Industries Ltd. (1414/09, Tel Aviv) This case concerns Yaakov Rosenfeld's, a shareholder in Greenstone Industries, application to the court to require the company to disclose the minutes of its board of directors and audit committee meetings, regarding the approval of a transaction with a controlling shareholder brought before the shareholders for approval. 9) Africa Israel Investments Ltd. vs. Hermetic Trust (Liquidation Case 10344/09, Tel Aviv) This case concerns Africa Israel Investments' application to the court requesting the approval of an arrangement made in accordance with Section 350 of the Companies Law with bondholders holding 13 separate series of differing duration. The arrangement was to be approved through the convening of one single creditors' meeting. 10) Shtang Construction and Engineering Ltd. (Stay of Proceedings) vs. Bank Leumi LeIsrael Ltd. (Liquidation Case 3706/09, Tel Aviv) This case concerns the trustee's application to the court to provide instructions under a stay of proceedings order. 11) Nidar Construction and Development Co. Ltd. (Stay of Proceedings) vs. ISA (Liquidation Case 5235/08, Miscellaneous Civil Application 6378/09) This case concerns the trustees' application to the court requesting that it order the cessation of work on the company's financial statements, as a measure for reducing the company's expenses, as part of the settlement.

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12) Clal Finance Trusts vs. Greenstone Industries Ltd. (Liquidation Case 1487/09, Tel Aviv) This case concerns a bondholders' trustee's entitlement to be refunded for expenses incurred in protecting the bondholders' rights. 13) Direct Capital Investments Ltd. vs. Hermetic Trust (1975) Ltd. (Liquidation Case 2605/09, Tel Aviv) This case concerns the manner of convening bondholder meetings as part of the approval of a settlement made in accordance with Section 350 of the Companies Law. b. Administrative and disciplinary proceedings under the Advice Law For details of administrative proceedings to revoke or suspend licenses, according to Section 10(a) and 10(a1) of the Advice Law, and for details of disciplinary proceedings before the Disciplinary Committee, according to Section 33 of the Advice Law, see Chapter V above. c. Imposition of civil fines under the Joint Investment in Trust and the Advice Laws For details, see Chapter V above. d. Criminal proceedings For details on indictments, pending cases and criminal rulings, see Chapter IX below.

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VIII Criminal Enforcement 1. Criminal Indictments In 2009, following investigations performed by the ISA, 14 criminal indictments were filed by the Tel Aviv District Attorney's Office (Taxation and Economics Department):1 a. In January, an indictment was filed in the Tel Aviv District Court against Dan Cohen on suspicion of committing a series of violations under Sections 244, 423, 415, 284, 290 of the Penal Code of 1977 and under Section 53(a)(4) of the Securities Law of 1968. Cohen is a certified attorney and served as a district court judge between 1978 and 1981. In the years 1991-2001, Cohen served as a director, and starting 1993 also served as chairman of the Israel Electric Corporation's board of directors' Assets Committee, and a member of it supreme tender committee. In the period between 1996 and 2004, Cohen owned a number of foreign companies holding foreign accounts. The indictment accuses Cohen of four charges: the Rogozin Affair, the Spanless Affair, the Siemens Affair, and obstruction of justice. The Rogozin Affair - In the mid-1990s, Rogozin Ltd. (hereinafter - “Rogozin”, a public company at the time), held a 400-dunam (400,000 square meters) property in Ashdod, adjacent to the Israel Electric Corporation power plant. The late Mr. Ezra Harel (hereinafter - "Harel", the controlling shareholder in Rogozin) and Dan Cohen (served as chairman of the Israel Electric Corporation's Assets Committee) are suspected to have agreed that Cohen would promote a transaction whereby the Israel Electric Corporation would purchase Rogozin's lands. In return, Cohen was to receive a bribe for services rendered to Rogozin and Ezra Harel. In 1995, Cohen suggested the purchase of Rogozin's lands, and exerted his influence on the Israel Electric Corporation's board of directors and management in order to approve the transaction. Rogozin's lands were purchased at a price of USD 62.5 million including VAT - an amount hundreds of percents higher than the initial amount asked by Rogozin for its lands in 1993, prior to Harel taking over the company. A short time after the deal was signed in 1996, Harel transferred one third of the shares in a private company under his ownership (Cobalt Ltd.) valued at USD 2 million to an off-shore company owned by Dan Cohen. These shares served as consideration for Cohen's use of his position as a public servant to promote the transaction on behalf of Harel and Rogozin Industries. The Spanless Affair - Another collaboration between Ezra Harel and Dan Cohen, in which the two fabricated a transaction where Rogozin International (a wholly-owned second tier subsidiary of Rogozin, whose reports were consolidated with those of Rogozin) paid USD 800,000 for fictitious consultation services provided by off-shore company Velsheda, owned by Cohen. Cohen, together with Ezra Harel, fraudulently received the above amount from Rogozin International and fraudulently obtained Rogozin Industries' board of directors' approval for the transfer, caused the falsification of Rogozin Industries and Rogozin International documents with the intent of committing fraud, caused the inclusion of misleading information in the companies' financial statements, and assisted Harel in fraudulently obtaining, under aggravating circumstances, the

1 The number of indictments does not necessarily correspond to the number of underlying investigation files. At times, the District Attorney combines a number of investigations into a single indictment or, conversely, submits a number of indictments pertaining to a single investigation file.

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approval of Rogozin International and Rogozin Industries' accountants for the transfer of the funds, and its classification as an asset rather than an expense on the company's income statement. The Siemens Affair - In 1999, the Israel Electric Corporation issued a tender for purchasing gas turbines at a cost of hundreds of millions of dollars. A number of companies submitted bids in the tender, including Siemens (which submitted its bid through its local representative, Siemens Israel), General Electric, and several other companies. After the Israel Electric Corporation examined the various proposals, two leading bidders emerged - Siemens and General Electric. Of these two companies, Siemens offered the better bid (27% lower), but the Israel Electric Corporation delayed announcement of the winner. Oren Aharonson (hereinafter: "Aharonson"), CEO of Siemens Israel, who was concerned about losing the tender, contacted Dan Cohen in 2001. At the time, Cohen was considered the dominant director on the Israel Electric Corporation's board, and was a member of its tender committee. The two agreed that Cohen would use his influence, contacts and status in the Israel Electric Corporation in order to guarantee Siemens' win. In return, Cohen was to receive 1/3% of the value of the transaction, approximately EUR 1 million, with the bribe money being deposited in a foreign account controlled by Cohen. Cohen fulfilled his part of the agreement, and directly and indirectly assisted Siemens in securing its win in the ender. t Oren likewise fulfilled his part of the agreement and, following Dan Cohen's instructions, transferred the agreed amount of EUR 1,049,000 to Velsheda, a foreign off-shore company owned by Cohen. Obstruction of justice - Cohen attempted to sever all ties between himself and the account to which the transfers were made, and tried to distance himself from the above offenses. In so doing, Cohen obstructed the investigation in his case. Contrary to Cohen's statements, from its incorporation and throughout the entire period referred to in the indictment, Velsheda was owned and controlled by Cohen, and one of Cohen's friends, who was presented as Velsheda's owner, served only as a "front man". Case 4004/09. b. In April, an indictment was filed in the Tel Aviv Magistrate Court against Michael Gavish, on suspicion of violating Sections 244, 425, 415, 383 and Section 393 of the Penal Code of 1977, violating Sections 54(a)(1) and (2) of the Securities Law of 1968 (hereinafter: "the Law"), Section 53(a)(4) of the Securities Law - misleading information in a report, Regulation 33(a)(6) of the Periodic and Immediate Reports Regulations, Section 37(b) of the Securities Law, and Section 53(d) of the Securities Law - continuing violation. Meretz Investments Ltd. (hereinafter: "Meretz" or "the Company") was, at the time, licensed to manage investment portfolios, and the bulk of its operations concerned investment portfolio management services for its clients. Meretz's revenue from managing its clients' portfolios were derived from two sources: (1) management fees collected from each client, in an amount agreed upon with each client separately, and (2) commission refunds which Meretz received from Stock Exchange members. Client portfolio management involves carrying out securities transactions in client accounts, according to the portfolio manager's best judgment. The owner and manager of the Company was (and remains) Rami Tamari (hereinafter: "Tamari"). Tamari decided that work be distributed in Meretz as follows: Each portfolio manager was responsible for managing all client investment portfolios for a particular Stock Exchange member (e.g. - one portfolio manager was responsible for all clients with accounts in Bank Leumi, etc.). The one exception to this rule was Mr. Michael Gavish, who managed his clients' portfolios across all Stock 115

Exchange members. Gavish is a licensed investment portfolio manager. In the period between 2000 and 2007, including the period referred to in the indictment, Gavish worked as a portfolio manager in Meretz. In contrast to the other portfolio managers in Meretz, Gavish's clients were defined as being exclusively under his management, and Gavish managed their accounts exclusively, regardless of the bank in which they were kept. For the sake of efficiency, in each bank where Company clients maintained accounts, Meretz maintained an account in its name, which was defined as a "split account". Use of split accounts enabled each portfolio managers to carry out joint transactions for all his clients. In the period 2006-2007 (until the termination of his employment) Gavish carried out transactions in client accounts and split accounts while committing numerous acts of fraud. Inter alia, on numerous trading days, Gavish made sure that his various fraudulent activities would yield guaranteed profits to Meretz's split accounts, at the expense of guaranteed losses to two of his clients ("the Damaged Clients"). On those trading days, Gavish made sure that those fraudulent profits be transferred ("split") exclusively to a number of clients which Gavish preferred ("the Preferred Clients"). All Preferred Client accounts which benefited from Gavish's acts of fraud and theft were under his independent and exclusive management. Gavish caused all preferred accounts significant losses prior to committing the above offenses. A significant part of these losses was caused by actions carried out by Gavish, which were in violation of the Company's investment policy for these portfolios and in violation of the clients' permissions. Damaged Client accounts were also managed independently by Gavish. The Damaged Clients were Gavish's two largest, most valuable clients, and included the provident funds managed by Mizrahi-Tefahot Bank. During the relevant period, Mizrahi-Tefahot Bank's provident funds transferred the management of their members' money to a number of third-party portfolio managers. One of these third-party portfolio managers was Meretz, which managed two accounts for Mizrahi-Tefahot's funds, valued at tens of millions of NIS. These accounts were managed exclusively and independently by Gavish, on behalf of Meretz. Case 4130/09. c. In June an indictment was filed in the Tel Aviv Magistrate Court against Noam Tepper on suspicions of using inside information by an insider, a violation under Section 52C of the Securities Law of 1968 (hereinafter: "the Law"). At the dates detailed in the indictment, Tepper provided investor and public elations r services to public companies in Israel. Tepper was responsible for the companies' investor relations and marketing activities with institutional investors, private investors, analysts, and the media. Furthermore, he was responsible for strengthening the companies' ties with existing investors, as well as developing ties with new potential investors. On several occasions, Tepper used inside information, obtained through his work with client companies, for personal gain. The offenses were committed on Medcon shares, Arazim shares and warrants, Starlims shares, and Tower shares. In his above activities, Tepper made a personal profit of NIS 58,277. Case 5760/09. d. In July, an indictment was filed in the Tel Aviv District Court against Shmuel Maya on suspicions of providing unlicensed investment portfolio management and advice services - a violation under Section 39(a)(1) of the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 1995 (hereinafter - "the Law"). In the period referred to in the indictment, Maya worked as a lecturer and sub-contractor with Broker Tov Ltd., a company providing a variety of capital market-related services and products. In the relevant period, Maya carried out 116

transactions, at his discretion and without holding a portfolio manager license, in the accounts of more than five clients simultaneously (Section 3 of the Law lists activities which do not require licensing, and permits, inter alia, under Section 3(a)(3), individuals to manage investment portfolios for no more than five clients in a single calendar year). The clients ' accounts were part of investment portfolios opened with Harel. Maya knowingly established a mechanism for managing the client portfolios (hereinafter - "the Mechanism"), in order to evade the restrictions and conditions prescribed by the Law. The Mechanism was comprised of Maya's employees, who were not licensed to manage portfolios, with each employee managing no more than five client portfolios at a given time. Case 15072-08-09. e. In September, an indictment was filed in the Tel Aviv Magistrate Court against Meir Dor on suspicions of use of inside information by an insider - an offense under Section 52C of the Securities Law of 1968. At the dates detailed in the indictment, Dor served as chairman of Tefen Industrial Engineering and Management and Systems Analysis Ltd. (hereinafter - "the Company"), a public company. As part of his duties as chairman of the Company's board of directors, Dor received monthly reports on the Company's financial position from the CFO, as well as ongoing reports on the Company's position. On November 16, 2003, about one week prior to the Company issuing its financial statements for the third quarter of 2003, which disclosed a negative change in the Company's financial position, Dor instructed that his personal holdings in the Company's shares be sold. Between November 16-18, 2003, all his holdings in the Company were sold. The day after the Company published its statements, its shares dropped 23.5%. The deterioration in Tefen's position was not known to the general public at the time when Dor sold his shares. Case 14419-09-09. f. In October an indictment was filed in the Tel Aviv Magistrate Court against Ephraim Yona on suspicions of committing a series of offenses under Section 415 of the Penal Code of 1977, and offenses under Sections 54(a)(1) and 54(a)(2) of the Securities Law of 1968. In the period between January 2006 and January 2008, Yona made his living by trading securities for personal gain, while consulting two close friends on their accounts. These friends had known Yona for many years. They were not familiar with the capital market, and approached Yona for trading advice as they trusted his knowledge and expertise in the field. As a result, they followed his advice without exercising their judgment as to the class, quantity or price of securities being bought or sold, placing their full trust in Yona and believing that his advice was given to their benefit. However, Yona acted for his own gain and exploited his friends' accounts, advising them to carry out transactions in shares which yielded profits to himself and losses to his friends. This, while making false representations to his friends that his advice was given to their benefit and gain, while concealing the fact that he was usually the other party in these transactions. In several cases, Yona's actions influenced the prices of the relevant shares. As a result of his fraudulent activities, Yona made a total profit of NIS 100,382. Case 15159/10/09. g. In October, an indictment was filed in the Tel Aviv District Court against David Wigdrowitz on suspicions of committing offenses under Sections 117(b)(5), 117(b)(6), 117(b)(7), 117(b)(8) of the Value Added Tax Law of 1975; Section 220 of the Income Tax Ordinance; Section 423 of the Penal Code of 1977; and Sections 53(a)(4) and 53(a)(2) of the Securities Law of 1968. Dor Alon Energy Ltd., a public company, holds 117

100% of the shares of Dor Alon Stations Operation Ltd., a privately-held company. Dor Alon Energy consolidates Dor Alon Operation's activities in its financial statements. Wigdrowitz, a certified public accountant, served as CEO of Dor Alon Operation from 1995 until July 2007, when the affair was discovered. Wigdrowitz is suspected of having made journal entries resulting in underpayment of tens of millions of NIS to the VAT authorities, non-entry of expenses, and "inflating" revenue in Dor Alon Operation's books. These activities also resulted in Dor Alon Operation and its parent company Dor Alon Energy presenting misleading financial statements in the period 2003-2006, and in the first quarter of 2007. Wigdrowitz's actions resulted in a false income tax claim of NIS 40 million. In addition, expenses totaling NIS 31 million were not recorded in the company's books. Through these actions, Wigdrowitz caused the publication of misleading financial statements both for Dor Alon Operation and Dor Alon Energy, and the publication of misleading information in a prospectus published by Dor Alon Energy in May 2005. In this prospectus, Dor Alon Energy published financial statements for the first quarter of 2005 and annual financial statements for 2004. Wigdrowitz is further charged with failure to recognize benefits given to gas station managers through their salaries as taxable income. Benefits received by station managers, and which were not taxed as required by law due to Wigdrowitz's actions, total no less than NIS 3.2 million. Case 4212/09. h. In October, an indictment was filed in the Tel Aviv District Court against Sagiv Yohanan Netzia, Avraham Arvivo, Moshe Sabag, David Netzia, Orlin Netzia, and Nissim Rom on suspicions of violating Sections 392, 424, 423, 418, 415 of the Penal Code of 1977; offenses under Sections 53(a)(4), 54(a)(1) and 53(e) of the Securities Law of 1968; offenses under Section 16 of the Securities Regulations (Transaction between a Company and a Controlling Shareholder therein) of 2001; and offenses under Section 3(a),(b) of the Prohibition on Money Laundering Law of 2000. In the period referenced in the indictment, Orline Development and Investments Ltd (hereinafter: "Orline" or "the Company"), a public company which in the relevant period reported itself as dealing in entertainment electronics, and later reported itself as dealing in investments. In July 2003, the late Mr. Aharon Lifuf (hereinafter: "Liluf"), a businessman dealing in the import and distribution of electrical products, acquired control of the Company from its previous controlling shareholder. This acquisition was carried out through another individual, Shlomo Zilberman, who served as a "front man" for Liluf, in order to disguise his holdings and operations through the Company. In October 2003, Zilberman, at Liluf's orders, transferred Liluf's shares to Netzia and others. Netzia, whose holdings in the Company rendered him the "controlling shareholder", served as a director in the Company starting October 22, 2003, and as CEO and risk management supervisor of the Company starting November 26, 2003. According to the board of directors' decision dated December 28, 2003, Netzia was a licensed signatory in Orline, and was authorized to obligate the Company through his signature alone. Using his position in Orline, Netzia acted in a fraudulent manner and in violation of trust, damaging the Company. Netzia used his authority in the Company to promote his own private goals and interests, in a manner opposite the goals and interests of Orline and its public shareholders. In some cases, Netzia collaborated with Liluf in acts of fraud and forgery, created a series of false entries in Orline's share books and accounts, and caused the inclusion of misleading information in its quarterly statements and immediate reports. These actions were carried out with the intent of misleading investors and creating a false 118

representation of an active and profitable company, in order to motivate investors to trade in the Company's shares, most of which were issued and listed for trade in fraudulent and deceitful ways. The indictment includes several charges, as follows: Private placement: Netzia fraudulently, and under aggravating circumstances, obtained the Stock Exchange’s approval to list shares for trade which were not actually allocated and which were not paid for. Misleading and fraudulent reporting in the Company's second and third quarter statements for 2004: Netzia fraudulently obtained the Company's accountants' approval for the presentation of the Company's business in its financial statements, and caused the Company's financial statements for June 30, 2004 (filed in delay to the ISA and the Stock Exchange) to include misleading information, in order to mislead reasonable investors. Forgery of shares: Netzia forged, under aggravating circumstances, Company share certificates. Netzia led the public to buy the counterfeit shares, making false representations that the shares had been duly issued and listed for trading, concealing the material fact that these were actually forged shares, fraudulently issued and listed. Private placement: In light of the above actions, a difference of NIS 8 million was created between the Company's issued share capital registered in the Stock Exchange’s books, and its issued capital registered with the nominee company and the Stock Exchange clearing house. In order to reduce this difference and conceal their fraudulent actions, Netzia and Liluf carried out a false private placement of NIS 8 million par value in shares to a German businessman by the name of Gabi Horn. The two obtained Mr. Horn's consent to serve as offerree for the private placement, and agreed with him that he would be allocated the shares without redeeming their consideration, as part of a settlement for a business debt owed by Liluf. Money laundering: Netzia collaborated with Avraham Arvivo and Moshe Sabag in order to conceal the assets derived from Netzia's fraudulent activities, disguise their sources, Netzia's interests therein, their location, transactions therein and use thereof. Misleading reporting with the intent to mislead: David Netzia, Orline Netzia, and Nissim Rom served as directors in the Company despite lacking both the necessary skills and any intention of exercising their authority and fulfilling their duties by law as directors. The Defendants did not make any effort to study the Company and its operations, did not attend some or all of the Company's board meetings, did not make sure that such meetings take place at the prescribed times or at all, approved the Company's financial statements and signed various documents as asked without exercising any discretion whatsoever. During the entire course of their tenure, Orline published misleading information concerning their service, in order to make false representations to the public of a public company operating as required by law. Orlin was presented as a director possessing accounting and financial skills, although she lacked any such skills. Rom was presented as a member of the Company's audit committee, although no such committee ever convened or operated. Furthermore, his family ties to Sagiv and Orlin were concealed. During the entire course of their tenure, they failed to take any action to prevent the Company's reporting violations or other offenses, despite knowing or possibly knowing or being required to know of these violations and offenses. Case 4218/09. i. In November, an indictment was filed with the Tel Aviv Magistrate Court against Yuval Gafni (hereinafter - "Gafni") on suspicion of using inside information, an offense under Section 52D of the Securities Law of 1968, and offenses under Section 4 of the Prohibition on Money Laundering Law - Transactions in Prohibited Property. 119

Golan Fine Crafts (1977) Ltd. (hereinafter - "Golan") was a public company at the times referenced in the indictment, and remains a public company to this day. Oded Dessau (hereinafter - "Dessau") was the controlling shareholder during the relevant period, and from December 2005 held 73.04% of Golan's issued share capital. Furthermore, during the relevant period, Dessau served as chairman of the company's board of directors. Dessau effectively managed Golan's affairs, made all major decisions in the company, was an authorized signatory, and during the relevant period constituted an insider in Golan. Gafni and Dessau have known each other for many years and have business ties, mainly in the diamond market. In addition, Gafni would loan Dessau large amounts of money (millions of dollars) for Dessau's personal needs as well as for privately-held diamond and real estate companies controlled by Dessau. Between June 2006 and March 2006, Dessau encumbered 50% of his holdings in Golan to Gafni, as collateral for part of Dessau's debts. During the period referenced in the indictment, Dessau's debts to Gafni raised concerns regarding his ability to repay these debts. As a result, Gafni demanded that Dessau update him about his business activities. Starting around January 2006, Gafni and Dessau shared an office in the Ramat Gan Diamond Exchange. Due to their physical proximity and their business ties, Gafni was aware of Dessau's business activities and of his status as an insider in Golan. Between August 2005 and February 2006, Golan, mainly through Dessau, conducted negotiations with Dan Public Transportation Company Ltd. and with Nahor Ltd. for acquiring holdings in A.M.D. Real Estate Development and Investment Ltd. (hereinafter - "AMD"), a private company valued at USD 150 million. On February 4, 2006, Golan reported to the Stock Exchange and the ISA that it had signed an agreement to acquire 50% of AMD's shares for a total consideration of USD 75 million. This constituted a material transaction for Golan, a change in its position and status, and was considered a leap upwards in Golan's business. Between the start of February 2006 and May 16, 2006, Dessau's efforts were mainly directed to finding sources to finance the outstanding consideration required to complete the transaction, to the amount of USD 65 million. On the night between May 15 and May 16, 2006, Dessau conducted negotiations with representatives from Boymelgreen Capital Ltd. (hereinafter: "Capital"), controlled by Yeshayahu Boymelgreen. Negotiations led to a principle agreement to include Capital as a strategic investor in the AMD deal, and for cooperation between Capital and Golan. Dessau told Gafni of these negotiations. After the parties reached their agreement, on the morning of May 16, 2006 before 11:53 AM, in Dessau and Gafni's offices in the Ramat Gan Diamond Exchange, Dessau disclosed inside information to Gafni whereby he had successfully "closed" the AMD deal, prior to such information being disclosed to the public by way of an immediate report at 2:48 PM. The fact that Dessau had found a well-established investor and succeeded in raising USD 65 million to complete the AMD deal, and the fact that the agreement constituted a material change in Golan's position (both of which were true at the time), were not known to the public at the time. Had they been known, they could have caused a significant change in the price of the company's securities. Gafni and Arie (Ricco) Shirazi (hereinafter - "Ricco") and Yaron (Yiri) Halevi (hereinafter - "Yiri") had an arrangement whereby Ricco helped the Defendant collect money and Yiri helped him with tax matters. As a result of this arrangement, Gafni wished to repay Ricco and Yiri. Prior to the information's publication, Gafni telephoned Moshe Bitton, Nitzan Shirazi, Ricco, Yiri, and Yitzhak Ben Zaken, disclosed the inside information, and recommended that they buy Golan

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shares as an announcement was due concerning a large-scale real estate deal. In addition, he promised to cover any possible losses. After Gafni's conversation with Ricco, the latter called additional persons: Yitzhak Berring, Itzik Haimov, Shalom Domrani and Vicky Atia, and suggested they buy shares in Golan quickly, before the issue of the company's immediate report concerning its agreement with Boymelgreen Capital. As a result of Gafni's disclosure of non-public inside information as aforesaid, Itzik Haimov, Neri Haimov, Berring, Saar Reshef, Vicky and Vicky's relatives bought shares in Golan prior to the publication of the Company's immediate report. Eventually, the deal and the memorandum of understanding signed by Golan and Boymelgreen Capital were canceled as it was not possible to meet the suspending conditions of the agreement. After their expectations for gains failed to materialize, and in response to Ricco's demand on behalf of the other investors for the recovery of their investment, Gafni agreed to repay any person who bought shares in Golan their investment plus an immediate addition of 5%. This payment was made against presentation of deeds of transfer documenting the purchase of the shares. Golan's shares are interests that constitute "property" as defined in Section 1 of the Prohibition on Money Laundering Law of 2000. Against presentation of documents testifying to the purchase of Golan shares, Gafni executed wire transfers or cash deposits to the accounts of the other investors, as per their investment in Golan's shares. Between August and December 2006, Gafni transferred NIS 188,529 par value in Golan shares to Yehudit Naim, Dessau's secretary, through an off-exchange transfer for no consideration. Yehudit sold these shares on the Stock Exchange, and the consideration constituted repayment of Dessau's personal debts to her. The purchase of shares in Golan, which was based on the use of inside information as detailed in the first charge above, constitutes an "original offense" as defined in Section 2 of the Prohibition on Money Laundering Law, and therefore constitutes "prohibited property" as defined in Section 3(a)(1) and for the purpose of Section 4 of the Prohibition on Money Laundering Law. By receiving and transferring shares in Golan, as aforesaid, Defendant 1 made use of prohibited property, knowing it to be such. Case 6775-11-09. j. In November, an indictment was filed with the Tel Aviv Magistrate Court against Esther Finkelstein on suspicions of using inside information by an insider - an offense under Section 52C of the Securities Law of 1968 (hereinafter - "the Law"), and against Dan Finkelstein and Gesher Automotive Ltd., under Dan Finkelstein's ownership, on charges of use of inside information along with Section 23 of the Penal Code of 1977. During the period referenced in the indictment, Esther served as advertising manager for Mey Eden Ltd. (hereinafter - "the Company"). She was in contact with the controlling shareholders and her office was located on the executive floor. As a result, she was aware of significant progress made in the Company's negotiations with Danone for an upcoming deal ("Insider" as defined in the Law). Esther disclosed to Dan, her spouse ("Insider" by virtue of being married to an "Insider" as defined by the Law), the information which came to her knowledge through her position in the Company, prior to its publication. Dan Finkelsten bought NIS 3 million worth of shares through three accounts (a joint account owned by the couple, an account in his name, and an account in the name of the company under his ownership), prior to the Company issuing an immediate report on the signing of the deal. Immediately after the publication of the report and a 22.5% increase in its share price, Finkelstein sold

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his holdings in the Company, with gains of approximately NIS 0.5 million. Case 3392711/09. k. In December, an indictment was filed with the Tel Aviv Magistrate Court against Alon Naor on suspicion of violating Sections 415 and 393 of the Penal Code of 1977, and Section 54(a)(2) of the Securities Law of 1968. Naor is a seasoned trader on the capital market, is familiar with the finer aspects of all stages of trading, and regularly tracks trading on the Stock Exchange. In various periods between June 2007 and June 2008, Naor traded in securities through a number of different accounts under his control. In addition, other investors provided Naor with user names and passwords to their accounts. Naor traded in these accounts at his sole discretion, with virtually all trading being carried out over the internet from his home computer. Naor traded in the securities of public companies traded on the Stock Exchange. During the relevant period, the Stock Exchange employed the "continuous trading" method, with which Naor was well familiar. Naor's fraudulent activities in the shares listed in the indictment followed a clear pattern: Naor would "recruit" investors in social gatherings. After initial contact, he would present himself as an expert player on the capital market, and would offer investors to manage their activities on the Stock Exchange. However, he did not disclose to the investors that he intended to use their accounts for his personal gain. Based on these representations, Naor convinced investors to provide him with their user names and passwords to their online accounts. After obtaining access, Naor would carry out transactions in investors' accounts at his sole discretion. Naor's activities in the investors' accounts focused mainly on buying and selling low volume shares. Naor's activities in these shares, whether through his own accounts or through the investors' accounts, often constituted a significant portion of the daily trading volume in those shares. Naor would issue buy and sell orders from his accounts, while issuing complementary orders from the accounts under his control, leading to self-trading between Naor's accounts and those under his control. Naor would buy the shares from the investors at a lower price than the price at which he would sell them to the investors, all within a self-trading system. The sale of shares from the investors' accounts to Naor's accounts at a low price, and then selling those same shares back to the investors at a higher price effectively constituted circular trading between the investors’ account and Naor's. Through this circular trading scheme, Naor secured a guaranteed profit for his accounts, and guaranteed losses for the investors. These profits and losses amount to the difference between the average prices of the first and second self- trades, multiplied by the number of shares traded. In order to guarantee the self- trading, Naor traded in low volume shares where the probability for matching buy and sell orders is high. Buy and sell orders were issued from Naor's accounts and those of the investors nearly at the same time, sometimes only seconds apart. Thus, Naor earned profits for his accounts at the investors' expense. Furthermore, Naor directly influenced the prices of traded shares, inducing an increase or decrease in their price, or preventing a decrease thereof as he saw fit and in order to carry out his fraudulent plan. His activity exposed the public to false trading data, which created false representations of active and proper trading in the securities, while abusing the Stock Exchange trading method. Examination of his activities in the period referenced in the indictment shows that Naor carried out more than 2300 self-trading transactions between his own accounts and those of the investors. Case 2553012/09.

122 l. In December, an indictment was filed with the Tel Aviv Magistrate Court against Zvi Mor, Michael Yanovski and Yossi Dayan on suspicions of failure to comply with Section 36 of the Securities Law of 1968 (hereinafter - "the Law"), the Controlling Shareholders Regulations, the Immediate Reports Regulations, the Annual Statements Regulations, violation of Section 53(c)(8) of the Law and violations of Section 53(a)(4) of the Law. Dor Chemicals Ltd. (hereinafter - "Dor") is a public company, and Carmel Chemicals Ltd. (hereinafter - "Carmel") is a private company, wholly-owned by the controlling shareholder in Dor. Both companies have long- standing commercial ties, wherein Dor provides Carmel bulk quantities of formalin. During the period referenced in the indictment (from November 2000 to January 2005, inclusive), Dor and Carmel conducted extraordinary transactions for the sale of formalin, which were not duly approved or reported to the public. These extraordinary transactions violated Dor's obligations under its prospectus, and the Defendants would occasionally maliciously report misleading information concerning Dor's compliance with these obligations. Zvi Mor served as chairman of Dor's board of directors, and was the controlling shareholder in both Dor and Carmel. Michael Yanovski served as CEO of Dor, and Yossi Dayan served as Dor's CFO and corporate secretary. The indictment includes four main charges: misleading reporting on prospectus-based control mechanisms over formalin prices; failure to report sales carried out at loss prices to a controlling shareholder; failure to report preferential credit issued to the controlling shareholder in violation of an obligation under a prospectus; and failure to report a beneficial arrangement with a controlling shareholder in connection with a debt owed by Carmel to Dor. Case 37265-12-09. m. In December, an indictment was filed with the Tel Aviv Magistrate Court against Tamir Feigenbaum on suspicions of committing a series of offenses under Section 39(a) of the Advice Law. During the relevant period, Feigenbaum traded on the capital market and invested, inter alia, in Finotech Trading Inc. (hereinafter - "Finotech") - a company listed as a foreign company. Feigenbaum recruited clients for Finotech both independently and as an official company recruiter under a marketing agreement signed by the parties. During the relevant period, Feigenbaum was authorized to manage the accounts of thirteen of Finotech's clients, buying and selling on their behalf. Trading included, inter alia, CFDs (Contract For Difference, a futures contract as defined in the Joint Investment in Trust Law of 1994), and was carried out at Feigenbaum's sole discretion, although he was not licensed to manage portfolios according to the Advice Law. Case 3686612/09. n. In December, an indictment was filed with the Tel Aviv Magistrate Court against Ronen Crystal on suspicions of violating Sections 415, and 244, 392, 425, 424 of the Penal Code of 1977; failure to comply with Section 36 of the Securities Law; offenses under Section 53(a)(4) of the Securities Law along with Regulation 36 of the Securities Regulations (Periodic and Immediate Reports), and the Controlling Shareholder Regulations of 1970. Julex Capital Markets Ltd. (hereinafter - "Julex") is a public company traded on the Stock Exchange. Julex was a public shell company controlled by Upswing Ltd., controlled by Yaron Yanai, and it became active after being bought by Crystal. On April 30, 2008, Ronen Crystal, a businessman and entrepreneur, acquired control of the company according to the issuance report, whereby Ronen Crystal was to transfer his holdings n i Tarbet Investment and Promotion Ltd. (hereinafter - "Tarbet") to Julex, in consideration for 32 million shares. Furthermore, Crystal was to transfer NIS 8.6 million to Julex in consideration for an additional 3.9 123

million shares. The issuance was subject to two conditions: First, that Tarbet's equity prior to the date of the issuance not fall below NIS 22 million; second, that a prior acquisition be completed for a property owned by Opposite the Mediterranean Ltd. (hereinafter - "Opposite the Mediterrenean"). In actuality, Crystal fraudulently, and under aggravating circumstances, obtained Tarbet and Julex's accountants' certification that Julex met its minimum equity requirement of NIS 22 million, knowing that the first bank guarantee which he issued from Tarbet's bank account actually reduced its equity by the amount of the guarantee. As regards Opposite the Mediterranean, the consideration for the first payment was not actually paid, and despite Crystal's obligation that payment for one third of the hotel will be made from his own money and not from Tarbet's funds, the first bank guarantee was issued from Tarbet's account, which consequently incurs the charge for the hotel. Another charge concerns the continued unlawful withdrawal of funds after the issuance. Crystal carried out dozens of withdrawals from Tarbet and Julex's accounts. Crystal carried out these withdrawals by checks and wire transfers, for his own personal use, without informing anybody and without obtaining the required approvals. In total, it is estimated that Crystal withdrew approximately NIS 3 million. Crystal is further charged with unlawfully obtaining guarantees and failing to report such guarantees, and encumbering deposits made from Tarbet funds to the bank, without informing Julex's corporate organs or obtaining their approval. Crystal was required to provide this guarantee himself, and not through moneys taken from Tarbet, which is a subsidiary of a public company. Crystal did not inform anyone in the company on the issue of the second bank guarantee, so as to be able to issue the guarantee at Tarbet's expense unimpeded. The bank demanded that Crystal provide collateral to the amount of the guarantee, and so encumbered Tarbet's deposits. In all, the bank encumbered Tarbet's deposits to the amount of NIS 4.1 million, for the two bank guarantees. These encumbrances placed a burden on the company's cash flows. Crystal is further charged with the "Ezer LeZion" affair, where Crystal withdrew checks from Tarbet's accounts to a total amount of NIS 470,780. The checks were made out to "Ezer LeZion", although Crystal knew that they would reach the hands of "Ezer LeZion"'s CEO and that they were not intended for the company. Thus, Crystal violated his duties of trust and acted unlawfully in the funds of a subsidiary of a public company (Julex), using Julex's money as his own personal funds. In order to conceal the issue of checks from the company's account not to the company's benefit, Crystal and others decided to make false representations so as to make it look as if the checks were drawn for company purposes as part of its ordinary business. Case 40610-12-09.

2. Criminal Verdicts in Trial Court During the year, seven sentences were handed down in trial court.2 a. In January, the District Court convicted Aviv Algor and Ian Nigel Davis, and acquitted Esther Alfassi and Avi Shatz on grounds of reasonable doubt. The defendants were

2 The number of verdicts does not necessarily correspond to the number of indictments filed. Indictments with more than one defendant are often given separate verdicts and conversely, separate indictments are occasionally consolidated into one case.

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convicted of causing two decisions to be unlawfully adopted in the general meeting of Middle East Tubes Ltd. (hereinafter - "the Company"), when they were controlling shareholders in the Company. The main transaction referenced in the indictment concerns the general meeting's apparent approval of an agreement between the Company and its controlling shareholders for the payment of management fees. The second decision concerned an extraordinary transaction between the controlling shareholders and the Company for the Company's undertaking liability insurance for its directors and officers. Case 40162/05, Tel Aviv. In May, following Aviv Algor and Ian Nigel Davis's conviction on numerous violations of the Securities Law and the Penal Code, the District Court issued their sentence. Aviv Algor was sentenced to 24 months in prison, plus a fine of NIS 2 million substitutable for 18 months in prison. He was further sentenced to 18 months in prison should he commit any offenses of deceitful obtaining in the three years after his release, and six months imprisonment should he commit any violation of the Securities Law within three years of his release. Ian Nigel Davis was sentenced to 18 months in prison, plus a fine of NIS 2 million substitutable for 18 months in prison. He was further sentenced to 18 months’ imprisonment should he commit any offense of deceitful obtaining in the three years after his release, and six months’ imprisonment should he commit any violation of the Securities Law within three years of his release. Case 40162/05, Tel Aviv. b. In February, the Tel Aviv Magistrate Court sentenced Herzl Arshalemi after convicting him based on his confession as part of a plea bargain, of committing a series of violations of Sections 54(a)(1) and 54(a)(2) of the Securities Law of 1968. The defendant received a twelve month suspended prison sentence, a fine of NIS 18,000 substitutable for 180 days in prison, and was obligated not to commit any offense under the Securities Law for a period of three years. Case 8073/09. c. In March, the Magistrate Court sentenced Adv. Dan Zimmerman after convicting him based on his confession, as part of a plea bargain, on two counts of failure to comply with Section 36 of the Securities Law of 1968. These offenses mainly involved the inclusion of misleading information in immediate reports, when the defendant served as an external legal counsel for Chim-Nir Flight Services Ltd., a public company listed on the Stock Exchange. The court sentenced Zimmerman to a fine of NIS 30,000, substitutable for 30 days in prison. Case 1105/09. d. In March, the Magistrate Court sentenced Gil Peres after convicting him, based on his confession as part of a plea bargain, of committing an offense under Section 425 of the Penal code of 1977 and failure to comply with Section 36 of the Securities Law, violations of Sections 53(a)(4) and 53(e) of the Securities Law along with the Controlling Shareholders Regulations (Transaction between a Company and a Controlling Shareholder therein) of 2001, and the Securities Regulations (Periodic and Immediate Statements) of 1970. These offenses were committed when the defendant served as CEO of Golan Fine Crafts (1977) Ltd., a public company, and permitted Oded Dessau, the controlling shareholder in the company, to withdraw funds from the company on various occasions without due approval by the company's organs and without reporting such withdrawals as required by law. The Court sentenced Peres to five months in prison, to be served through community service, a suspended prison sentence, and a fine of NIS 80,000. The Court further

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decreed that Peres shall be prohibitted from serving as a director for a period of five years. Case 6493/07. e. In March, the Tel Aviv Magistrate Court sentenced Daniel Egozi and Yitzhak Spector, following their conviction based on their confession, as part of a plea bargain, of committing four offenses under Section 53(a)(4) of the Securities Law of 1968. The defendants concealed material information from investors concerning their agreements, signed when Egozi (who owned 83% of the shares in the public Company ISTA) sold half of his holdings to Spector. The Court sentenced the defendants to two months in prison, to be served through community service, three years' probation for 12 months' imprisonment, and the following fines: Egozi was fined NIS 160,000, and Spector - NIS 80,000. Case 8743/07. f. In April, the Tel Aviv Magistrate Court acquitted Greenfeld Yosef of offenses under Section 52C of the Securities Law of 1968 concerning a capital consolidation plan. The verdict was given after the District Court, in Case 70226/08, overturned the Magistrate Court's acquittal under Case 2617/04. The Court stated that at the times referenced in the indictment, there was no "inside information" concerning the capital consolidation plan, and Greenfeld was not aware of its "inside information" status. Case 2617/04. g. In July, the Tel Aviv Magistrate Court sentenced Tal Doron following his conviction based on his confession, as part of a plea bargain, of committing an offense under Section 39(b) of the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law of 1995, and an offense under Section 52(I) and Section 53(b)(8) of the Securities Law of 1968. The defendant admitted that while serving as an investment advisor in Bank Discount, he purchased and held, together with his wife, securities issued by companies traded in Israel, and securities in TEVA traded in Israel and abroad. The defendant was sentenced to 200 hours' community service without being convicted. Case 6494/09.

3. Verdicts in Criminal Appeals In 2009, four decisions were handed down in criminal appeals. a. In November, the Court rejected the State's appeal of the acquittal on grounds of reasonable doubt of Ronen Reshef, Golan Cohen and Opmath Investments Ltd. of offenses concerning fraudulently influencing the prices of shares in Partner, according to Section 54(a)(2) of the Securities Law (hereinafter - "the Law"). The State appealed the Tel Aviv Magistrate Court's decision in Case 4131/05. The District Court stated that the State's arguments, which concern facts examined and determined in the lower instance court, effectively undermine the appeal. The District Court accepted the defendants' explanations concerning buy orders issued seconds before the end of closing, which increased the price of the shares by 49% and resulted in profits of NIS 4 million. Case 70384/08, Tel Aviv. b. In November, the Court accepted an appeal filed by Roni Tiroshi and acquitted him of inside information offenses under Section 52 of the Law, of which he was convicted by the Tel Aviv Magistrate Court under Case 2737/05. The District Court stated that a person receiving inside information through his social connections but

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not through his commercial ties with the company, does not meet the definition for "insider" under the circumstances of the case. Case 70907/08, Tel Aviv. c. In March, the Supreme Court denied the appeal application filed by Aharon Harel. The District Court sentenced Harel to nine months' imprisonment, which was reduced under appeal to six months imprisonment, though the Court determined that the sentence be carried out in prison (Case 70783/06). The application to appeal was based on the District Court failing to give grounds why the sentence is to be reduced to six months’ imprisonment, without allowing the sentence to be carried out through community service. The applicant argues that when a court sentences six months' imprisonment, the sentence is commuted to community service by default. The Supreme Court rejected the position whereby the default sentence is for community service, and stated that the matter falls within the jurisdiction of the District Court. Another position detailed in the decision is that, concerning certain economic offenses, the court is not to make do with community service, but to impose deterring sentences of actual imprisonment. In this case, the District Court decided that the offenses are sufficiently serious to warrant incarceration. Case 9549/08. d. In June, the Tel Aviv District Court partially accepted the appeals of the Tel Aviv Magistrate Court's verdict in Case 8522/99 as follows: In Appeal 7113/06, the State of Israel v. Israel Discount Bank Capital Markets Investments Ltd., Israel Ephraimi and Meir Dalal, who were completely acquitted - the Court rejected the appeal; in Appeal 71528/06, State of Israel v. YLR Capital Markets Ltd., Meir Hadar and Yosef Teicher, concerning the defendants' acquittal of two offenses in the first charge and the leniency of their penalty for offenses of which they were convicted - the Court rejected the appeal; in Appeal 71527/06, Yosef Teicher v. the State of Israel against his conviction on the second and third charges, and alternatively against the severity of the penalty - the appellant was acquitted of fraudulent influencing, an offense of which he was convicted under the second charge. The prison sentence imposed on him was repealed and he was fined NIS 70,000; in Appeal 71581/06, YLR Capital Markets Ltd. v. the State of Israel against the conviction and alternatively against the severity of the punishment - the appellant was acquitted of fraudulently influencing price fluctuations, while the sentence for the second charge is to remain in effect; in Appeal 71582/06, Meir Hadar v. the State of Israel against the appellant's conviction and alternatively against the severity of the punishment - the appeal was accepted and the appellant was acquitted of all offenses and his sentence repealed. Case 71173/06, Tel Aviv.

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IX Investigations and Intelligence Department The Investigations and Intelligence Department implements the policies of the ISA’s Chairman regarding deterrence and increased efficiency in the processing of investigation files. The Department's response time – from the moment of it is ordered to embark on an investigation until the start of the overt nvestigation i itself – was reduced and the investigation process was rendered more efficient. During the reporting year, the ISA implemented an internal reorganization, in which the Investigations Department and the Research Department were merged into a single department entitled the Investigations and Intelligence Department. As part of the ISA's strategy to become involved in the globalization process, the Department continued to increase its responsiveness to foreign authorities requesting judicial inquiries, according to treaties signed by the ISA. In addition, cooperation between the ISA’s Investigations and Intelligence Department and other enforcement agencies continued to increase, as well as cooperation with Israeli enforcement agencies as part of their efforts to defeat economic criminal activity. The Department also increased its activity in order to enforce inside information violations by gathering intelligence, developing investigation tools and conducting numerous investigations of these offences. As a result, there was an increase in the number of inside information investigation files in 2009. The Investigations and Intelligence Department identified and investigated a number of incidents where portfolio managers and investment advisors, both licensed and unlicensed, took advantage of their clients’ trust, transferring funds from their clients’ accounts into their own accounts, using securities trading, unbeknownst to their clients (including institutional clients and large clients). At the end of 2008, Amendment 37 to the Securities Law went into effect, concerning the granting of additional investigative powers to ISA investigators. The latter include: the authority to investigate violations accompanying securities violations, such as under the Prohibition on Money Laundering Law and the Penal Law; applying Chapters B and C of the Criminal Procedure Law (Enforcement Powers – Detention) of 1996 to ISA investigators; authority to search offices without a warrant when there is cause for concern of disruption and there is insufficient time to request a warrant; authority to perform a bodily search before and during an investigation when there is cause for concern of disruption and of withholding evidence or when there is concern for the public’s well being; granting senior investigators the authority of officers in charge, etc. During the reporting year, the Investigations and Intelligence Department implemented these powers as needed. Following is data regarding the distribution of investigation files forwarded to the Department of Investigations, files forwarded to the State Attorney, indictments and the status of cases under investigation both in the Department and in the District Attorney's Office as of December 31, 2009. Instead of classifying the data according to violations, it has been classified according to the primary violation in the file or indictment concerned (as appropriate).

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Table 15: Cases forwarded to the Department of Investigations in the past five years, by type of violation Type of violation 2005 2006 2007 2008 2009 Total Securities fraud 7 5 1 2 4 19 Use of inside information 2 4 3 2 6 17 Misrepresentation (in 6 2 2 5 4 19 prospectuses, financial statements or immediate reports) Non-filing and delinquent filing - 1 11 1 - 3 Unlicensed portfolio - 2 - - - 2 management or investment advice Judicial inquiries 2 5 8 7 9 31 Violations by employees of - 1 1 - - 2 stock exchange members and prohibited acts by a licensed investment portfolio manager Disciplinary violations - - 1 - - 1 Violations under the Joint 1 - 1 - 1 3 Investment in Trust Law Violations under the Penal Law: - - - - 2 2 Bribery, theft, obtaining by fraud Total 18 20 18 17 26 2 99

1 These data includes the “Heftziba Affair”, in which additional violations of the Penal Law and Prohibition on Money Laundering Law were investigated by special permission. 2 This data include three files which have been split off existing cases 129

Table 16: Cases where it was decided whether there was sufficient or insufficient prima facie evidence that a violation has been committed in the past five years Year Cases with Cases with Total insufficient prima sufficient prima facie evidence of facie evidence of violations violations 2005 1 9 10 2006 1 9 103 2007 2 9 114 2008 4 16 205 2009 0 12 126 Total 8 55 63

Table 17: Distribution of cases forwarded to the District Attorney's Office in the past five years, by type of violation Type of violation 2005 2006 2007 2008 2009 Total Securities fraud 7 7 3 4 3 24 Use of inside information 1 1 3 6 4 15 Misrepresentation (in 2 3 3 4 4 16 prospectuses, financial statements or immediate reports) Violations by an employee - - 1 - - 1 of a stock exchange member Non-filing and delinquent 2 - 3 1 - 6 filing Obtaining by fraud - - - 1 - 1 Violations under the Joint 3 - - 1 - 4

3 These data do not include three cases of judicial inquiries requested by a foreign country, the findings of which were forwarded to the foreign agency. 4 These data do not include five cases of judicial inquiries requested by a foreign country, the findings of which were delivered to the foreign agency. 5 These data do not include two cases of judicial inquiries requested by a foreign country, the findings of which were delivered to the foreign agency. 6 These data do not include seven cases of judicial inquiries requested by a foreign country, the findings of which were delivered to the foreign agency. 130

Investment in Trust Law Violations under the Penal - - 1 1 2 4 Law: Bribery, theft, obtaining by fraud Total 15 11 14 18 13 71

At the end of the reporting year, 12 investigation files in the Department were still pending investigation. In addition, nine judicial inquiries are still pending.

Table 18: Distribution of investigation cases7 in the past five years, by primary violation

Violation 2005 2006 2007 2008 2009 Total Securities fraud 3 4 - 3 4 14 Use of inside information 1 - - - 3 4 Misrepresentation (in 3 1 3 2 4 13 prospectuses, financial statements or immediate reports) Obtaining by fraud 1 1 - 1 - 3 Taking bribe - - - - 1 1 Unlicensed portfolio management or investment - - - 1 2 3 advice Joint Investment in Trust - 1 1 - - 2 Law Total 8 7 4 7 14 40

7 The number of verdicts does not necessarily correspond to the number of indictments filed. Indictments with more than one defendant are often given separate verdicts and conversely, a single investigation may translate into a number of indictments.

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Table 19: Status of indictments8 at the District Attorney’s Office at the end of 2009 pending a decision whether to prosecute, by year submitted Violation 2005 2006 2007 2008 2009 Total Securities fraud 3 4 - 3 4 14 Use of inside information 1 - - - 3 4 Misrepresentation (in 3 1 3 2 4 prospectuses, financial 13 statements or immediate reports) Obtaining by fraud 1 1 - 1 - 3 Taking bribe - - - - 1 1 Unlicensed portfolio management or investment - - - 1 2 3 advice Joint Investment in Trust Law - 1 1 - - 2 Total 8 7 4 7 14 40

Nineteen files remain at the State Attorney’s Office. The State Attorney has decided to file indictments in eight of these cases, but the suspects have requested a hearing. In 11 files, the State Attorney has not yet decided whether to indict or to close the cases (in three cases, Head of Enforcement has already issued a recommendation to close). In two of the eight cases to be indicted, hearings have been held. The main violations in these files were: One – use of inside information, one – fraud.

8 The number of verdicts does not necessarily correspond to the number of indictments filed. Indictments with more than one defendant are often given separate verdicts and conversely, a single investigation may translate into a number of indictments.

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Table 20: Status of the investigation cases at the State Attorney’s Office as of 2009 year end pending indictment decisions, by type of violation Violation Number of files Securities fraud 4 Use of inside information 7 Misrepresentation / reports 7 Obtaining by fraud - penal 1 Total 19

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X Research, Development and Economic & Strategic Counseling Department 1. Strategic Counseling The Economics Department offers strategic counseling and direction to the ISA’s Chairman and various departments. The Department monitors economic developments and trends in capital markets in Israel and abroad on an ongoing basis, gathering and analyzing economic data and information, so as to ensure that the ISA’s strategic policies are in line with the developments, changes and risks which arise in international capital markets. 2. Economic Counseling During the reporting year, the Department offered the ISA’s Chairman and its various departments economic counseling regarding several current issues. The Department extended assistance to the Corporate Finance Department, the Investment Advisors’ Unit, the Intelligence Department and the Attorney General in matters related to trading on the Stock Exchange and the manner in which capital markets operate. It also assisted the International Affairs Department in updating information for international organizations. In addition, the Department cooperates with the Department of Supervision over the Secondary Market on issues related to the control and supervision of trading. During the reporting year, the Economic Department led several work teams and participated in others: It led the corporate bond market insolvency assessment team and took part in the ISA’s enforcement forum, in the team charged with examining offerings of venture capital funds, in the ISA's team handling financial brokers as well as in the team handling knowledge management. 3. Joint Team for the Assessment of Insolvency in the Corporate Bond Market The international credit crisis, which reached the Israeli capital market, caused a slowdown in real economic activity, which threatened to turn into a full blown recession affecting all segments of the economy. The credit crunch, which had erious s ramifications for the corporate bond market, is a spiral process that increases in strength: The inability to raise funds freezes economic activity, increases the risk of insolvency in corporations which find it increasingly difficult to repay debts, and so on. In addition, there is a close correlation between corporations’ insolvency in the secondary market and the recovery of the primary market. The Economic Department headed and directed the joint team for the assessment of insolvency in the corporate bond market. The Department is charged with gathering information from all entities involved, both inside and outside the ISA, processing and analyzing it, and conveying its conclusions to the relevant parties at the ISA as well as to other authorities, as necessary. 4. Cooperation with the Milken Institute and the Koret Foundation The Department started an initiative in cooperation with the Koret-Milken Institute Fellows Program. The Foundation offers research programs, in which it awards grants to outstanding students graduating from institutes of higher education. As part of the

134 program, research fellows serve as interns in government ministries and parliamentary bureaus, where they receive guidance from internationally renowned experts. As part of the joint initiative, four research fellows have been teamed up with the Economic Department, conducting research work on subjects related to the ISA’s areas of activity and goals. The Department provides the research fellows with counseling, guidance and assistance, and the Foundation monitors their work. 5. Research conducted during the reporting year A. The revival of “risk management” – When addressing the financial crisis, the press, economic experts and financial commentators have made extensive use of the terms “risk management” and “greed”. While greed is a human characteristic, which has always influenced human behavior, “risk management” is an amorphic term. The extensive use of this term in reference to the crisis required all capital market players, and regulators in particular, to define it more clearly. This research work provides an in-depth analysis of the term, in an attempt to understand what appears to be one of the major causes of failure created by the current crisis and one of the major tools for preventing the next one. B. The corporate bond market – The current credit crisis in world markets is one of the most serious crises since the Great Depression of 1929. While the current crisis manifested in the breakdown of banking systems, in Israel it has manifested itself in the off-bank credit market. The research focuses on the question: “How did the financial crisis, which began as a result of the faulty management of economic systems abroad, infiltrate the Israeli market, and how did it evolve to its current form?” 6. Supervision of the secondary market and the Stock Exchange During the reporting year, the Department cooperated with the Supervision over the Secondary Market Department regarding various issues related to the supervision of the secondary market and the Stock Exchange. As part of this cooperation, the Department took part in meetings of the Stock Exchange’s board of directors, prepared material for meetings of the ISA’s Stock Exchange Committee, and handled additional current issues common to the ISA and the Exchange. 7. Research cooperation between the ISA and academic institutions The Department operated a program for joint research, whose aim is to expand the ISA’s research infrastructure by enlisting academic researchers for joint research work. Participants in the program include master students and PhD candidates studying economics, business administration, and law. Program candidates are to submit research proposals on subjects related to the ISA’s areas of activity and goals. Subjects include: The development of the capital market, correcting economic and regulatory failures, increasing investors’ trust, and increasing public awareness of capital market issues. Researchers whose proposals are accepted by the ISA shall conduct their research in full cooperation with the Economic Department and receive financial support. 8. Managing the system for identification of irregular securities trading activity The system for identifying irregular securities trading activity is a computerized system which monitors the trading activity on the Stock Exchange on a daily basis, in order to

135 identify irregular securities trading activity. The system identifies trading irregularities, based on economic-financing criteria as well as other criteria, which are based the ISA’s practical experience in the last few years. During the reporting year, the system has been further developed, managed and operated.

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XI Class Action Lawsuits 1. Financing of Class Action Lawsuits in 2009 According to Section 209 of the Companies Law, the ISA may pay the expenses of a class action lawsuit if it is convinced that it is in the interest of the public and there is a reasonable chance that the court will approve the lawsuit’s status as a class action. During the reporting year, the ISA received six applications for financing class action lawsuits, which are still pending review. One financing application from the previous reporting year was withdrawn by the plaintiff, after ISA decided against financing the suit.

2. Class Action Lawsuits Completed during the Year a. Class action against M.P.A. Mediterranean Assets and Investments Ltd. (hereinafter - "the Company") and Mishor Hahof Construction and Assets Ltd. - The claim stated that the consideration awarded in return for the Company's shares, as part of a forced sale made by way of a full purchase offer to shareholders, was less than their fair value (for more information about this claim, see the 2004 Annual Report, page 85, Section 1A). After the proceedings in this case were suspended for a period of three years, at the end of 2007 the parties signed a settlement agreement. According to the agreement, which was approved by the Court in April 2008, NIS 0.20 per share were added for each share held by the shareholders on January 13, 2004 (date of the full purchase offer). The plaintiff's representative, Adv. Ronen Adini, was responsible for distributing the award to the shareholders, and reported that the distribution has been completed. Case 1498/04. b. Class action against Reichert Industries Ltd. et. al. - On June 7, 2007, the Supreme Court ruled on the appeal filed by the class action plaintiff and the appeal filed by Mr. Dan Reichert (hereinafter - "Reichert") against the District Court's ruling (hereinafter - the “Supreme Court Ruling"). The Supreme Court Ruling outlined principles defining the term "controlling shareholder" for accountability purposes. The Supreme Court reaffirmed the decision of the lower instance court that Mr. Reichert was indeed a "controlling shareholder" in the Company and therefore accountable for the damages sustained by the plaintiffs. The Supreme Court Ruling presented various methods for calculating damages due in a class action lawsuit, and determined that, in this case, the appropriate method is the "out of pocket" method. This method is based on the damages principles prescribed under tort law - restoration of the status quo ante. Soon after the end of the reporting year, the Hon. Judge Dr. Michal Agmon-Gonen issued the District Court's decision in the case (hereinafter - the “District Court Ruling"). The District Court ruling determined that the fraud's effect on the price of the relevant securities is reflected through the change in their prices soon after the fraud was uncovered. The Judge examined the share price in the days prior to the arrests and the publication of the fraud, and compared it to the share price in the days following the publication. The difference between the share prices reflects the effects of the fraud on the price of the relevant securities, assuming a non-perfect market where the price of the fraud prior to its publication is not 137

embodied in the share price. Therefore, the Judge decided that the damage to each plaintiff equals the multiple of the number of securities held by that plaintiff by the difference between the share price prior to the fraud's publication and its price soon after its publication. The Judge charged the respondents, Mr. Dan Reichert and Mr. Moshe Cohen, with damages according to the Supreme Court Ruling, according to their relative involvement in the fraud. Total damages amounted to NIS 9,043,384 plus linkage and interest as required by law from the date of the fraud's discovery and until such time as payment has been made in full. The award to the class action plaintiff amounted to NIS 400,000, and the attorney's fees awarded to the class actions representative were set at NIS 1,300,000. Cases 1134/95, 8268/96, 8377/96, and 8332/96.

3. Pending Class Action Lawsuits a. Class action against Elscint Ltd. et al - On December 14, 2006, the Supreme Court accepted an appeal to overturn the District Court's decision to deny an application dated August 16, 2000 to classify the suit as a class action.1 The application to classify the suit as a class action was re-submitted to the Haifa District Court, due to the time that had elapsed and in light of the Class Action Law of 2006 (hereinafter - the “Class Action Law"). The application for approval as a class action was first heard in the second half of 2007, and in January of 2009 the Court decided to deny the request to approve the suit as a class action. The main reasons for denying the request were as follows: The Court determined that the claim contained a number of discriminatory events, therefore - the members of the potential group as defined in the application do not constitute a homogeneous group as required under Section 4 of the Class Action Law, according to which one may only file a class action on behalf of a group if that person has grounds for a claim that raises material factual and legal questions which concern all members of the group. Since the claim concerns a number of events and members who purchased shares at different dates, only some of the events are relevant to group members and the material factual and legal questions are not common to all group members. The Court added that it is authorized, according to Section 10(c) of the Class Action Law, to define a sub- group if it finds that some factual or legal questions may not be common to all group members but only to some. However, the Court decided not to do so, since there was no mention of the possibility in the statements of claim filed by the plaintiffs. The Court stated that a single event raised a question common to all members of the group - an acquisition of hospitality operations and rights in a commercial and entertainment center project in Herzlyia (later known as the Arena Mall) by Elscint Ltd. of the Europe Israel Group in September 1999 (hereinafter - the “Elscint Europe Israel Transaction"). Regarding the Elscint Europe Israel Transaction, the Court determined that the plaintiffs have a basis for personal claims insofar as Elscint sustained damages from the transaction, since the grounds for the claim arise from the fact that the damages sustained by public shareholders are higher than the damages sustained by the controlling

1 Civil Appeal Application 7028/00 IBI Mutual Fund Management (1978) Ltd. v. Elscint Ltd. et al. 138

shareholder, as the assets purchased by Elscint in the transaction were those of the controlling shareholder. This is based on the precedent established in Civil Appeal 1967/95 Magen VeKeshet Ltd. v. Tempo Beer Industries et al, according to which "The rule is that when a shareholder sustains losses independent of the damage sustained by the company, he has grounds for a personal claim, 2 independent of the company. However, typically, when the damage to shareholders is caused by a decrease in the value of the company and its shares and all shareholders are equally affected, there are no grounds for a personal claim. This constitutes secondary damage, which reflects damages sustained by the company. There are a few exceptions to this rule, including - damage sustained due to a breach of a contractual right of a shareholder as such, or when the damage sustained by a shareholder or a group of shareholders is different from the damage sustained by another group of shareholders, or due to minority discrimination...". Despite the Court's determination that the Elscint Europe Israel Transaction may give rise to unique damages which raise grounds for a personal claim, as regards another component in the claim the plaintiffs did not prove, prima facie, that they indeed sustained any damages as required under Section 4(b)(1) of the Class Action Law. In 2009, an appeal was filed with the Supreme Court. The appeal contests the lower instance court's decision as aforesaid. The Supreme Court has yet to hear the case. Cases 1318/99, 10029/99. (See also 2007 Annual Report, p. 109; 2006 Annual Report, p. 108; 2005 Annual Report, p. 102; and 1999 Annual Report, p. 42). Cases 1318/99, 10029/99, b. Class action against Bolos Travel and Hotels Ltd. et al (hereinafter - the “Company") - The case, filed in 2002, pertains to the inclusion of misleading information in the Company's prospectus and financial statements, unfair disclosure in the Company's annual financial statements, as well as the violation of duties and obligations on the part of the Company's bonds trustee towards bondholders. In September 2009, the Court rejected the defendant's request to postpone hearings in the case until completion of criminal proceedings initiated against them, due to concern for self-incrimination and due to the declining health of a key witness. In her decision from October 2009, Judge Michal Nadav rejected the plaintiffs' application to include the criminal ruling given against the Company as prima facie evidence under Section 42 of the Evidence Ordinance. This ruling was given as part of a settlement agreement in which the liquidator admitted the offenses with which the Company was charged. The Judge decided that there is no sense in including the incriminating ruling given against parties in the case, as the Company is not an active party in the civil proceedings. Concerning the question of whether it is possible to include the indictment as evidence against the directors, who are "liable through the liability of a convicted party", the Judge decided that the directors' liability shall not be considered a statutory liability by virtue of their position, similar to that of principals, insurers or employers. The Judge decided that directors bear a personal liability for wrongs committed by them and, in any case, directors do not bear an "automatic" civil liability through their company's liability. As regards the weight given the ruling had it been accepted as evidence, the Judge stated that there was doubt regarding the weight of a convicting ruling obtained through a

2 Supreme Court Ruling 51(2) 312, 326. 139

settlement agreement. This, as the liquidator does not have any "legal affinity" to the directors, and they each ave h different interests. The plaintiffs' representatives applied for permission to appeal these decisions to the Supreme Court. The application for permission to appeal is still pending and is currently at the evidence stage.( For more information about the claim, see also the 2002 Annual Report, page 72, Section 1C, and the 2006 Annual Report, page 109, Section 3C). Case 1934/04. c. Class action against Kital International Holdings and Development Ltd. and Levi Kushner - Request for valuation relief under Section 338 of the Companies Law. After the District Court approved the suit as a class action and determined that the basis for calculating the fair value of the Company's shares is its real economic value at the time the purchase offer was submitted, and not its market capitalization, the respondents filed an appeal with the Supreme Court. The plaintiff agreed that the application for appeal be heard as an appeal. The parties submitted their summations, and close to the end of the reporting year, the litigants were requested to submit their positions regarding the implications of the ruling given in Case 10406/06 Atzmon v. Bank Hapoalim, where the Supreme Court recently made precedential decisions concerning the fair value valuation of shares in valuation relief actions. (For more information about the claim, see also the 2002 Annual Report, page 72, Section 1C) Cases 779/06, 2338/02, 20012. d. Class action against the Israel Trade Bank Ltd. et al. - The Tel Aviv District Court rejected the application to approve the suit as a class action. The class plaintiff appealed the District Court's decision to the Supreme Court in 2002. In 2007, the Supreme court suggested to deny the claim against the majority of the respondents. The suggestion was accepted by the parties to the appeal. Regarding the bank's accountants, the District Court's ruling was overturned and the class action suit is to continue. In March 2009, the Hon. Judge. Zipora Baron rejected the application to approve the suit as a class action against the accountants, following the rejection of a number of applications to include documents which reinforce the factual foundation for the claim. These documents comprise a claim filed by the Bank's liquidator against the accounting firm, and which ended in a settlement agreement; the "Special Manager's Report to the Court Case"; and the verdict given in the criminal proceedings instituted against various parties in the Israel Trade Bank affair. In April 2009, the District Court's decisions were appealed to the Supreme Court, including the District Court's refusal to include the above exhibits, and a complaint against the high court costs with which the plaintiff was charged. The appeal has yet to be heard. (For more information on the case, see the 2002 Annual Report, page 73, Section 1F), Case 1521/02, 10927/02. e. Class action against Dor Chemicals et al. - The suit pertains to misleading investors as to the Company's true financial position in the period 2002-2004, when the plaintiffs argue that the Company presented itself as a successful company with huge earnings, while withholding material information and providing misleading positive indications. The respondents have yet to submit their response to the Court (for more information about the claim see the 2006 Annual Report, page 105, Section 1). Case 1185/05.

140 f. Class action against TRD Ltd. et al. - The suit concerns misleading investors as to the company's financial investment activities and its exposure to high-risk, speculative financial instruments, whereas when the company filed its initial public offering with the Stock Exchange, its prospectus stated that it deals in dental instrumentation. The suit is in its preliminary stages. (For more information about the claim, see the 2007 Annual Report, page 107, Section 1). Case 1420/07

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XII International Affairs Department 1. General During the reporting year, world markets continued to deal with the consequences of the global financial crisis. A major discussion regarding this issue was held during the IOSCO Annual Conference (International Organization of Securities Commissions). Organizing and hosting the conference was the ISA's main project during the reporting year. This project, along with other activities led by the Department during the year, form part of the International Affairs Department’s main goal: positioning the ISA on the same scale as other progressive securities authorities in the world. The Department’s activities focused on two areas: One - striving to harmonize the securities laws in Israel with analogous laws in developed countries. International financial activity requires the unification of regulatory requirements as to the licensing of financial brokers; rating agencies; disclosure requirements (publication of prospectuses and current reporting); stock exchange membership, etc. This, in fact, is the tendency in many countries today. Various organizations, such as the IOSCO – the most prominent forum for cooperation between securities regulators worldwide, with 180 members from about 100 countries worldwide – cooperate in order to set uniform international policies and rules to be adopted by member countries. Two - integrating the ISA into cooperative efforts that are being formed between securities regulators worldwide. Such cooperation is essential for a successful war on economic crime in general, and in the area of securities law enforcement in particular. For this purpose, the ISA worked closely with a number of foreign regulators who form part of a multi-lateral information sharing and enforcement agreement under the auspices of the IOSCO (hereinafter - the “IOSCO Agreement”). This agreement allows for the exchange of unpublished information between regulators and mutual assistance in carrying out enforcement actions. In addition, the ISA handled requests for information from fellow regulatory authorities and assisted them in judicial inquiries while forwarding them similar requests. 2. Harmonization of Securities Laws A. Participation in leading international forums a1. Activity under the IOSCO The IOSCO was established about 20 years ago in an aim to promote cooperation between securities regulators worldwide. Following the 9/11 terrorist attacks, when the IOSCO Agreement was formed in order to promote international exchange of information and enforcement in an attempt to fight global economic crime, the organization has been gaining influence and is currently regarded as the supreme authority for financial cooperation and standard-setting. The IOSCO’s principles have gained international recognition as the leading criteria for financial analyses and assessments used in international financial institutions, such as IMF reports, as well as the basis for financial legislation. For example, the new EU financial Directives issued in recent years were based on the IOSCO’s principles and were codified in 27 EU member countries. The IOSCO's influence on the international financial scene is reflected, inter alia, in that IFRS, which has undoubtedly become the accepted business language, has 142 evolved from an unknown set of standards set forth by a small team of accountants at the IASB (www.iasb.org) into the world’s leading and most pervasive accounting standards (more than 100 countries worldwide have adopted IFRS). The organization sets the agenda amongst its members – primarily world financial regulators and stock exchanges. During the year, the Department participated in the following events and discussions held by IOSCO: 1. The highlight of IOSCO events this year was IOSCO 2009 – the Organization’s 34th conference, which was held in 2009 - for the first time ever – in Israel. Hundreds of senior officials from securities regulators, stock exchanges and representatives of financial institutions and organizations from around the world arrived in Israel in order to participate in the Conference, which is considered one of the most significant and prestigious events in the world of economic regulation. This year, the significance of the conference was even greater, since it constituted the first opportunity since the end of 2008 to discuss the ramifications of the global financial crisis. The IOSCO 2009 Convention and the open conference which followed it featured fascinating discussions regarding how to deal with the crisis. The Department, which organized the conference in cooperation with the ISA’s Secretary General, was also responsible for developing the Conference’s content and determining the subject matter for the open discussions, the identity of the speakers, as well as for the organizational aspects of the conference, including satellite events, hosting, and the coordination of the various professional meetings held thanks to the conference. The list of speakers at the conference featured fascinating world renowned figures from the international financial community, inter alia: Mary L. Schapiro, Chairperson of the U.S. Securities and Exchange Commission (SEC) (her first appearance since assuming office); Lloyd C. Blankfein, CEO and Chairman of Goldman Sachs; Deven Sharma, President of Standard and Poor’s (S&P); Mario Draghi, Governor of the Banca d’Italia and Head of the Financial Stability Board; Prof. Eddy Wymeersch, Chairman of the Belgian Commission Bancaire, Financiere et des Assurances (CBFA) and Chairman of the Committee of European Securities Regulators (CESR); Jane Diplock, Chairperson of the Securities Commission of New Zealand & Chairperson of the Executive Committee, IOSCO; Prof. John Coffey of Columbia University – an internationally renowned expert on Securities and corporate governance laws; Martin Wolf of the Financial Times, Senior Economic Editor and Commentator; as well as other prominent figures in the international capital market scene. The following issues were among those discussed during the Conference:  Lessons from the financial crisis – the development of economies following the crisis; significant changes in economic theories and structures; increased regulation or de-regulation; the appropriate regulation structure for capital markets;  Enhancement of the role of securities regulators in a changing environment; identifying the new challenges facing the regulators and players in the market and coping with them; reaching the appropriate balance between encouraging and 143

ensuring the stability of the financial system and financial innovation; regulation of financial instruments and unregulated entities;  The effects of the international economic crisis on developing markets; the advantages and disadvantages of emerging markets; the role of such markets in the recovery of the global economy.  Corporate governance and risk management; executive compensation and its effect on risk management; reassuring investors following the crisis; corporate governance as a weighing factor in company ranking. The ISA regards the Conference as a project of major national importance, whose goals, inter alia, are strengthening the ISA’s position and its continuing positioning as a dominant IOSCO member, promoting the local capital market and the Israeli economy as well as enhancing srael’s I image in general. For this reason, many resources and efforts have been devoted to organizing and producing the conference, as well as to its marketing on the conference website (http://www.iosco2009.org) and using other marketing tools. The investment has undoubtedly born fruits: The fact that regulators, business people and other key figures from around the world gathered here in Israel, at the height of the crisis, in order to discuss the most critical current issues, is a tribute to the organizers of the Conference – the ISA and the Stock Exchange in particular, and the State of Israel in general. The heads of the IOSCO even cited the Conference as a landmark event, which raises the bar for future conferences. The International Affairs Department is very satisfied with its flagship project for 2009. In our estimate, the Conference has fulfilled all the goals set for it by the ISA, and – thanks to the quality of organization – the participants in the Conference had an unforgettable experience, both professionally, socially and emotionally, and as tourists. 2. Leading the IOSCO MMOU Monitoring Group: The Department participated in this prestigious group’s annual meeting. The Group in charged with implementing the IOSCO Agreement, and the Head of the Department was chosen by the members of the group to continue her role as Deputy Chairman of the Group. 3. Leading an EMC WG4 working group project regarding enforcement and information under the IOSCO Agreement: The Department initiated and led the setting up of an internet portal to enhance information exchange between IOSCO members. 4. The Department’s representatives served (as observers) on the IOSCO European Regional Committee, thus strengthening the ISA’s ties with European security regulators and their parent organization (CESR), positioning the ISA as progressive and as in line with European financial legislation. 5. IOSCO Technical Committee Conference: The ISA took part in the Conference’s public panels, in particular on issues such as ranking agencies, intermediaries and unregulated financial instruments, fair value accounting and others. 6. IOSCO MMOU Screening Group: Since becoming a member of this prestigious forum in 2007, the ISA takes an active part in the screening and approval of IOSCO members wishing to join the IOSCO agreement. The Group holds in-depth discussions regarding 144

the legal infrastructure in countries wishing to join the agreement vs. the IOSCO’s rigid criteria for cooperation. During the reporting year, the ISA took part in three meetings held by the group. 7. Emerging Markets Committee (EMC) Conference: The ISA took part in the Committee’s meetings and held meetings with heads of the IOSCO in order to deepen its involvement in the Organization’s work, particularly in the areas of accounting and reporting. As part of the meetings of the EMC WG5 working group regarding joint investments, the Department presented the findings of its report regarding the development of joint investment programs in emerging markets in 2005-2007. 8. IFRS-related activity: During the reporting year, the IOSCO established a forum for the implementation and enforcement of IFRS, following a suggestion made by the Department to the IOSCO Chairman. The Forum conducted a number of meetings regarding IFRS, with active participation by the ISA (as well as representatives from Australia, New Zealand, Switzerland, Portugal, France, the UK, Germany and others), which continues to position itself as an active player in the area of IFRS. a1. The Department's activity in prominent international non-IOSCO forums Significant meetings outside the IOSCO included the following:  As part of the Department’s effort to assist in opening the Israeli market to foreign players, Department representatives met with a number of leading financial institutions around the world in order to answer their questions regarding Israeli regulation n i this field, future directions and expected developments in the Israeli market. The entities with which the Department met during the reporting year included: Bank of New York Mellon, Brown Brothers Harriman, Deutsche Bank, JPMorgan, State Street, and UBS.  At the end of 2009, the Department organized a meeting held between the ISA and the International Monetary Fund (IMF). Discussions focused on reforms in the Israeli capital market and on updates (under Article 4, which is the IMF’s annual update on its reports regarding reporting countries). The main issues discussed in the meetings were coping with the financial crisis – especially in the bond market, and the regulatory measures taken by the ISA in order to reassure investors and decrease market volatility. B. IFRS In addition to its activity in this field under the IOSCO, as described in paragraph a8.1, the Department participated, along with representatives of the Corporate Finance Departments, in a seminar on the subject of enforcing IFRS decisions, held by the CESR (the parent organization of the EU securities regulators) on November 2009. The participation was part of the Department’s ongoing effort to position the ISA as one of the leading, most professional regulators in terms of implementing and enforcing the adoption of IFRS. C. Joining the OECD and activity therein In May 2007, the OECD (Organization for Economic Cooperation and Development) decided to invite Israel to commence the process of joining the organization. The Government of Israel gave its in principle approval, and created an inter-ministerial steering committee to implement the process. The ISA is a member of the steering

145 committee and is actively involved in its meetings. The action framework for Israel becoming a member of the Organization was set forth in the “Roadmap”, whose final version was adopted in November 2007 by the OECD Council. In January 2008, the Deputy Chairman of the OECD paid an official visit to Israel in order to initiate the joining process. Eighteen inter-ministerial working groups were then formed in order to examine such core issues as movement of capital, investments, corporate governance, financial markets, etc., which are mentioned in the "Roadmap”. The groups were to examine the Israel’s policies on the aforementioned issues, in light of the OECD’s requirements, and to submit reports and answer questionnaires. The ISA, along with the Ministry of Justice, was chosen to lead the Corporate Governance Group and coordinate between the OECD committees and all Israeli bodies concerned. In June 2008, as the first step towards joining the OECD, Israel submitted an initial memorandum of understanding, thus making way for the next phase, which included filling questionnaires, meeting with assessment teams and participating in meetings of relevant committees. During the third phase, after filling the questionnaires, hearings were held in the relevant committees in the OECD’s Paris headquarters. As part of the third phase, the ISA was active in the following areas: Corporate governance: In April 2009, a hearing regarding Israel was held. As part of the hearing, Israel’s corporate governance law provisions were examined in relation to the OECD’s corporate governance principles. The hearing was held by the OECD’s Corporate Governance Steering Committee. The ISA’s chairman led a delegation which included representatives from the ISA’s International Affairs Department and Corporate Finance Department, the Ministry of Justice and the Government Companies Authority. The hearing, as well as the presentation given by the ISA’s chairman, were highly applauded by the Steering Committee, both in terms of Israel’s compliance with the required standards (and beyond) and the level of cooperation as well as the comprehensive and relevant information forwarded to the OECD during the entire process of joining the organization in general, and during the hearing in particular. The ISA, in cooperation with the Ministry of Justice, reported to the Corporate Governance Steering Committee, as per its request, regarding planned reforms in the area of corporate governance and also took part in the Committee’s meetings in November 2009. Financial markets: The Department continued to play an active role in the work of the Financial Markets Committee this year (as well as in the hearing regarding financial markets which took place in 2008) and assisted in filling the OECD’s questionnaires. In October 2009, the ISA took an active part, along with the Bank of Israel, in another hearing held by the OECD’s Financial Markets Committee, which was successful. Investment Committee: An additional hearing for Israel took place in June 2009, this time under the Investment Committee. This Committee is in charge, inter alia, of examining the financial codes for liberalization of capital flow and financial services. The ISA answered questions regarding underwriting and investment advice, conducted many discussions with the OECD's secretariat, and is promoting significant and material reforms for the opening of the Israeli market to foreign underwriters and investment advisors. Working Group for the Prevention of Bribery of Foreign Officials: As part of the process of joining the OECD, an assessment team was sent to Israel in July 2009. The ISA took an active role in the discussions held with the assessment team and answered its questions 146 and questionnaires both orally and in writing. Following a hearing held in Paris in November 2009, the second audit phase was completed. The group’s recommendation regarding Israel’s membership in the OECD is expected in March 2010. D. Activity in Europe During the reporting year, the ISA strengthened its ties with the CESR, the parent organization of the EU securities regulators, including negotiating the recognition of the ISA’s securities laws regarding prospectuses as equivalent o t their European counterparts. For this purpose, the ISA held meetings with representatives of the CESR, so as to obtain an all-European ruling regarding the quality of Israeli securities laws. The process, expected to continue through 2010, is rooted in the ISA’s bilateral memorandum of understanding with its French counterpart, the AMF, for mutual recognition of prospectuses. The abovementioned agreement is the first of its kind for an Israeli authority, and is unprecedented for the EU: For the first time, EU securities regulators exercised their newly granted power according to the European Prospectus Directive (EC/71/2003) and Transparency Directive (EC/109/2004) to recognize a non- European regulator as an equivalent. E. Regulating Custodians The Department, led by the Head of the Department, led and managed an inter- ministerial committee which comprises representative from the ISA, the Ministry of Finance, the Bank of Israel, the Ministry of Justice, The Stock Exchange and the Tax Authority. The committee assessed the need for the regulation of custody services, and developed recommendations for regulation to be enacted for the purpose of protecting investors. The Department completed the preparation of the Committee’s report, describing its work and its recommendations for the regulation of custody services in Israel. The report is expected to be implemented in 2010. F. Preparation of working papers, questionnaires, research work and presentations During the reporting year, the Department prepared various working papers and answered research questions and questionnaires forwarded by various international bodies, handled comparative research to assist other ISA departments and took part in preparing lectures and presentations for international forums. G. Study delegations As part of ISA’s effort to achieve harmonization with securities legislation in developed countries and in order to update on financial trends, the Department initiated several study trips abroad: The FSA Study Delegation (UK) and AMF Study Delegation (France) – representatives of the Department, along with senior representatives of the ISA’s Legal Counsel Department took part in the delegation. The visit included intensive meetings with representatives of the FSA and the AMF, in order to become familiar with their regulation in two main areas: Rulemaking powers and administrative sanctions. Participation in a prestigious international conference on enforcement - This conference brings together representatives of the world’s leading financial authorities, holding discussions on burning issues, such as enforcement. This year, the conference

147 organizers invited an ISA representative to participate, due to the close connection between them and the Department. 3. Cooperation on Enforcement and Exchange of Information (a) Activity under the IOSCO Agreement, its main points and parties thereto As aforesaid, the ISA attaches great importance to joining the IOSCO international multi- lateral cooperation agreement, to which 49 authorities from all over the world are party, representing leading countries such as the US, Canada, UK, France, Germany, China, India and Australia. Main points of the IOSCO Agreement 1. Mutual assistance and exchange of information between authorities for the purpose of enforcement and supervision of the laws of the requesting authority. Assistance is to include the gathering, seizing and transfer of information and documents to foreign authorities, as well as assisting in investigating and gathering testimony from alleged violators of the securities laws thereof. 2. Cooperation between authorities is subject to the local laws applicable to each Authority. 3. Assistance shall be provided, inter alia, in investigations and enforcement of laws pertaining to the following subjects: (a) Inside information, market manipulation, false reporting; (b) Listing, issuing, offering or sale of securities and reporting requirements thereof; (c) Market intermediaries, including licensed or registered investment advisors, joint investment brokers, dealers and transfer agents; (d) Markets, stock exchanges, clearing houses and settlement entities. 4. The agreement bears no expiration date, but each Authority may terminate it at any time by submitting a 30-day notice. 5. Signatories to the IOSCO Agreement as of 2009 year-end are: Albania, Alberta (Canada), Australia, Austria, Bahrein, Belgium, Bermuda, British Columbia, BVI, Bulgaria, the Cayman Islands, China, Croatia, Cyprus, the Czech Republic, Denmark, Dubai, Finland, France, Germany, Greece, Guernsey Island, Hong Kong, Hungary, India, Isle of Man, Israel, Italy, Japan, Jersey Island, Jordan, Kenya, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Morocco, the Netherlands, New Zealand, Nigeria, Norway, Ontario (Canada), Portugal, Poland, Quebec (Canada), Rumania, Serbia, Singapore, Slovakia, Slovenia, South Africa, Spain, Sri Lanka, Srpska, Thailand, Turkey, UK, US, West African Monetary Union. (b) Requests for assistance and judicial inquiries between the ISA and foreign securities authorities The Department was in charge of handling incoming requests for assistance from foreign authorities as well as the ISA’s requests from foreign authorities. Requests for the transfer of information and assistance in judicial inquiries were made by direct contact between authorities, and – in lack of an agreement – via the International Department at the State Attorney’s Office, under the Legal Assistance between States Law of 1998.

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As part of handling the requests for assistance, the Department organized, in cooperation with the Investigations Department, delegations of researchers for discussions and consultations for the purpose of increasing cooperation between the ISA and foreign authorities. 4. The ISA’s English website The ISA’s English website is edited and managed by the International Affairs Department. The website’s target audience comprises foreign regulators and international economic organizations, such as the IOSCO and the OECD, as well as players in the international financial market. During the reporting year, the Department added to the website information which has previously existed only in Hebrew, especially on subjects such as enforcement and accounting principles.

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XIV Information Systems Department 1. Electronic Reporting - MAGNA The electronic reporting project is an internet-based information system for the collection and distribution of the entire range of reports required of entities subject to ISA's supervision: corporations, mutual funds, investment advice firms, portfolio management companies and underwriters. The project is designed so as to harness electronic communications technology and the internet to service the investing public and the entities supervised by the ISA. The system handles all types of reports, including: prospectuses, annual financial statements, interim financial statements, immediate reports, reports on changes in the holdings of principal shareholders, reports on private allocations, purchase offer reports and reports of conflicts of interest in corporations. The system also handles prospectuses, immediate reports and monthly reports of mutual funds, forms for portfolio management companies, etc. The project's objectives are as follows: to provide immediate, more extensive access to public information; equal distribution of information; increase efficiency of the supervision over the reliability of information; and to provide new analysis tools. Since the day the system first became fully operational (in November 2003) and until the end of 2009, thousands of authorized signatories have signed up to use the system, 481,384 different reports have been handled, including 98,312 in 2009 alone. Reports that reached ISA staffers automatically, through the distribution website and the public reports were distributed automatically through the distribution website as well as to the Stock Exchange and to commercial information distributors. Thousands of users surf the system’s website (www.magna.isa.gov.il) daily, accessing the different reports of the aforesaid entities as well as processed data reports. The project is among the most advanced of its kind worldwide, and is based on the most updated and advanced technologies in existence today. It provides technological solutions to such complex issues as unequivocal identification of those submitting the reports and information security. It has even won a number of prestigious IT excellence awards. During 2009, a significant number of improvements have been implemented, such as: development and installation of new versions and adjustments of report forms to ongoing changes in legislation. For the fourth year running, the system played a significant role in the ISA's winning the Accessible Governmental Agency Award, in a competition conducted by the Finance Ministry among all government ministries and public sector entities in the field of public service IT systems. During the reporting year, the Department updated, changed and enhanced – on an ongoing basis - the MAGNA System, pretesting them and verifying compliance with SLA (Service Level Agreement) requirements. This year, the Department implemented five new versions, which included about 250 changes, and conducted ongoing SLA supervision. Following is a table summarizing MAGNA activity during 2009:

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Number / Summary of 2009 Data volume Total reports submitted through MAGNA - annual 98,308 Total volume of reporting 25 GB Public reports submitted through MAGNA - annual 79,943 Non-public reports submitted through MAGNA - annual 18,365 Total reports submitted through MAGNA – annual - Israeli Corporations 69,485 Total reports submitted through MAGNA – annual - dual-listed corporations 2,095 Total reports submitted through MAGNA – annual - mutual funds 21,800 Total reports submitted through MAGNA – annual - underwriters 369 Total reports submitted through MAGNA – annual - investment advice companies 189 Total reports submitted through MAGNA – annual - portfolio managers 3,293 Total reports submitted through MAGNA – annual - investment marketers 370 Total reports submitted through MAGNA – annual - trustees 466 Total reports submitted through MAGNA – annual – purchase offers 118 Total reports submitted through MAGNA – annual - banks 123 Total active forms on MAGNA 372 Total active forms on MAGNA – Israeli corporations 135 Total active forms on MAGNA – dual-listed corporations 27 Total active forms on MAGNA – mutual funds 94 Total active forms on MAGNA – trustees 16 Total active forms on MAGNA – investment advice companies 17 Total active forms on MAGNA – portfolio managers 21 Total active forms on MAGNA – bank managers 10 Total active forms on MAGNA – underwriter managers 24 Total active forms on MAGNA – purchase offers 11 Total active forms on MAGNA – investment marketers 17 Total no. of entities reporting through MAGNA 6,079

Main activities in 2009: a. Browser support In light of the system's importance and the need to provide numerous investors in Israel and abroad with service and support for their computer systems, the ISA upgraded its distribution website, which now supports both new generation and non-Microsoft browsers. Starting 2009, data and reports can also be viewed on the distribution website using all leading internet browsers: Internet Explorer 8, Firefox, Chrome.

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b. Adapting the 'Form' website to MAGNA II 'Form' is another MAGNA website which allows reporting entities to download and fill out forms without need for electronic signatures, and without a report-filing functionality. Numerous reporting entities use this website to prepare draft reports and for training purposes. Until recently, the website was based on outdated technology, and was not fully compatible with all other parts of the system. Adaptations were needed in order to fully integrate the 'Forms' website with the rest of the system and have it match the actual reporting website. In 2009, the Forms website was converted and made fully compatible with MAGNA II and .net. c. New maintenance tender for MAGNA The current agreement with Teldor for developing and maintaining the MAGNA system is due to expire at the end of 2010. In light of the system's great complexity and importance, an overlap period of several months is required with whichever company will be awarded the tender. Therefore, the ISA has already commenced preparations for a tender to select the company that will continue the system's development and maintenance. The tender has been prepared, and will be issued after the reporting year. The winning bidder will be selected during 2010. d. Upgrading the "authorization" mechanism The authorization mechanism enables the generation and issue of electronic certificates for authenticating and signing documents (in lieu of manual signature). This technology is applied in MAGNA for all reports sent to the ISA bearing e-signatures. Although the ISA already supports authorization technology, this technology s i not actually used as electronic certificates are issued by a private entity authorized by law. However, the ISA maintains its own technological capability to issue e-signature certificates, in the event that the private entity will no longer be able to do so. Upon completion of the new computer room in Tel Aviv, and due to the need to upgrade the ISA's outdated authorization system, the Department replaced the servers and technological infrastructure, including a complete re-installation project carried out in the ISA's Tel Aviv offices. e. MAGNA system administration Another MAGNA-related field is system administration and handling reporting entities and persons authorized for reporting, including those applying for authorized person status. This year, the ISA processed approximately 700 forms authorizing or canceling authorized signatories. In addition, approximately 370 certificate extension applications were processed, approximately 50 new entities were registered, and approximately 200 details update forms were processed. During the year, 28 entities changed their names, and 274 entities updated their details on MAGNA. The ISA sent approximately 300 inquiries to corporations due to discrepancies between reported data (such as incorrect ID numbers), and approximately 100 additional inquiries to companies for failure to meet the statutory requirements for the minimum number of authorized corporate signatories. Furthermore, the ISA processed the closing of corporations and other entities which ceased being reporting entities, improved its database concerning principal shareholders and replied to inquiries and questions submitted by reporting entities. Additionally, approximately 2100 ID number verifications were carried out, mainly for advisor licensing applicants. 152

2. Document archiving and automated office The system allows the archiving of all types of internal and external documents, including documents received electronically, whether by fax or in paper form (the latter are scanned into the system). The system enables to locate and retrieve any document, by type, by specified criteria or by free text. The system is one of the most essential tools at the ISA, and is also used by the MAGNA for archiving and retrieving reports, some of which are distributed to the public as well (see Section 1 above). In addition, the system includes the AMIGO System archives electronic media clips. In addition, the system includes standard automated office functions, such as: internal and external e-mail, task management, appointment calendars, contact management and workflow. The system is based on Lotus Notes Domino. Main activities during the reporting year: a. Public database split Due to the hundreds of thousands of documents being archived, the public database reached its maximal storage capacity by the end of 2009. Similarly to the process implemented a year earlier for the ISA's internal database, the public database required splitting, changing and repairing the entire input and distribution mechanism of the MAGNA (as well as other interfacing systems using the archive). The project included, inter alia, implementing changes in reports and searches. The project, including changes in interfacing systems, was completed successfully. b. Version upgrade This year, the ISA carried out a massive upgrade of all systems to Version 8.5, which includes new and improved capabilities for emailing, scheduling, work groups, etc. Following a complex and complicated process, all ISA servers were upgraded during the year. In addition, end-user stations were upgraded in two ISA sites simultaneously. These upgrades were carried out seamlessly, without system downtime or malfunctions. The ISA also conducted a series of training sessions on the proper use of the new product, followed by familiarization and support services until full integration of the new system. c. Remote access to office applications This year, the ISA significantly expanded the project enabling secure remote access to ISA mailboxes, allowing mail to be sent and received seamlessly from home PCs. Dozens of virtual work stations were configured in order to facilitate work and increase the number of employees who can use the service. As of the end of the reporting year, there are 60 users authorized to use this technology. In addition, users can access the ISA archives, their schedules, and use the operational system as though they were physically located in the ISA facilities. All these capabilities are provided with extensive information security measures which prevent unauthorized access (the system authenticates users using electronic certificates similar to that used in the MAGNA System), and prevent inadvertent infiltration of dangerous data (such as viruses) into the system or inadvertent removal of classified information outside the system.

153 d. Establishment of the Traveler server This year, the ISA established a Traveler server, which enables automatic synchronization of emails, schedules and tasks with PDAs such as mobile phones and handheld computers. Synchronization is carried out over the cellular network. The server provides users with online access, enabling them to work away from the office 24/7, without need for additional IT resources. Most of the ISA department heads were issued enabled mobile devices, and can now access their computerized office anytime, anywhere. e. Establishing a new backup system During the reporting year, the number of documents in the ISA archives increased significantly. These include MAGNA, AMIGO and AGATHA documents, as well as internal documents, incoming and outgoing mail, etc. The archive currently holds upwards of 2.5 million documents. In order to provide a suitable solution for protecting and preserving these documents, the archive's central backup system was replaced with a new, modern system, capable of handling these large volumes of information. The system supports automatic backup onto barcoded cassettes, with cassette changing and selection tasks being carried out robotically. Data recovery is also much simpler and faster than in the previous system. 3. Operational System During 2009, the Department continued to develop and maintain the central computer system, which includes most of the information handled by the ISA: data on corporations, mutual funds, investment advisors and portfolio managers, trading data, supervision over trading, identifying irregular activity and data used by all ISA employees. In 2009, approximately 720 requests for system changes and improvements were carried out, covering a broad range of issues. Main activities in 2009: a. Data processing and interfaces The BI system (see Section 10 below) uses data from the operational system, and during the year the Department processed data and developed interfaces for this purpose. Activities included two main parts: demographic data on ISA-supervised entities (e.g. - mutual funds, investment management firms), and data concerning these entities' investment policies. This information comprises the foundation for the BI system's identification of irregular trading activity. Additional interfaces developed during the year include interfaces with non-ISA systems which provide economic and statistical data on the capital market, mainly for use by the Economics Department. b. New developments New IT developments carried out in 2009 are as follows: price continuity and sector-wide control over mutual funds; implementation of new MAGNA forms (see Section 1 above) and significant improvements in TEHILA forms (see Section 7 below); changes in the calculation of fund fees; upgrades to the underwriters' financial system; automatic entry of interested parties from MAGNA reports, etc.

154 c. New reports using "unequivocal identification" This year, the ISA expanded the unequivocal identification reports. Activities included entry, processing and generation of irregular activity reports including the new "unequivocal identification" data received from the Stock Exchange. This activity is designed as a partial and temporary solution, until completion of the new BI system (see Section 10 below). d. Technological improvements This year, the Department began upgrading the operational system's technology. This upgrade consists of a server replacement initiative, migration to a new database version (ORACLE v.10), and new IT infrastructure. Most of these activities were completed during the reporting year, and the upgraded system is expected to become fully operational in early 2010. A revision was also carried out of the system's information security technologies, and with the help of third-party experts, system and data security was reinforced using new, state of the art tools. 4. The ISA Website During the year, the site (www.isa.gov.il) was regularly updated with new content: information about the ISA, information on new legislation and regulations, news and publications, updated supervised-entity lists, and FAQs. Main activities in 2009: a. Browser support Similar to the upgrade made to the MAGNA System, enabling support of both new- generation and non-Microsoft browsers (see Section 1a above), a similar upgrade was made to the ISA website. Starting 2009, the ISA website supports all leading browsers: Internet Explorer 8, Firefox, Chrome. b. The Investigations and Intelligence Department hotline During the reporting year, a hotline was opened through the ISA website which allows the public to report information directly to the ISA Investigations and Intelligence Department concerning possible violations of the securities laws, or other suspicions of illegal or improper activities in or related to the capital market. Hotline users can choose whether to provide their full details, or remain anonymous. All reports are transferred automatically to the relevant person's inbox in the Investigations and Intelligence Department. The system is designed to improve and streamline the flow of information to the Investigations Department, so that it may better identify possible violations. c. Inquiries to the Investment Department In order to improve service to the public and to eliminate wait time when contacting the Investment Department by phone, the ISA website now includes an option for contacting the Investment Department on matters of advisor, marketing agent and portfolio manager licensing. Users can choose the subject of their inquiry from a predefined list, and detail their request in the message body. Similar to the aforementioned hotline, all inquiries through this system are delivered directly to the relevant persons in the ISA. These electronic inquiries are processed quickly and efficiently, and are all duly documented. 155

5. Central Information System (CIS) – AMIGO The CIS is a computerized information and knowledge management system with the following capabilities: locating information from various sources; collecting information and importing it into the system automatically and/or manually; retrieving data objects within the input collected from various sources; processing and analyzing the information; discovering and presenting relationships between entities; knowledge production; archiving information in the ISA archive; managing and distributing raw and/or processed information to ISA employees via the ISA’s e-mail system. This system is the first of its kind to be used by civil intelligence entities in Israel, and is based on the most advanced technologies available. Its purpose is to improve the quality and quantity of information collected at the ISA, serving all employees in the various departments. The system uses the most advanced work procedures and methods. During the year, the system’s database was expanded by incorporating additional public sources which appeared on the Web during the year. This year, a total of 213,017 information items were collected and fed into the system. Since the system was first installed, a total of 1,103,370 were fed into the system. 6. Computing for the Investigations Department a. Forensic computing The Investigations Department's advanced forensic computing system was built approximately two years ago, and has proven itself fully. The improvement and streamlining of the Investigation Department's activities are apparent and almost every file includes a large amount of information and documents uncovered during investigation. The system includes a server and storage space, along with sophisticated search and retrieval software which allows users to copy and search vast quantities of electronic information. This year, the Information Systems Department increased the forensic system's storage capacity, in order to prevent future investigations and downloads requiring the deletion and removal of information from previous cases. b. Cyber Ark vault At the Investigations Department's request, the Information Systems Department is participating in characterizing the necessary information concerning checking accounts. The goal is to obtain this information automatically, and input it into the appropriate ISA system (AGATHA/operational system and/or BI system). Work is being carried out on two levels: First - characterization and purchasing of a "vault" for secure transfer of documents and information between the ISA and the banks. This "vault" is to be used both for future receipt of incoming checking account files, and for receipt of securities accounts files which are presently transferred on disc. These activities were completed, and the vault was purchased during the reporting year. The second level comprises characterizing fields for future incoming checking account data. 7. Forms and Payments System During 2009, a number of the ISA’s online forms were uploaded to the Government payments server (“TEHILA”). The forms are intended for use by the public in order to approach ISA on different issues. In 2009, about 20,000 forms were submitted and payments totaled about NIS 10,500,000.

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The system transfers all forms filled by users and payments to the ISA’s internal information systems, over the internet, in real time. The data is available to users (through the use of a personal code) on the ISA website, where users can receive information regarding the updated status of their applications. 8. Digital Vaults (Reversed MAGNA) - YAEL The ISA needs to send supervised entities secure, electronically-signed messages (similarly to the way information is sent to the ISA via MAGNA by reporting entities). The purpose of this project is to provide a solution to this need. The Vault is the secure space through which electronic messages can be securely transmitted from the ISA to reporting entities. The project is run by the Department in cooperation with TEHILA, which provides IT and internet services to government entities through the State Comptroller’s Office. The technological aspects of the Vault project are accompanied by legislative amendments, which will specify the supervised entities’ duty to access the Vault and will consider messages sent through the system as sent by registered mail. The proposed amendment was approved by the Ministers’ Legislative Committee in 2007, passed first reading in 2008, and was approved at the Science and Technology Committee in 2009. The amendments are expected to go into effect in 2010. 9. ERP system for treasury This year's activities included the establishment of a new module for handling agreements. This module enables the ISA to monitor all its agreements (particularly long- term agreements), including payment amounts and dates, end of agreement and agreement extension alerts, etc. This module interfaces with the ISA archive for the archiving of the agreements themselves, as well as with the central ERP system which derives the relevant orders for the agreements. 10. BI Irregular Trading System The BI system was created following a decision made by the ISA and the Stock Exchange to require an unequivocal identification number (representing the selling or purchase account) to be used along with other Exchange trading data, due to the growing number of traded securities and since the irregular trading system is dated and no longer meets current needs. Thus, it was decided to set up a new information system to research trading data at the ISA, according to the most advanced concepts and technologies available today in the field of BI (Business Intelligence). The purpose of the system is to confirm or refute irregularities automatically, as far as possible, thus enabling the ISA’s employees to handle events which clearly constitute unexplained irregularities. This system provides an organization-level solution to analyzing trading data, providing data research capabilities The system provides an automated solution for identifying irregularities and researching trading data carried out in the various departments: the Supervision of the Secondary Market Department, the Investigations and Research Department, the Investments Department, the Corporate Finance Department and the Economic Department. As part of the system, the Department created a data warehouse containing trading data and input from other systems (such as the MAGNA), and designed a tool which enables the independent production of reports, submission of inquiries and identification of irregular trading activities. In addition, a designated software was designed, active during nights, which identifies trading irregularities 157 automatically, using various predetermined criteria and the ciphered unequivocal identification number. The software contains two different modules to identify trading irregularities: One module is designed to identify trading control irregularities. An additional module, to be completed in 2010, will identify irregular activities by trading intermediaries (such as mutual funds). The unequivocal ciphered identification number is order to identify irregular activities by individuals, without deciphering, while for trading intermediaries, the module deciphers the name of active party. Main activities in 2009: a. System development tender Once initial characterization of the system was complete, the Department prepared the tender documents, and an RFP was issued for the system. Several proposals were received, and following a thorough review and comparison by a technical and professional team, and the Department submitted its recommendation for the winning proposal. After negotiations and a decision by the Tender Committee, an agreement was signed with the winning bidder and work on the project commenced. b. Identification of requirements and detailed characterization The Department spearheaded the detailed characterization of the various needs and requirements of the ISA departments, including the Supervision of the Secondary Market, Investigations and Intelligence, Corporate Finance, Investments, and Economics Departments. The process involved a series of meetings with department heads and employees, and included the assistance of the project contractor. c. System development - Phase 1 The Department supported all aspects of the system's development: tracking adherence to schedules and budget through weekly status meetings; technological and procedural troubleshooting; quality assurance testing for project deliverables and adaptation thereof to ISA requirements; coordinating between various internal and external stakeholders concerning the system's various interfaces with other ISA systems. A data entry module was developed, data storage was built, a set of predefined reports was prepared for users, and the irregular activity system was completed, which identifies irregular trading activities according to predefined criteria. In addition, an executive dashboard was developed, providing a snapshot of all information and event status data. d. Testing, implementation, and training Once development was completed, the Department spearheaded a thorough testing of all system components as regards functionality, durability, performance and availability. Once acceptance testing was completed, the project contractor provided training for ISA users of the system, after which the project contractor supported the implementation of all system functionalities. e. Implementation - Phase 2 As Phase 1 of the project was nearing completion, the Department began characterizing and implementing Phase 2 (to be rolled out in 2010): an irregular activities system for trading brokers (including receipt and integration of pension fund and provident fund data from the Ministry of Finance Capital Market Division), real-time data entry, specialized intelligence and investigative applications, and processing of unequivocal identification data for ILNs. 158

11. Knowledge Management The information and knowledge residing in the ISA and used by its employees are derived from internal information systems, external sources, and the employees themselves. The ISA's information resources include a large number of systems handling a variety of matters and employing a broad range of technologies and methods. Furthermore, ISA employees hold much knowledge requiring documentation, such as email documents and correspondences, undocumented phone calls, insights, etc. The knowledge management project aims to consolidate decentralized knowledge and information in the ISA through a single, integrative tool which includes the majority of current knowledge sources (both internal and external). Main activities in 2009: a. An inter-departmental team was established, including representatives from most project-relevant ISA departments. The team is to identify and characterize the ISA's requirements, and provide ongoing support for the project. b. Departmental requirements were collected, according to professional association and at the organizational level. At the end of this process, an initial requirements identification and characterization document was drafted. This stage was carried out in collaboration with third-party experts consulting the project. Discussions were held with all ISA departments and various issues were identified. c. The Department mapped and collected the knowledge and information requiring management in order to achieve organizational goals. A platform was defined for collecting, labeling and distributing employee-held knowledge in an ongoing and continuous manner. Conclusions and recommendations were submitted and approved by the inter-departmental team. d. A knowledge management tool is currently in the selection stages, as part of a detailed work plan for implementing the aforementioned recommendations. The Department has recently completed the preparation of an RFP for a search tool for internal and external sources, as part of the initiative for making existing information more accessible to employees. This part of the project is to be completed in 2010, including selection of a suitable tool, its adaptation to the ISA's needs, and its implementation by the various departments. 12. Vehicle fleet management system At the Secretary General's request, and together with the administrative staff, the Department participated in the characterization, purchasing, installation and implementation of a management system for the ISA's vehicle fleet. The system offers extensive functionalities for managing and tracking various criteria regarding vehicles, servicing, fuel consumption, vehicle and driver licensing, etc. 13. IOSCO 2009 The Department collaborated with the International Department and the Secretary General on the ISA's booth for the IOSCO 2009 Conference. The booth included a specially-made video showcasing the ISA's IT systems in general, and the MAGNA system in particular. The video was supported by informative collateral material handed out to visitors. The booth enjoyed a resounding success, reflected both in the number of visitors 159

and the number of inquiries received following the Conference. The Department provided detailed answers to all such inquiries. The ISA will also use the video in various other events and conferences in the future. 14. Infrastructure: Servers, Communications, and Information Security During 2009, extensive improvements were made to the ISA's IT infrastructure. These included: a. Completing the installation of a new computer room on the 3rd floor of the ISA's facility in Tel Aviv: supervision of installation (electricity, air conditioning, UPS, communications and telephony); consequential systems upgrade; installation of command and control systems; installation and activation of a new switchboard and increasing the number of outgoing phone lines, upgrading existing network infrastructure in Tel Aviv and transfer to 1G transmission speed. b. Upgrading the existing Novel operating system to an advanced Linux version. The project, which began in the reporting year and will be completed in 2010, includes: replacement of outdated servers, storage systems, operating systems, and utilities. c. Upgrades to the communication infrastructure, increasing line capacity in the various sites, as well as between the ISA's sites in Tel Aviv and Jerusalem. Furthermore, a new backup line was established between the ISA sites, so that n i the event of a communications malfunction, the backup line will enable continued operation of the ISA information systems. d. Upgrade and transition to OFFICE 2007, including the conversion of old files, installation of the new software on all ISA computers, preparation of training materials, coordinated user training, and full implementation. e. Additional upgrades: Transition to IE7 (Internet Explorer Ver. 7), antivirus version upgrades, Win2003 upgrades for servers, and reinforcing the backup systems. f. Penetration testing was carried out through a third-party contractor specializing in hacking into computer systems. Following these tests, tools and methodologies were changed, and information security was improved on all levels. g. Ongoing maintenance of all systems, procedure updates, and SLA control for both internal and external users. h. Continued updating of all outdated PCs, printers and operating systems. The above activities, and particularly those concerning the upgrade of communications infrastructure and information security, will continue throughout 2010.

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XIV Public Affairs 1. Inquiries from the public During the reporting year, the ISA processed 663 inquiries from the public (compared to 529 in 2008). These include inquiries from individuals active in the capital market, such as investors, portfolio managers or investment advisors; attorneys representing individuals and/or reporting corporations; individuals who have been harmed or who wish to report irregularities or problems in the capital market as a whole, or in one of its sectors; external entities such as government bodies and others that refer various entities to the ISA; the media, including reporters and inquiries on general issues regarding the ISA's activity or reporting corporations; requests for information on the ISA or capital market entities supervised by it. Other inquiries include requests for information regarding the capital market coming from government entities or individuals. Such inquiries are handled according to the Freedom of Information Law of 1998. On February 24, 2009, an information hotline was added to the ISA’s website. This feature allows the public to supply the ISA with online information regarding suspicions of violations of the securities laws or other suspicions of illegal capital market activity, without being required to submit any identifying information. The information is delivered directly to the Investigations and Intelligence Department. During the reporting year, the hotline received 130 reports. :

No. of inquiries per year

800

600 400 200 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

2. Report of the Director for Application of the Freedom of Information Law of 1998 In 2009, 11 requests for information were submitted to the ISA (compared to 12 in 2008) Eight requests were answered in full; three were denied, since the information was classified by law or constituted information that may disrupt the proper functioning of the ISA or its ability to perform its duties.

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It should be noted that most public inquiries involve requests for indirect information or guidance – rather than regarding specific cases. Responses to such questions naturally involve delivering information, but are not included in the Director’s Report. 3. Contact Details In addition to contacting the ISA through its main office in Jerusalem, public inquiries may be addressed to the Director of Public Inquiries and Director for Implementation of the Provisions of the Freedom of Information Law at ISA’s Jerusalem's office: 22 Kanfei Nesharim Street Jerusalem 95464 Tel: 02-6556555 Fax:02-6513646 E-mail: [email protected]

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XV Investor Education Unit According to the Securities Law, the ISA is charged with “preserving the interests of investors in securities”. The ISA’s interpretation of the above definition has led to a two- aim strategy which has guided the ISA’s activity in the past five years. The strategy aims to: develop and improve the capital market, increasing activity therein, and strengthen the public’s faith in the fairness of the capital market. As part of this strategy, the ISA strives to diversify the products offered and the players active in the marketplace, enhance the capital market’s infrastructure (derived from the first aim), increase the effectiveness of enforcement, enhance transparency and oversight of supervised entities (derived from the second aim). However, it is imperative that the ISA raise the investing public’s awareness to its rights and duties when purchasing financial services and products in the capital market – thus contributing to the achievement of the aforesaid goals. Educating investors is done by way of instruction and values. It is based on the assumption that the State of Israel aspires to provide its residents with equal opportunity. The aspiration for equality is imbued in every aspect of life and is naturally part of the economic domain. It is therefore important to increase the number of active participants and to enhance consumer awareness as well as personal and collective fairness among them – in this field as in others. In order to attain these goals, it is necessary to develop unique cognitive and professional skills, which are to serve the entire public. Nevertheless, one cannot ignore the fact that large sections of the public are relatively ignorant as to the capital market and unaware that the capital market can also serve the needs of small investors. As a result, large sections of the public do not take part in the in it. Thus, many Israelis do not take advantage of the tools that are at their disposal, and are often unaware of their existence. The aim is to convince potential investors that the capital market is not beyond their reach, but rather - an area with a set of rules that can be learned, internalized and used. Investors should be made to understand that the capital market is not a place that awards unique rights to mavens, and instill in them the confidence that they can be critical of what is going on. During 2009, the ISA was active among audiences perceived as having low awareness of financial issues. The ISA initiated a regular bi-weekly spot on the orthodox radio station Kol Chai on the subject and orthodox newspapers published guidelines for smart financial consumer behavior. In addition, the Department initiated an online campaign designed to convey educational messages regarding the capital markets through its dedicated website (www.kesef.org.il). In addition, the Department of Investor Education produced a video entitled Investors Beware, aimed at warning investors from investing in the capital market through unlicensed advisors. The video, which is three-minute long, can be viewed on the Investor Education website. This is the second video of its kind produced by the ISA, following the one entitled Investing with Caution, produced in 2008, which explains the importance of receiving serious, professional, and responsible advice when investing in securities.

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In addition, the Department is examining the possibility of enhancing awareness of smart financial consumption among wider audiences, in cooperation with other government entities.

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Budget for 2009 (NIS thousands) Approved Updated Implemented Section budget for budget for budget of Section title No. 2009 2009 2009

General: TOTAL EXPENDITURE: 136,645 136,645 119,992

SALARIES: Total: 68,680 68,880 65,019

[ 181 ] [ 181 ] [ 181 ] 1001 Salaries of ISA employees 53,040 53,025 50,852 Provision for pension and 1002 compensation 8,090, 8,090, 6,848 1003 Overtime 4,530 4,530 4,511 1004 Temporary employees 290 305 303 [ 18 ] [ 18 ] [ 18 ] Salaries of legal interns and 1005 students 1,300 1,300 1,095 1006 Chairman's salary 790 790 634 1007 Internal auditing 200 200 135 1008 Expenses of ISA employees 160 185 185 Preparation of financial 1009 statements 280 455 455

Accompanying expenses: Total 7,720 7,900 6,936

Training and continuing 2001 education program 900 900 599 2002 Vehicle maintenance 1,700 2,070 2,069 2003 Car rentals 90 100 99 Traveling and living expenses in 2004 Israel, moving expenses 4,530 4,530 3,890 2005 Loan fund 500 300 278

Maintenance: Total 17,070 17,365 16,747

3001 Organizational expenses 970 970 880 3002 Office supplies 680 715 714 3003 Building maintenance and repairs 14,000 14,000 13,725 3004 Post and telephone 920 1,180 1,179 Equipment, machinery and 3005 furniture 300 300 238 165

Cars – payments to the Vehicle (transferred to (transferred to (transferred to 3006 Administration section 2002) section 2002) section 2002) Refurbishment of buildings and 3007 installations 200 200 12 (transferred to (transferred to (transferred to 3008 International relations section 4016) section 4016) section 4016) (transferred to (transferred to (transferred to 3009 Strategic counseling section 4011) section 4011) section 4011)

1 (2)

Approved Updated Implemented Section Section title budget for budget for budget of No. 2009 2009 2009 Professional activity: Total 13,100 12,060 9,114

External services: reviewing 4001 reports 500 200 123 4002 Licensing of investment advisors 2,000 1,700 1,448 4004 Legal expenses 350 350 261 4005 Professional library 600 600 516 4006 Participation in int’l conferences 500 500 253 Accounting standards Board 4007 (participation) 1,900 1,460 1,200 4008 Auditing of corporations 1,900 1,900 1,900 4010 Investor education 200 200 14 4011 Counseling services to the ISA 750 750 644 4012 Seminars 300 300 201 4013 IOSCO 2009 3,500 3,500 2,385 Portfolio Managers Arbitration 4014 Institute 4015 Academic research fund 200 200 58 4016 International relations 400 400 111

Information Systems Department: Total: 8,770 8,915 8,799 (transferred to (transferred to (transferred to 5001 Computer hardware section 6001) section 6001) section 6001) (transferred to (transferred to (transferred to 5002 Computer software section 6001) section 6001) section 6001) 5003 Computer maintenance 7,800 7,945 7,940 Purchase of computerized 5004 information 970 970 858

Development budget: Total: 16,985 17,205 13,377 Information systems: hardware & 6001 software 14,485 14,485 10,661

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6002 Purchase of vehicles 6003 Buildings renovation 2,500 2,720 2,716

Reserves: Total 4,320 4,320 7005 Salary reserves 2,430 2,430 0 7006 Inflation reserves 800 800 0 7010 General reserves 1,090 1,090 0

Income: Total (estimate) 137,000 137,000 146,896 9001 Prospectus fees 28,000 28,000 45,159 9002 Annual fees 92,000 92,000 80,403 Indexing (annual fees) and 9003 interest 7,000 7,000 12,217 Investment advisors licensing 9004 fees 10,000 10,000 9,116

2 (2)

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Approved Budget for 2010 (NIS thousands)

Section Section title Budget For 2010 No.

General: TOTAL EXPENDITURE: 143,880

SALARIES: Total: 73,950

[ 193 ] 1001 Salaries of ISA employees 57,400 1002 Provision for pension and compensation 8,800 1003 Overtime 4,900 1004 Temporary employees 270 [ 24 ] 1005 Salaries of legal interns and students 1,730 1006 Chairman's salary 710 Transferred to section 1007 Internal auditing 4017 1008 Expenses of ISA employees 140 Transferred to section 1009 Preparation of financial statements 4018

Accompanying expenses: Total 8,110

2001 Training and continuing education program 900 2002 Vehicle maintenance 1,700 2003 Car rentals 110 Traveling and living expenses in Israel, moving 2004 expenses 4,900 2005 Loan fund 500

Maintenance: Total 17,530

3001 Organizational expenses 970 3002 Office supplies 700 3003 Building maintenance and repairs 14,500 3004 Post and telephone 980 3005 Equipment, machinery and furniture 380 Merged with section 3007 Refurbishment of buildings and installations 6003

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Section Budget Section title No. For 2010 Professional activity: Total 10,430

Merged with 4001 External services: reviewing reports section 4008 4002 Licensing of investment advisors 2,000 4004 Legal expenses 450 4005 Professional library 600 4006 Participation in int’l conferences 500 4007 Accounting standards (participation) 1,900 4008 Auditing of corporations 2,700 4010 Investor education 150 4011 Counseling services to the ISA 1,000 4012 Seminars 360 4013 IOSCO 2009 done 4015 Academic research fund 370 4016 International relations 400 4017 Internal auditing 200 4018 Preparation of financial statements 500

Information Systems Department: Total 10,980

5003 Computer maintenance 9,700 5004 Purchase of computerized information 1,280

Development budget: Total 18,100

6001 Information systems: hardware & software 16,100 6003 Buildings renovation 2,000

Reserves: Total 4,430 7005 Salary reserves 2,540 7006 Inflation reserves 800 7010 General reserves 1,090

169

Income: Total (estimate) 145,000

9001 Prospectus fees 31,000 9002 Annual fees 95,000 9003 Indexing (annual fees) and interest 9,000 9004 Investment advisors licensing fees 10,000

170