2017 FINANCIAL REPORT

CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

Auditors’ Report to the Board of Governors of The Jewish Agency for

We have audited the accompanying consolidated balance sheets of the (hereafter - The Agency), as of December 31, 2017 and 2016, and the consolidated statements of operations, changes in net assets and cash flows, for each of the years ended on such dates. These financial statements are the responsibility of The Agency’s Board of Governors and Management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We did not audit the financial statements as of December 31, 2016 of certain consolidated subsidiaries whose assets constitute approximately 17.87% of the total consolidated assets as of December 31, 2016, and whose revenues included in consolidation constitute approximately 17.41% of the total consolidated revenues for the year ended on that date. The financial statements of the above entities were audited by other auditors, whose reports have been furnished to us. Our opinion, insofar as it relates to amounts included for those entities, is based on the reports of the other auditors.

We conducted our audit in accordance with generally accepted auditing standards in Israel, including standards prescribed by the Auditors Regulations (Manner of Auditor’s Performance) - 1973. Such standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by The Agency’s Management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of the other auditors provide a reasonable basis for our opinion.

In our opinion, based on our audit and on the reports of the abovementioned other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Agency as of December 31, 2017 and 2016 and its consolidated results of operations, changes in net assets and cash flows, for each of the years ended on such dates, in accordance with generally accepted accounting principles in Israel (Israeli GAAP).

Somekh Chaikin Certified Public Accountants (Isr.) May 31, 2018

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 5 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,

Amounts in US$ thousands

Assets Note 2017 2016

Current assets Cash and cash equivalents 3 154,231 156,422 Short-term deposits in banks 4 1,088 1,171 Investment in marketable securities 2g 7,879 6,583 Accounts receivable 5 68,436 60,012 Current maturities of long-term loan 6f 5,000 5,000

Total current assets 236,634 229,188

Investments and other assets 6 138,136 131,010

Fixed assets 7 185,428 182,103

Total assets 560,198 542,301

May 31, 2018 David Breakstone David Silvers Moshe Ashirie Date of approval Deputy Chair, Executive Chair, Budget & Finance Committee Chief Financial Officer of Financial Statements

The accompanying notes are an integral part of the financial statements.

6 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31,

Amounts in US$ thousands

Liabilities and net assets Note 2017 2016

Current liabilities Accounts payable 8 119,609 92,661 Short-term deposits and other payables 27c 7,515 5,775 Liability to Pension Fund - current maturity 10c 4,000 4,000 Current maturities of long-term bank loans 9 391 353

Total current liabilities 131,515 102,789

Long-term liabilities Bank loans 9 2,847 2,890 Liabilities for employee rights upon retirement, net 10 159,618 192,373 Other liabilities 11 46,828 45,231

Total long-term liabilities 209,293 240,494

Minority interest 2,067 1,819

Commitments and contingent liabilities 12

Net assets

Surplus in unrestricted net assets 72,414 44,930 Temporarily restricted net assets 13 143,433 150,924 Permanently restricted net assets 1,476 1,345

Total net assets 217,323 197,199

Total liabilities and net assets 560,198 542,301

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 7 CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,

Amounts in US$ thousands

Revenues Note 2017 2016 Unrestricted donations and contributions: United Israel Appeal, Inc. 82,279 86,295 - United Israel Appeal 30,359 32,649 Direct donations & Spirit of Israel 2,525 410 Net assets released from restrictions: United Israel Appeal, Inc. 80,370 89,115 U.S. Government grant 7,514 9,394 Keren Hayesod - United Israel Appeal 8,438 8,070 Direct donations & Spirit of Israel 33,159 36,042 Other income: Israel experience programs (operated by subsidiaries) 67,944 62,671 Rental income 41,157 *38,712 Program participations and service fees 82,125 68,395 Collection of doubtful debts 2h 2,440 1,705 Subsidiaries’ income 28,943 23,042

Total revenues 467,253 456,500 Cost of activities and other expenses

Israel experiences 14 73,741 72,002 , absorption and special operations 15 56,185 55,162 Social activism 16 42,063 39,450 Activities with Russian speaking Jews 17 24,357 22,829 Partnerships 18 18,903 18,823 Shlichim and Israel Fellows 19 23,711 22,408 Community services (not including FSU) 20 24,380 19,523 Allocations and social programs 21 69,678 69,540 Agency-wide projects and organizational activities 22 99,700 *101,648 Support units and executive offices 23 24,108 23,711 FRD, marketing and communications 24 10,564 9,134

Cost of activities 467,390 454,230

Income (deficit) from ordinary operations (137) 2,270 Financial income, net 25 399 203

Income from activities 262 2,473

Non-operational income Property related costs, net of income from asset realization 26 (5,033) *(17,881) Income arising from Board designated endowment, net 6b 14,483 4,217 Decrease in Pension Fund liability, net 10e 40,995 47,344 Early retirement program expenses 28 (29,726) (1,268)

Non-operational income, net 20,719 32,412

Net income for the year 20,981 34,885

The accompanying notes are an integral part of the financial statements. 8 * Reclassified THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 9 STATEMENT OF CHANGES IN NET ASSETS

Unrestricted in use

Amounts in US$ thousands Board For designated operations endowment Total Balance at December 31, 2015 (86,420) 90,105 3,685

Changes during 2016

Temporarily restricted donations and contributions received: United Israel Appeal, Inc. - - - U.S. Government grant - - - Keren Hayesod - United Israel Appeal - - - Direct donations & Spirit of Israel - - -

Total received - - -

Released from restriction - - - Net income for the year 34,885 - 34,885 Changes in endowments, net - note 6(b) (1,524) 1,524 - Release of fixed assets and restricted assets depreciation expense - see note 2(a)2 6,360 - 6,360

Net change during 2016 39,721 1,524 41,245

Balance at December 31, 2016 (46,699) 91,629 44,930

Changes during 2017

Temporarily restricted donations and contributions received: United Israel Appeal, Inc. - - - U.S. Government grant - - - Keren Hayesod - United Israel Appeal - - - Direct donations & Spirit of Israel - - -

Total received - - -

Released from restriction - - - Net income for the year 20,981 - 20,981 Changes in endowments, net - note 6(b) (11,474) 11,474 - Release of fixed assets and restricted assets depreciation expense - see note 2(a)2 6,503 - 6,503

Net change during 2017 16,010 11,474 27,484

Balance at December 31, 2017 (30,689) 103,103 72,414

The accompanying notes are an integral part of the financial statements.

10 Permanently Temporarily restricted restricted

For For projects allocations Total Endowment Total 153,837 10,803 164,640 664 168,989

30,818 57,699 88,517 - 88,517 9,394 - 9,394 - 9,394 7,968 712 8,680 - 8,680 19,945 8,729 28,674 - 28,674

68,125 67,140 135,265 - 135,265

(73,081) (69,540) (142,621) - (142,621) - - - - 34,885 - - - 681 681

(6,360) - (6,360) - -

(11,316) (2,400) (13,716) 681 28,210

142,521 8,403 150,924 1,345 197,199

25,756 58,268 84,024 - 84,024 7,514 - 7,514 - 7,514 11,143 258 11,401 - 11,401 17,070 8,509 25,579 - 25,579

61,483 67,035 128,518 - 128,518

(59,828) (69,678) (129,506) - (129,506) - - - - 20,981 - - - 131 131

(6,503) - (6,503) - -

(4,848) (2,643) (7,491) 131 20,124

137,673 5,760 143,433 1,476 217,323

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 11 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,

Amounts in US$ thousands

2017 2016 Cash flows from operating activities: Net income for the year 20,981 34,885 Adjustments required to reflect the cash flows from operating activities (see Appendix) (13,814) (19,575)

Net cash provided by operating activities 7,167 15,310

Cash flows from investing activities: Purchase of fixed assets (18,094) (20,497) Redemption (investment in) of short-term deposits in banks and other investments (1,213) 3,802 Proceeds from long-term investments and other assets 10,626 7,202

Net cash used in investing activities (8,681) (9,493)

Cash flows from financing activities: Deposits (repayment) - (300) Long-term loans received - 40 Receipt (repayment) of long-term deposits 180 (988) Decrease in temporarily restricted assets, net (see Note 2c) (988) (7,356) Increase in permanent restricted assets, net 131 681

Net cash used in financing activities (677) (7,923)

Decrease in cash and cash equivalents, net (2,191) (2,106)

Balance of cash and cash equivalents at beginning of year 156,422 158,528

Balance of cash and cash equivalents at end of year 154,231 156,422

12 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31,

Amounts in US$ thousands

Appendix: 2017 2016

Adjustments required to reflect the cash flows from operating activities Income and expenses not involving cash flows: Exchange rate differences on long-term assets and liabilities, net (12,951) (1,879) Capital gain on asset realization, net (2,389) (5,501) Share in losses of equity investments, net of minority interest 372 196 Depreciation 14,235 17,008 Decrease in liability for employee rights upon retirement, net (32,755) (47,400)

(33,488) (37,576)

Changes in operating assets and liability items: Increase in accounts receivable (9,141) (121) Increase in accounts payable and other liabilities 28,815 18,122

19,674 18,001

(13,814) (19,575)

THE JEWISH AGENCY FOR ISRAEL The accompanying notes are an integral part of the financial statements. 2017 FINANCIAL REPORT 13

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 1 - GENERAL

The Jewish Agency for Israel (The Agency) is a global Jewish organization centered in Israel, whose mission is:

To inspire Jews throughout the world to connect with their people, heritage and land, and empower them to build a thriving Jewish future and a strong Israel.

The Agency pursues this mission by:

Connecting young Jews around the world to Israel as a cornerstone of Jewish identity through: • Israel Experiences • Shlichim (Emissaries) • Partnerships (P2G), Jewish Diversity and Unity initiatives • Work with Russian-speaking Jewry Aliyah and Absorption of Jews in Israel: • From free countries (“of choice”) • From countries where Jews are in distress (“of rescue”) Connecting young to the global Jewish family while deepening their Jewish identity via: • Bringing them together with their global peers • Fostering Jewish leadership • Harnessing social activism and reviving the ethos that built Israel Supporting vulnerable populations and closing social gaps (activism, emergency response): • In Israel • Abroad The Agency is an association, recognized under the World Zionist Organization and Jewish Agency for Israel (Status) Law, 1952, as amended, which affirms The Agency as a distinct legal entity.

The main supporters of The Agency are the United Israel Appeal, Inc. (hereafter - UIA), which represents the Jewish community in the United States, and Keren Hayesod - United Israel Appeal, which represents other Jewish communities in the Diaspora. The United States Government via its humanitarian migrant resettlement grants program renders further support to The Agency.

Under the terms of a covenant, pursuant to the World Zionist Organization and Jewish Agency for Israel (Status) Law, 1952, that was executed between the Government of Israel and The Agency in 1979 with retroactive effect as of 1971, The Agency is exempt from a wide range of taxes, including income tax and capital gains tax.

In Israel, The Agency has a designation as a “National Fund” under Section 46 of the Income Tax Ordinance for the purpose of tax credits in respect of donations. The Agency is exempt from U.S. federal income tax under section 501(c)(3) of the Internal Revenue Code.

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 17 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies, applied on a consistent basis, are as follows:

a. Accounting and financial reporting principles for non-profit Organizations

The Agency prepares its financial statements in accordance with standards for accounting and financial reporting principles for non-profit entities in Israel effective as of 1997 and thereafter. Net assets are classified for accounting and reporting purposes based on the existence or absence of donor-imposed restrictions. The Agency has applied these principles in its financial statements, as follows:

1. Classification of net assets

Permanently restricted net assets - net assets subject to donor restrictions that do not expire.

Temporarily restricted net assets - net assets subject to donor stipulations that will be met by actions of The Agency over the passage of time. These include amounts for specifically designated projects, including capital projects.

Unrestricted net assets - net assets not subject to donor stipulations. These amounts are available for the support of The Agency’s operations.

2. Income and expenditure are recorded on an accrual basis. However, donations and contributions not received by the date of the signing of the financial statements (see Note 2n) are not recorded as income. Restricted donations and contributions, allocations and grants restricted for specific purposes are released from restriction upon fulfillment of the donor-stipulated purpose.

Restricted donations and contributions received for the purchasing or construction of buildings are released from restriction only in parallel to the amortization of the funded assets. The amounts released from restriction are shown as movements in unrestricted net assets on the Statement of Changes in Net Assets and are not included in the Consolidated Statements of Operations (see Note 2i).

Grants received from the Government of Israel for the partial funding of the Jewish Agency’s Social Housing Initiative (see Note 12a) are recorded as reductions in the costs of construction of the funded assets.

3. Full recognition is given to liabilities for employee-related expenses, i.e. unfunded pension and severance liabilities, vacation pay and unutilized sick and study leave.

4. Fixed assets that are transferred, per donor-imposed designations, to third parties for their exclusive use, are recorded in The Agency’s statements of operations and are not included in fixed assets.

5. Definitions:

Unrestricted expense - Expenses not funded by the release of temporarily restricted assets.

Subsidiary - A company, owned and controlled to the extent of 50%, including a partnership or joint venture, the financial statements of which are fully consolidated, directly or indirectly, with the financial statements of The Agency.

18 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

Associated company - A company controlled to the extent of 20% or more (which is not a subsidiary or proportionately consolidated company), which is presented by the equity method.

Related parties - Per Opinion 29 of the Institute of Certified Public Accountants in Israel (Israeli CPA Institute).

Regarding subsidiaries and associated companies reflected in the financial statements - see Appendix A. b. Financial statements in US dollars

The Agency applies Accounting Standard No. 13 (Revised), “Effects of Changes in Foreign Currency Exchange Rates” (“the Currency Standard”), which deals with determining the functional currency of an entity’s foreign operations, the translation of transactions in foreign currency, the translation of financial statements of foreign operations and the translation of financial statements from the functional currency to the presentation currency.

1. Functional currency:

The entity’s functional currency is the currency that best reflects the economic environment in which the entity operates and conducts its transactions. It has been determined that the functional currency in which The Agency operates and conducts its transactions is the US dollar.

2. Presentation currency:

The Agency can present its financial statements in any currency (or currencies). These financial statements are presented in US dollars as this is the currency that best reflects the economic environment in which The Agency operates (its “measurement currency”). The financial statements of consolidated and associated companies, whose financial statements are drawn up in other currencies, are translated into dollars or are remeasured into dollars, for the purpose of inclusion in these financial statements, as explained below.

Certain of the dollar amounts in the financial statements that are presented in dollars may represent the dollar equivalent of other currencies, including the New Israeli Shekel (NIS), and may not be exchangeable for dollars.

Transactions and balances denominated in dollars are presented at their dollar amounts. Non-dollar transactions and balances are translated into dollars based on the principles set forth in the Israeli Accounting Standard 13 (Revised). Differences arising from translation are included within financial expenses. With regard to fixed assets - see Note 2i1 below. c. Cash flows statement

The change in temporarily restricted assets, included in cash flows from financing activities, reflects the net increase in temporarily restricted assets i.e. the difference between new designated contributions received during the year but unutilized at the year-end and amounts expended during the year that were received in prior years.

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 19 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

d. Following are details of foreign currency exchange rates and consumer price index

December 31 December 31 % change % change 2017 2016 2017 2016

US dollar exchange rate in NIS 3.467 3.845 (9.8) (1.4) Consumer price index 118.8 118.3 0.4 -

e. Principles of consolidation

The consolidated financial statements include the financial statements of The Agency and its subsidiaries.

In addition to the fully consolidated companies as above, the consolidated financial statements include a company under common control (joint venture) by the proportionate consolidation method, as prescribed by Israel Accounting standard 57.

Intercompany balances and transactions have been eliminated.

f. Investments in associated companies

Investments in associated companies are accounted for by the equity method.

g. Investments in marketable securities and in other companies

1. Marketable securities

Marketable securities held as a current investment are stated at their market value as of balance sheet date. Changes in the value of securities are fully recognized on a current basis.

Marketable securities held as a permanent investment are stated at cost (debentures - including accrued interest), less a provision for impairment in value not of a temporary nature (see also (3) below).

2. Non-marketable securities

Non-marketable securities are stated at cost (debentures - including accrued interest), which in the opinion of management of The Agency is not in excess of their realizable value (see also (3) below).

3. Impairment in value of investments

The Agency examines on an going basis whether there has been an impairment in the value of its permanent investments in other companies which is not of a temporary nature. This examination is performed when there are signs that may indicate that there has been an impairment in value of permanent investments, including a decrease in the prices on the stock exchange, the business of the investee, the industry in which the investee operates and additional parameters. Write-downs in respect of the impairment in value of these investments, which, in accordance with the opinion of management, is based on an examination of the overall relevant aspects and the significance of each investment, and which is not of a temporary nature, are charged to the Statements of Operations. 20 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT’D) h. Granting of loans

As part of its activities in the previous century, The Agency granted loans to agricultural communities. As of December 31, 2017, the outstanding book balance of loans receivable is approximately $26 million. This amount does not include amounts granted as standing loans that will eventually become outright grants. These standing loans will only become payable in the event of default or breach of some or all of the terms of the loan agreements by the borrowers, but will otherwise be waived upon full satisfaction of borrowers’ obligations.

These loans are mainly for periods of up to thirty years, have substantial grace periods and significant portions might be waived pursuant to specific negotiated agreements or due to external factors (e.g. legislation such as the “Gal Law”, etc.). Per Management’s estimates, the balance of these repayable loans which is realistically collectable is approximately $17 million as of December 31, 2017. Due to the uncertainties that affect the amount of collection of these loans, The Agency recorded the granting of those loans in prior years as an expense, not as a receivable asset, and recognizes the actual collections as operating income on a cash basis. i. Fixed assets

1. Fixed assets held by The Agency prior to January 1, 1997 (including properties held by subsidiary holding companies) are reflected in these financial statements at no value. These assets include extensive rights in real estate, located mainly in Israel. Accordingly, upon realization of fixed assets, the full proceeds received from the sale of fixed assets held prior to January 1, 1997 are reflected as income in the Statements of Operations.

Pre-1997 properties held by operating subsidiaries, which record such properties among assets in their financial statements, have been included in the consolidated accounts.

Fixed assets purchased as from January 1, 1997 are reflected at their historic cost, less accumulated depreciation. Per Israeli Accounting Standard 13 (Revised) costs incurred in currencies other than the US dollars, are recorded at the dollar equivalent of the non-dollar cost incurred and are not subsequently revalued.

2. Fixed assets are depreciated by the straight-line method, on the basis of their estimated useful life.

Annual rates of depreciation are as follows:

%

Buildings and improvements Primarily 5 Furniture and equipment 25 Computer equipment and software 15-33 Vehicles 20

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 21 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

j. CPI linkage basis

Balances which stipulate linkage to the last Israeli Consumer Price Index (CPI) published prior to date of payment are stated on the basis of the last CPI published prior to the balance sheet date (the CPI for November).

k. Cash equivalents

The Agency considers highly liquid investments, which include short-term bank deposits (up to 3 months from date of deposit) that are not restricted as to withdrawal or use, to be cash equivalents.

Short-term deposits for periods over 3 months are presented separately.

l. Impairment in value of assets

The Agency applies Accounting Standard 15 - Impairment in Value of Assets (the Standard). The Standard provides procedures which a body must apply in order to ensure that its assets in the consolidated balance sheet (to which the Standard applies), are not presented at an amount which is in excess of their recoverable value, which is the higher of the net selling price and the use value (the present value of the estimated future cash flows expected to be derived from use and disposal of the asset).

The Standard applies to all the assets in the consolidated balance sheet, except inventory of buildings for sale, and monetary assets (excluding monetary assets which are investments in investee companies that are not subsidiaries). In addition, the Standard provides rules for presentation and disclosure with respect to assets whose value has been impaired. When the value of an asset in the consolidated balance sheet is higher than its recoverable value, The Agency recognizes a loss from the impairment in value in the amount of the difference between the book value of the asset and its recoverable value. The loss thus recognized will be cancelled only in the event of changes occurring in the estimates that were used to determine the recoverable value of the asset since the date on which the most recent loss from the decline in value was recognized.

m. Use of estimates in the preparation of financial statements

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

n. New standards

Clarification of Israeli Accounting Standard 69, Accounting Policies and Financial Reporting for Non-profit Organizations

In October 2017, the Israel Accounting Standards Board issued a clarification document to Israeli Accounting Standard 69, Accounting Policies and Financial Reporting for Non-profit Organizations. The main consequence of this clarification is the determination of the required conditions for recognizing donation income received after the year end. The conditions outlined for recognizing such income are:

22 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT’D)

a. the donations were pledged prior to the balance sheet date. b. the donations were received prior to the date of the signing of the financial statements. c. granting of the donation was not contingent on the occurrence of some future event.

The clarification is to be applied immediately.

The Agency applied the clarification in the financial statements. The application of the clarification did not have a material effect on The Agency’s results of operations and financial position. o. Reclassifications

Certain prior year amounts have been reclassified in order to conform to the current year presentation.

NOTE 3 - CASH AND CASH EQUIVALENTS December 31, December 31, 2017 2016 US$ thousands US$ thousands

In or linked to the US dollar 66,567 57,052 In Israeli shekels 84,866 96,516 In or linked to other currencies 2,798 2,854

154,231 156,422

NOTE 4 - SHORT-TERM DEPOSITS IN BANKS

Mainly deposits denominated in US dollars and yielding annual interest rates of approximately 0.01% - 1.4%. The deposit periods are in excess of three months but less than one year.

NOTE 5 - ACCOUNTS RECEIVABLE December 31, December 31, 2017 2016 US$ thousands US$ thousands Income receivable: Government of Israel 29,686 26,908 Other activities 22,524 24,811 US Government grant 467 474 Prepaid expenses 2,635 2,671 Related parties 5,740 1,154 Advances to suppliers 1,774 1,182 Other 5,610 2,812

68,436 60,012

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 23 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 6 - INVESTMENTS AND OTHER ASSETS December 31, December 31, 2017 2016 US$ thousands US$ thousands

Investments in associated companies - at equity (a) 8,922 7,773 Endowment - Board designated (b) 103,103 91,629 Endowment - permanently restricted 1,476 1,345 Deposits with banks 1,474 1,314 Mortgages receivable, net (c) 519 615 Bank deposits for the granting of loans, net (d) 5,399 6,260 Other (e) 3,335 3,166 Loan to related party (f) 18,908 23,908

143,136 136,010

Less: current maturities of loan to related party (f) (5,000) (5,000)

138,136 131,010

(a) Changes in investments in associated companies are composed as follows:

December 31, December 31, 2017 2016 US$ thousands US$ thousands

Balance at beginning of year 7,773 7,430 Share of associated companies’ gains during the year 1,149 343

Balance at end of year 8,922 7,773

24

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 6 - INVESTMENTS AND OTHER ASSETS (CONT’D)

(b) Endowment Fund

During the course of 2009, the Board of Governors designated the proceeds from a specific debt collection transaction as the seed money for the establishment of The Jewish Agency Endowment Fund (the Endowment Fund). Subsequently, the Board of Governors mandated Management to add proceeds from the sale of assets not utilized for the purpose of long-term debt reduction to the Endowment Fund. The Endowment Fund was registered in Israel as a trust with the Registrar of Trusts.

As from March 31, 2014, 2.25% of the closing balance of the Endowment Fund on each of March 31 and September 30, each year, was made available for the use of The Agency.

1. The value of the Endowment Fund changed as follows:

The year ended The year ended December 31, December 31, 2017 2016 US$ thousands US$ thousands

Endowment Fund – balance at beginning of year 91,629 90,105

Yields earned on the Endowment Fund’s investments 8,286 3,407 Exchange rate differences on shekel denominated investments 6,197 810

14,483 4,217

Amounts released from the Endowment Fund to the unrestricted activities of The Agency (4,009) (3,693)

Additional amount added to the Endowment Fund 1,000 1,000

Increase in the Endowment Fund 11,474 1,524

Endowment Fund – balance at end of year 103,103 91,629

26 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 6 - INVESTMENTS AND OTHER ASSETS (CONT’D)

(b) Endowment Fund (cont’d)

2. The Endowment Fund’s general investment strategy is for two thirds of its assets to be managed by Israeli financial institutions and the remainder to invest with four U.S. Jewish endowment funds. During 2016, the Endowment Fund agreed to provide financing for the construction of additional nursing home wards. The amounts provided are linked to the CPI and earn an annual yield of 6.5% for a period of up to twenty years.

At the end of the year, the Endowment Fund’s assets were invested as follows:

December 31, December 31, 2017 2016 US$ thousands US$ thousands

Israeli Government bonds 19,176 20,500 Stocks 35,483 30,659 Commercial bonds 21,160 18,814 Bank deposits – US dollars 3,030 3,263 Bank deposits – NIS 1,600 1,555 Hedge funds 6,367 6,632 US Bonds 4,442 2,657 Real assets 1,949 1,927 Others 2,501 2,371 Nursing home wards 7,395 3,251

Total 103,103 91,629

(c) After deduction of provision for doubtful accounts as of December 31, 2017, approximately $572 thousand, (December 31, 2016, approximately $511 thousand), linked to the Israeli CPI.

(d) The Agency is responsible for the granting of loans to entrepreneurs and others. Recovery of the deposit is contingent upon repayment of the loans. The amount provided for doubtful debts as of December 31, 2017 was approximately $509 thousand (December 31, 2016, approximately $554 thousand).

(e) Mainly linked to NIS.

(f) During the course of 2014, The Jewish Agency lent an amount of $34.3 million to one of its major contributors. The loan is to be repaid over the course of seven years and bears interest at an annual rate of 1.86%.

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 27 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 7 - FIXED ASSETS

Land, Computer Fixed assets buildings and Furniture equipment and held prior to improvements and equipment software Vehicles 1997 Total US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands US$ thousands Cost Balance as of beginning of year 312,983 30,049 23,180 576 1 366,789 Additions 15,777 752 1,064 - - 17,593 Disposals (27) (6) (2,641) (140) - (2,814)

Balance as of end of year 328,733 30,795 21,603 436 1 381,568

Accumulated depreciation Balance as of beginning of year 137,449 27,427 19,293 517 - 184,686 Charge for year 12,865 672 683 15 - 14,235 Disposals (12) (6) (2,654) (109) - (2,781)

Balance as of end of year 150,302 28,093 17,322 423 - 196,140

Net book value as of December 31, 2017 178,431 2,702 4,281 13 1 185,428

Net book value as of December 31, 2016 175,534 2,622 3,887 59 1 182,103

See Notes 2a and 2i

NOTE 8 - ACCOUNTS PAYABLE December 31, 2017 December 31, 2016 US$ thousands US$ thousands Suppliers, contractors and institutions 42,445 42,706 Expenses payable 18,081 14,940 Salaries and related payables 17,556 16,280 Early retirement program (see Note 28) 15,000 - Due to customers 13,539 9,794 Deferred revenue 4,697 4,268 Related parties 1,322 809 Other 6,969 3,864

119,609 92,661 28 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 9 - LONG-TERM BANK LOANS

December 31, December 31, 2017 2016 US$ thousands US$ thousands

Bank loans (1) 3,238 3,243 Less: current maturities (2) (391) (353)

2,847 2,890

(1) Liabilities of subsidiaries and not of The Agency and will be fully repaid by 2024. (2) Current maturities are determined in accordance with the terms of the loans.

NOTE 10 - LIABILITIES FOR EMPLOYEE RIGHTS UPON RETIREMENT, NET a. Pensions and severance pay

Labor laws and agreements require The Agency to pay severance pay and/or pensions to employees dismissed or retiring from its employ. The Agency’s pension and severance pay liability to its employees who joined The Agency before April 1995 is covered mainly by regular deposits with the Provident and Pension Fund of Employees of The Jewish Agency for Israel Ltd. (the Fund). If the assets of the Fund are not adequate to meet its actuarial liability, The Agency is to fund the deficiency. In the event, however, that the assets of the Fund exceed the amount of the liability by 25%, then any amount over 7.5%, has to be remitted by the Fund to The Agency, see also b. below.

Based on the audited financial statements and the actuarial computation furnished to The Agency by the Fund as of December 31, 2017, assets of the Fund amount to approximately $1,037 million (2016: $895 million), the projected benefit obligation amounts to approximately $1,140 million (2016: $1,043 million) and consequently, the estimated unfunded pension liability amounts to approximately $103 million (2016: $148 million).

The significant actuarial assumptions used are in accordance with the mandatory guidelines of the Controller of the Capital Markets, Insurance and Savings at the Ministry of Finance (hereafter Ministry of Finance) as follows: • assumed real increase in pensions: mostly 0 to 1% (2016: 0 to 1%) per annum. • assumed real increase in salaries of current employees : 1.5% (2016: 1.5%) per annum. • dictated discount rate on Fund assets approximately: 0.57% (2016: 0.88%) per annum. • assumed mortality based on Israeli mortality tables as directed by the Ministry of Finance in October 2017.

The abovementioned assets and projected benefit obligation of the Fund are not reflected in the balance sheet since they are not under the control and management of The Agency. Only The Agency’s liability to the Fund is reflected in the balance sheet.

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 29 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 10 - LIABILITIES FOR EMPLOYEE RIGHTS UPON RETIREMENT, NET (CONT’D) a. Pension and severance pay (cont’d) As of 2005, the discount rate of the Fund’s actuarial liabilities and the yields of the Fund’s assets are determined and mandated by the Ministry of Finance. The Agency’s management is of the opinion that certain actuarial assumptions used, regarding the yields, (based on the dictated discount rate) may not accurately reflect prevailing conditions, which if applied, would reduce The Agency’s liability from the figure shown in the financial statements. Management is unable to quantify the extent of the adjustments that would be required if what it considers prevailing conditions were applied, and therefore The Agency has reflected in its financial statements the estimated unfunded pension liability per the Fund’s mandated computations. However, per the Fund’s actuary, the Fund would be balanced and the liability to the Pension Fund would be eliminated, were a real (in real terms) discount rate of 1.28% to be used in The Funds computations. The Fund’s actual real yield in 2017 was 10.84 % (2016: 6.84%) and the average actual real yield over the last 5 years was 6.6%. Following an Israeli government pension fund reform, no new members are added to the Fund. Therefore, The Agency has entered into agreements with external pension funds, whereby employees who joined The Agency after March 1995 can, should they wish, become members of one of those (or any other) funds. The terms of these funds relieve The Agency of all pension and standard severance pay liabilities.

b. On January 24, 2018 an agreement was signed between the Jewish Agency and the Pension Fund to determine a payment schedule and methodology for the settlement of the Jewish Agency’s liability to the Pension Fund. The agreement determines that during the years 2019 through 2021, the Jewish Agency will remit $4 million to the Pension Fund annually. The remainder of the liability (see Note 10c) will be settled over either the subsequent 17 or 27 years depending on the rnagnitude of the liability. The annual payment amount will be determined annually, based on the liability existing at the end of the previous year and will not exceed $4 million unless abiding by this amount will preclude the liability from being fully settled by the end of 2048.

c. Liabilities for employee rights upon retirement are composed as follows: December 31, December 31, 2017 2016 US$ thousands US$ thousands

Liability to the Pension Fund, net* 103,436 148,431 Less: current commitment to the Pension Fund (4,000) (4,000)

99,436 144,431 Compensation for unutilized sick and study leave and additional severance benefits for The Agency employees in Israel 31,341 27,750 Other pension and severance pay liabilities, net 17,841 20,192 Early retirement program (see Note 28) 11,000 - 159,618 192,373

* This liability is denominated in New Israeli Shekels, discounted at 0.57% (2016: 0.88%). The receipt by the Pension Fund of additional payments from The Agency on account of its liability, generates additional future income. Therefore, the effect of additional future payments on the reduction of the Pension Fund liability will be in 30 excess of the actual payment made. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 10 - LIABILITIES FOR EMPLOYEE RIGHTS UPON RETIREMENT, NET (CONT’D)

d. Compensation for unutilized sick and study leave Labor agreements entitle employees with ten years of tenure to partial compensation for unutilized sick leave upon retirement. Furthermore, certain employees are entitled to compensation for unused study leave upon retirement. The Agency has fully provided for these liabilities.

e. Decrease in Pension Fund liability, net The net change is comprised of the following elements: The year ended The year ended December 31, December 31, 2017 2016 US$ thousands US$ thousands

Past experience adjustments to actuarial assumptions (23,654) 9,827 Income received above (below) expected yield: - Due to unfunded deficit (1,166) (271) - Due to market conditions 97,078 56,786 Change in the discount rate used (35,594) (17,741) Change in actuarial assumptions 30,854 - Exchange rate differences (14,079) (3,014) Effect of new mortality tables (5,366) - Others (7,078) 1,757

Decrease in Pension Fund liability, net 40,995 47,344

NOTE 11 - OTHER LIABILITIES December 31, December 31, 2017 2016 US$ thousands US$ thousands

Property related costs - see Note 12 (c) and (d) 19,568 20,000 Former Prisoners of * 8,593 9,362 Deposits payable 9,435 7,965 Others 9,232 7,904

46,828 45,231

• This liability represents the actuarial liability, discounted at 0.57% (2016: 0.88%) relating to The Jewish Agency’s commitment to pay lifelong monthly stipends to former “Prisoners of Zion” who were imprisoned in their former countries as a result of Zionist activities they conducted there, prior to their Aliyah. The level and amounts of the stipends paid are governed by a law passed in 1992, later amended, per the terms of which, the entitlement to these stipends is subject to a means test.

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 31

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES

a. On December 31, 2015, The Jewish Agency signed an agreement with the Government of Israel relating to the construction and subsequent operation of over 2,600 social housing units on numerous sites in Israel owned by The Agency and some of its major supporters. The units constructed will be used to provide housing for elderly members of Israel’s most vulnerable populations entitled to government subsidized housing. The entire initiative (construction and operation) will be undertaken by a special purpose company, the Company for the Financing of the Social Housing Initiative of the Jewish Agency Ltd. (“the SPC”), a wholly-owned subsidiary of The Jewish Agency, fully consolidated within these financial statements. Under the terms of the agreement, the Government of Israel will fund most of the rent for the housing provided.

The SPC has subcontracted to Amigour Management of Assets Ltd, a wholly owned subsidiary of The Jewish Agency, the management of the construction and subsequently the operation of the properties included in the initiative.

The total expected cost of the construction is approximately $350 million of which the Government of Israel will provide funding by means of capital grants of approximately $140 million. The remainder will be funded by debt raised by the SPC and by designated donations – for accounting treatment of the donations and the Government grants see Note 2a2. Under the terms of the agreement with the Government of Israel, The Jewish Agency has provided a guarantee of $1.3 million to the Government for the full performance of the agreement.

On November 1, 2017, the SPC signed an agreement with one of Israel’s largest financial institutions (the “Lender”) for the provision of a credit facility of approximately $175 million (NIS 590 million) to finance a portion of the capital costs of the initiative. The Lender’s recourse to the Agency in respect of the SPC’s debt will be limited to certain guarantees of approximately $16 million and security interests in the units to be constructed.

The amounts drawn down against the credit facility will incur interest as follows: a. The first NIS 400 million shekels drawn down will incur interest at the rate of 2.75% per annum and; b. Any additional amounts drawn down will incur interest at the then prevailing interest rate of a certain Israeli Government bond plus a margin of 1.8% per annum

All amounts will be linked to the Israeli Consumer Price Index. An annual non-utilization fee in respect of the unused amount of the facility will be charged at the rate of 0.4%. The amounts drawn down will be accounted for on a site by site basis, and the repayments to the Lender of principal, interest and linkage will only commence 6 months subsequent to the completion of the construction on that site. The repayments, with respect to each site, will be made over a period of 19 years in equal payments (Spitzer). Management expects that the income generated from the operation of the housing units constructed will be more than sufficient to fund the required debt repayments.

Construction has already commenced on one of the sites. Contracts have been signed as of December 31, 2017, relating to the initiative, for an aggregate amount of approximately $20 million. 34 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT’D) b. Various lawsuits (approximately 10) are pending against The Agency and some of its subsidiaries with a potential total exposure of approximately $7 million as of December 31, 2017. In respect of some of these lawsuits, The Agency has provided an amount that Management, based on the opinions of legal counsel received, considers necessary to cover any liabilities that may arise. c. The Agency and certain subsidiaries have received demands for payment of levies imposed by local authorities relating to physical infrastructure projects which they are vigorously disputing. The Agency has provided an amount that Management, based on the opinion of its legal advisors, considers necessary to cover the liability that might arise in respect of such levies. d. As a consequence of a 2016 decision of the Israeli Supreme Court in the matter of certain property rights owned by The Agency, there might arise, in the opinion of legal counsel, additional liabilities resulting from the said decision. Based on counsel’s opinion, Management has provided an amount that it considers necessary to cover the potential liabilities. e. The Agency entered into a long-term contract on June 23, 2005 with the Government of Israel and Masa: the Project for the Encouragement of Long-term Programs in Israel for Jewish Young Adults Ltd., (“Masa”) an Agency wholly-owned subsidiary, for the purpose of bringing young Jews from all over the world to Israel for periods of a duration of between five and ten months to participate in academic and volunteer programs that meet Masa standards. In accordance with the contract, Masa is responsible for facilitating the project. The major part of the Masa budget is the scholarship program for eligible participants, which subsidizes the cost of the participant’s tuition and stay in Israel. Masa is jointly funded by The Agency and the Government of Israel. The amounts funded are a direct function of the number of participants that are recruited and participate in programs and the length of their program each academic year. See Note 14. f. As presented in Note 6(d), deposits are made with Israeli commercial banks for the purpose of enabling the banks to provide loans to entrepreneurs. These deposits act as security for the loans provided. In the event that a borrower defaults, the amount of the defaulted loan would be forfeited. To date, the default rate has been very low and is expected to continue at this very low rate for the foreseeable future. g. The Agency has provided guarantees of $0.7 million to customers of one of its subsidiaries for the quality of services provided. h. The Agency has provided guarantees of $1.5 million to the Government of Israel for the satisfactory provision of services by one of its subsidiaries. i. One of The Agency’s subsidiaries has commitments to subcontractors for building and renovation projects approximately $8 million.

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 35 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 12 - COMMITMENTS AND CONTINGENT LIABILITIES (CONT’D) j. One of The Agency’s subsidiaries has registered a lien on one of its properties to its bankers who provided a loan for the purchase of the property.

k. One of The Agency’s subsidiaries, in the past, received capital investment grants under the terms of the Law for Encouragement of Capital Investments, 1959. The retention of the grants is dependent upon the compliance with the terms of the grants agreement. The subsidiary registered a floating lien on its assets in favor of the State of Israel as a guarantee for the performance of investment plans included in the grant agreement. Management believes that the terms of the agreement have been complied with.

NOTE 13 - TEMPORARILY RESTRICTED NET ASSETS These assets are linked mainly to the dollar and are composed as follows:

December 31, December 31, 2017 2016 US$ thousands US$ thousands

Designated donations received but not yet utilized in full or in part 64,270 71,790

Other : Deposits (a) 14,210 14,437 Designated donations for sheltered housing for the elderly and other restricted assets - remaining unamortized balance (b) 64,953 64,697

143,433 150,924

(a) Composed of funds which bear interest at around the Libor rate except for deposits totaling $2,910 thousand, which do not bear interest. (b) This balance is amortized in parallel to the amortization of the fixed assets whose purchase these designated donations funded - see Note 2a(2).

36 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 14 - ISRAEL EXPERIENCES The year ended December 31, 2017 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Masa Israel Journey – funded by The Agency 24,925 1,000 25,925 – funded by the Israeli Government* 31,145 - 31,145 Onward Israel (partially through Masa Israel Journey) 167 4,182 4,349 Taglit-Birthright 5,000 - 5,000 Machon Leadership Training 3,108 799 3,907 Israel Tech Challenge 1,471 812 2,283 Program implementation 433 - 433 Jewish people leadership training 163 235 398 Pre & post Israel experience engagement 4 297 301

66,416 7,325 73,741

The year ended December 31, 2016 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Masa Israel Journey – funded by The Agency 27,208 85 27,293 Masa Israel Journey – funded by the Israeli Government* 27,080 - 27,080 Onward Israel (partially through Masa Israel Journey) 1,100 5,195 6,295 Taglit-Birthright 5,000 24 5,024 Machon Leadership Training 3,911 69 3,980 Israel Tech Challenge 807 896 1,703 Program implementation 380 - 380 Pre & post Israel experience engagement 4 243 247

65,490 6,512 72,002

* Includes expenses incurred by a subsidiary company.

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 37 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 15 - ALIYAH, ABSORPTION AND SPECIAL OPERATIONS The year ended December 31, 2017 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands Absorption centers 26,362 2,513 28,875 Olim flights 8,465 253 8,718 Young adults’ programs - Selah, Kibbutz and First Home in the Homeland 7,112 1,354 8,466 Program implementation 2,376 - 2,376 Aliyah services and eligibility 1,733 - 1,733 Initial ulpanim 1,723 - 1,723 Nefesh B’Nefesh 1,111 - 1,111 Lone Immigrant Soldiers - Wings 152 798 950 Initial furnishings for Ethiopian olim 624 - 624 Ethiopia - Gondar complex - 490 490 At Home Together and olim associations 485 - 485 Aliya and Klita - Together 322 - 322 Grants for new olim - 197 197 Employment platform for young olim 81 - 81 Group flights - Aliyah on a red carpet - 34 34

50,546 5,639 56,185

The year ended December 31, 2016 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Absorption centers 27,045 1,411 28,456 Olim flights 8,209 156 8,365 Young adults’ programs - Selah, Kibbutz Ulpan and First Home in the Homeland 7,688 1,696 9,384 Program implementation 1,874 - 1,874 Aliyah services and eligibility 1,656 - 1,656 Initial ulpanim 1,391 - 1,391 Nefesh B’Nefesh 1,251 1,030 2,281 Lone Immigrant Soldiers - Wings - 777 777 Initial furnishings for Ethiopian olim 117 - 117 Ethiopia - Gondar complex - 98 98 At Home Together and olim associations 364 - 364 Aliya and Klita - Together 251 - 251 Grants for new olim - 104 104 Employment platform for young olim 34 - 34 Group flights - Aliyah on a red carpet - 10 10

49,880 5,282 55,162 38 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 16 - SOCIAL ACTIVISM The year ended December 31, 2017 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Youth Villages 15,918 2,156 18,074 Youth Futures 6,333 4,721 11,054 Post high-school service learning (Mechinot) 2,849 983 3,832 Atidim, Net@, scholarships, shinshinim and young communities 816 2,962 3,778 Nitzana educational community 3,644 17 3,661 Project TEN: Global Tikkun Olam 515 247 762 Program implementation 484 - 484 Community Empowerment: Maximizing the power of community Action 418 - 418

30,977 11,086 42,063

The year ended December 31, 2016 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Youth Villages 15,447 2,255 17,702 Youth Futures 4,567 5,244 9,811 Post high-school service learning (Mechinot) 2,049 941 2,990 Atidim, Net@, scholarships, shinshinim and young communities 964 2,815 3,779 Nitzana educational community 2,778 85 2,863 Project TEN: Global Tikkun Olam 496 433 929 Program implementation 432 - 432 Community Empowerment: Maximizing the power of community Action 506 438 944

27,239 12,211 39,450

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 39 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 17 - ACTIVITIES WITH RUSSIAN SPEAKING JEWS

The year ended December 31, 2017 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Preparation for Aliyah 6,305 452 6,757 Heftzibah 4,850 743 5,593 Summer/winter camps (FSU) 959 3,686 4,645 Youth, students and community activities 1,326 971 2,297 Program implementation 1,260 - 1,260 Ulpanim, Sunday schools and Jewish literacy 670 537 1,207 Programs with Former Soviet Union emigres 933 150 1,083 Shlichim in FSU 961 34 995 Pre and post Israel experience programs 259 15 274 Day Camps in the FSU 80 166 246

17,603 6,754 24,357

The year ended December 31, 2016 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Preparation for Aliyah 5,948 640 6,588 Heftzibah 2,815 506 3,321 Summer/winter camps (FSU) 532 3,554 4,086 Youth, students and community activities 1,506 1,451 2,957 Program implementation 1,471 13 1,484 Ulpanim, Sunday schools and Jewish literacy 640 663 1,303 Programs with Former Soviet Union emigres 1,297 282 1,579 Shlichim in FSU 940 55 995 Pre and post Israel experience programs 222 56 278 Day Camps in the FSU 43 136 179 Program for Taglit-Birthright graduates 59 - 59

15,473 7,356 22,829

40 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 18 - PARTNERSHIPS The year ended December 31, 2017 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Partnership2Gether 5,547 10,985 16,532 Program implementation 1,559 - 1,559 Loan funds: developing small-businesses 289 43 332 P2G’s Global Young Professional Platform for Jewish Action 162 - 162 P2G’s Global Pre-Bar/Bat Mitzva Intergenerational Initiative 116 - 116 STEM twinning network 105 - 105 Global school twinning network 97 - 97

7,875 11,028 18,903

The year ended December 31, 2016 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Partnership2Gether 5,660 11,138 16,798 Program implementation 1,385 - 1,385 Loan funds: developing small-businesses 235 264 499 STEM twinning network 55 - 55 Global school twinning network 60 26 86

7,395 11,428 18,823

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 41 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 19 - SHLICHIM AND ISRAEL FELLOWS The year ended December 31, 2017 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Community shlichim 3,984 3,332 7,316 Youth movement shlichim 4,409 63 4,472 North American camp shlichim 3,443 7 3,450 Pre-shlichut costs 2,447 42 2,489 Israel Fellows 730 1,594 2,324 Service year shlichim (shinshinim) 891 405 1,296 Shlichim worldwide 806 - 806 Ongoing shlichut costs 675 - 675 Program implementation 641 - 641 Activities for returned shlichim 149 60 209 Zionist seminars shlichim (short-term) 33 - 33

18,208 5,503 23,711

The year ended December 31, 2016 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Community shlichim 3,083 308 3,391 Youth movement shlichim 4,541 88 4,629 North American camp shlichim 3,292 9 3,301 Pre-shlichut costs 2,132 309 2,441 Service year shlichim (shinshinim) 1,119 974 2,093 Israel Fellows 47 3,939 3,986 Shlichim worldwide 1,072 - 1,072 Ongoing shlichut costs 593 - 593 Program implementation 539 - 539 Activities for returned shlichim 228 95 323 Zionist seminars shlichim (short-term) 40 - 40

16,686 5,722 22,408

42

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 20 - COMMUNITY SERVICES (NOT INCLUDING FSU)

The year ended December 31, 2017 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Preparation for Aliyah 5,384 20 5,404 Overseas education activities 4,436 344 4,780 Morasha 4,426 - 4,426 Cha’il: Israel education abroad 3,811 183 3,994 Worldwide community representatives 3,440 - 3,440 Global Service Center 1,540 - 1,540 England youth movement activities 600 - 600 Program growth incentive 196 - 196

23,833 547 24,380

The year ended December 31, 2016 Unrestricted Designated Total US$ thousands US$ thousands US$ thousands

Preparation for Aliyah 5,932 48 5,980 Overseas education activities 4,256 356 4,612 Morasha 395 - 395 Cha’il: Israel education abroad 3,224 222 3,446 Worldwide community representatives 2,870 - 2,870 Global Service Center 1,456 - 1,456 England youth movement activities 600 - 600 Program growth incentive 164 - 164

18,897 626 19,523

NOTE 21 - ALLOCATIONS AND SOCIAL PROGRAMS Support provided to enable the implementation by some 540 other charitable institutions of programs whose aims and objectives are compatible with those of The Agency.

44 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 22 - AGENCY-WIDE PROJECTS AND ORGANIZATIONAL ACTIVITIES

The year ended The year ended December 31, December 31, 2017 2016 US$ thousands US$ thousands

Israeli subsidiary companies expenses* 48,368 44,526 Amigour social housing 35,271 32,451 Nativ 8,703 8,754 Other (134) 8,249 Support for the religious streams in Israel 2,753 2,713 Kiryat Moriah Campus 3,146 2,469 Security projects 2,181 2,249 Jewish People Policy Planning Institute 536 567 Change in equity of associated companies (1,124) (330)

99,700 101,648 * Not including Masa Israel Journey expenses - see Note 14.

NOTE 23 - SUPPORT UNITS AND EXECUTIVE OFFICES The year ended The year ended December 31, December 31, 2017 2016 US$ thousands US$ thousands

Finance and logistics 5,785 5,726 Executive offices 3,675 3,477 Human resources and administration 3,257 3,164 ERP, CIO and other organizational IT 3,074 2,706 Worldwide regional management 2,567 2,678 Planning, information and other support functions 1,481 1,324 Security division 1,459 1,664 Legal advisor 923 953 Chief operations officer 646 783 Spokesman 631 615 Comptroller 610 621

24,108 23,711

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 45 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 24 - FRD, MARKETING AND COMMUNICATIONS

The year ended The year ended December 31, December 31, 2017 2016 US$ thousands US$ thousands

FRD 6,466 5,899 Marketing and communications 4,098 3,235

10,564 9,134

NOTE 25 - FINANCIAL INCOME, NET

The year ended The year ended December 31, December 31, 2017 2016 US$ thousands US$ thousands

Exchange rate income and other, net 755 512 Interest income (expenses), net (356) (309)

399 203

NOTE 26 - PROPERTY RELATED COSTS, NET OF INCOME FROM ASSET REALIZATION

The year ended The year ended December 31, December 31, 2017 2016 US$ thousands US$ thousands

Property related costs - see Note 12 (c) and (d) - (20,000) Depreciation of restricted fixed assets funded by Israeli Government grants * (1,449) (1,444) Sale of assets, net - mainly real estate 1,510 5,501 Other (5,094) (1,938)

(5,033) (17,881)

* Written back to unrestricted net assets on Statements of Changes in Net Assets.

46 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2017

NOTE 27 - TRANSACTIONS WITH RELATED PARTIES a. Transactions during the ordinary course of business: The year ended The year ended December 31, December 31, 2017 2016 US$ thousands US$ thousands

Transactions with World Zionist Organization (WZO) 16,611 16,011 Transactions (net) - expenses / (income) with other related parties (45) 242 b. Balances, donations and other transactions with related parties are disclosed separately in these financial statements. c. Short-term deposits of $6,322 bearing interest, were received from a related party.

NOTE 28 – EARLY RETIREMENT PROGRAM The year ended The year ended December 31, December 31, 2017 2016 US$ thousands US$ thousands

Existing early retirement program 3,726 1,268 New early retirement program* 26,000 -

29,726 1,268

* The Agency has developed a program to facilitate the early retirement of a specific group of tenured employees. The program includes a combination of additional pension entitlements and cash incentives and is expected to be executed towards the end of 2018. The pension payments deriving from this program will be incurred over a number of years. The discounted cost of the program is estimated to be approximately $26 million (90 million shekels). The Agency has therefore made a provision for this amount in these financial statements.

THE JEWISH AGENCY FOR ISRAEL 2017 FINANCIAL REPORT 47 48 King George Street, 9100002 Tel: 02-620-2268 633 Third Avenue, New York, NY 10017 Tel: 212-339-6000

The Jewish Agency is funded by the Jewish of North America/UIA, Keren Hayesod as well as foundations and individual donors from Israel and around the world.