Upside Breakout Confirmed October 1, 2013

BlueStar Israel Equity Update October 2013

September was another break out month for Israeli Global Equities as the BlueStar Israel Global Index surged to levels not seen since mid-2011. Especially impressive is that Israeli Global Equities continued to rise sharply through the final week of September, even as major global equity markets pulled back. The strong macro-economic fundamentals of the local economy and the continued economic recovery in many of Israel’s key export markets served as the backdrop for September’s rally. Improved fundamentals include: Israel’s public debt-to-GDP ratio reported below expectations, allowing for the prospect of tax cuts and increased government spending; unemployment rate at the lowest level in 20 years even as the labor market participation rate rose (in contrast to the US) ; and the strength of the shekel, which allows the government and businesses to borrow money at low rates while supporting shekel-denominated asset prices. The local currency strength also boosts household wealth and allows for stronger consumer discretionary spending. Finally, as export estimates have been reduced drastically in recent months, we believe the risk of net export figures (upon which many Israeli Global Equities are dependent for growth) is now greater on the upside than downside and could serve as a positive surprise for Israeli Global Equities in the coming quarters. Global systemic risks are still heightened, however, as the recovery in Europe is mild at best and the US government has shut down with a debt-default still on the table. On the other hand, imminent geopolitical risks to global equity markets have been pushed forward: shrewd investors used last month’s market pull-back caused by geopolitical concerns as an opportunity to add to their Israeli Global Equity exposure. We find no reason to attenuate our strongly bullish outlook for Israeli Global Equities based both on fundamental factors and technical analysis. Israel remains one of the most stable and fastest-growing developed market economies and equity markets in the world.

BlueStar Israel Global Index Relative Performance Since 2010

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These are not recommendations to buy or sell any security © 2013 BlueStar Global Investors, LLC

This monthly column produced by BlueStar Global Investors discusses Israeli equities traded worldwide. The relevant benchmark for our review is the BlueStar Israel Global Index (“BIGI” or BLS:IND on Bloomberg), which we believe represents the complete opportunity set of Israeli equity investments. Israel has one of the most resilient economies in the world and its technology sector plays an integral part in the global technological revolution. Yet few are aware of the global footprint of Israel’s companies in other sectors, and fewer still know how to make their knowledge of the Israeli economy actionable. This column helps investors gain insight into the macro forces (including the geopolitical environment under which Israel’s economy operates) and the individual company investment opportunities that have contributed to global Israeli equities’ outperformance of U.S. equities by more than five-fold over the past two decades. The opinions expressed in this column are those of BlueStar Global Investors, LLC and should not be interpreted as a recommendation to buy or sell any security. Readers should consult with a financial professional before investing.

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S&P 500

BIGI

Benchmark September2013

Performance

BIGI 5.18%

S&P 500 2.97%

MSCI EAFE 7.82%

MSCI EM 7.21%

Source: BlueStar Global Investors LLC

Global Equity Benchmark Comparison: September 2013

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BIGI September 2013 Gainers and Losers

Source: BlueStar Global Investors LLC; Currency-Adjusted returns in dollar terms

Top Global Israeli Equity Gainers and Losers

Top-Performing Israeli Stocks September 2013

Worst-Performing Israeli Stocks September 2013

Discount Investment Corp 25.53% Alon USA Energy -17.79%

Israel Corp 24.05% Ezchip Semiconduct -16.25%

Jerusalem Economic Corp 22.32% Delek US Holdings -15.16%

888 Holdings Plc 21.30% Protalix -12.88%

Israel Chemical Corp 21.07% Clicksoftware -11.48%

Delek Energy Systems 20.88% Imperva Inc -10.97%

Elbit Systems Ltd 19.58% Stratasys Ltd -5.60%

Evogene Ltd. 17.42% Ceva Inc -4.85%

Silicom Limited 17.24% Opko Health -4.65%

Delek Group Ltd 16.81% MELLANOX -3.70%

Sector (As Defined by GICS)

September 2013

Financials 2.16%

Materials 1.10%

Energy 0.53%

Industrials 0.40%

Health Care 0.32%

Consumer Staples 0.24%

Consumer Discretionary 0.23%

Information Technology 0.08%

Utilities 0.08%

Telecom Services 0.04%

Israeli Global Equity Sector Performance

The greatest beneficiaries of a broad based economic recovery and a strong currency have been, and will continue to be, financials stocks. The financial sector includes banking stocks and holding companies (many of which have operating subsidiaries that participate in the bio-tech, energy, industrial, and consumer staples/consumer discretionary sectors). The emerging natural gas industry in Israel is the main source of Shekel strength and, we believe, is also driving the strong growth in the private consumption component of GDP. This, along with a strong housing market, is helping both the banking and holding company stocks within the financials sector to lead Israeli Global Equities higher. We encourage an overweight in the locally-listed Financials, Consumer Staples, and Consumer Discretionary stocks in the near term as the Israeli Global Equity market continues to rise and catch up to other global equities markets. We would also want to be holders of shekel-denominated assets in general. That said, we suspect that Health Care and Information Technology stocks will emerge as the leaders of Israeli Global Equities in the medium term as the global economy recovers more strongly in 2014 and Israeli policy makers have a chance to implement pro-export currency and monetary policies. The greatest gaining stocks in September were in fact holding companies: Discount Investment Corp (DISI:TASE) rose by over 25% in dollar terms in September. Discount Investment Corp has holdings in many sectors including biotechnology (Given Imaging), real estate (Property and Building Corp), and telecommunications (Cellcom), amongst others. Israel Corp (ILCO:TASE) rebounded in September after being one of the top losers in August. Israel Corp is another large holding company, though identified by GICS as a Materials company, with operating assets in the energy sector (Oil Refineries and IC power), transportation (Qoros, which is a joint venture with a Chinese firm), and shipping. Its largest holding is in Israel Chemicals, which also rebounded strongly after losing a large chuck of its market cap in August. US Oil refiners including Delek US Holdings (DK:NYSE) and Alon Energy USA (ALJ:NYSE) were hit hard again in September as the price of WTI Crude rose earlier in the month and US equities dropped sharply in the final week of the month. We see encouraging developments for some of the larger global information technology and consumer discretionary stocks within the BlueStar Israel Global Index. Stratasys (SSYS:NASAQ), for example, held a secondary stock offering, diluting shares by more than 10% in September. But the offering was oversubscribed and the shares have rebounded since then. The company also seems to have stronger fundamentals and a more organic growth strategy than competitors and we believe it will become the de-facto 3D printing market leader. Similarly, the market absorbed negative news on SodaStream (SODA:NASDAQ) as shares rallied upon news of new entrants to the company’s market. It also appears that Mellanox (MLNX:NASDAQ) shares have much of its negative news baked into the stock and its early October rebound may continue into earnings. VeriFone (PAY:NYSE) may also be on the verge of a rebound as the competitive landscape is becoming clearer and the company is exploring a new direction: it intends to enter the payments processing market in Israel (competing with the major credit card companies there), and its board has appointed the former CEO of Citigroup’s enterprise-payments business as its new CEO. Finally, we continue to be bullish on Given Imaging (GIVN:NASDAQ, TASE), among other health care and bio-technology components of the BlueStar Israel Global Index, as we have been for the past two months since the company announced major approvals by US and Japanese regulators. Should its Pillcam colon product be approved by the FDA in the US, we could see shares rise even more sharply than they have over the past two months.

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Market Trends- Technical Analysis

Israeli Global Equities (BIGI) Three-Year Performance Chart

Source: BlueStar Global Investors LLC (January 1 2010- Sept 30 2013)

Israeli Global Equities (BIGI) Six-Year Performance Chart

Source: BlueStar Global Investors LLC (January 1 2007- Sept 30 2013)

The BlueStar Israel Global Index (BIGI) has been trending well from a technical point of view and is supportive of our fundamentally bullish view on Israeli Global Equities.

Resistance was broken in June/July 2013, but the index subsequently dipped below this line upon the rumor that the US would conduct military strikes in Syria. As with most geopolitical-driven pull backs, BIGI recovered from this pull back quickly and made new two-year highs in September.

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

Long Term Support: 195

Mid- Term Support: 225

Mid- Term Target: 270

Long Term Target: 310

Short Term Support: 235

Short- Term Target: 255-260

Israeli Economy and Geopolitics

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These are not recommendations to buy or sell any security © 2013 BlueStar Global Investors, LLC

Overall, we maintain our medium- and long-term bullish outlook for Israeli Global Equities, especially after the recent technical breakout. Positive sector-driven, geopolitical, and macroeconomic developments, along with our technical analysis view of the global Israeli equity market, lead us to remain bullish on global Israeli equities in the medium-long term. We see a positive risk-reward relationship despite the ever-present geopolitical currents in the Middle East. We assign a high probability of Israeli Global Equities continuing to rise in both the short and medium terms, though volatility will continue to be present until the timing and pace of the tapering of global monetary expansion is clear.

• The government budget deficit fell to NIS 12.9 billion in January-August 2013 from NIS 17.6 billion in the same period last year. • The budget deficit for the twelve months ending August 2013 was 3.3% of GDP, well below the 4% target set out at the beginning of

the year: this has led to rhetoric about a reduction in planned government expenditure cut backs and potential tax breaks in 2014. • The Bank of Israel lowered its policy benchmark rate for October to 1.00%, the lowest rate on record. Reasons for the decision

include: • Israeli CPI in August rose just 0.2% and by 1.3% in the twelve month period ending August 2013, below the mid point of the

target range of 1-3%. • A decline in exports warrants a weaker currency to boost competitiveness and economic growth. • A possible slowdown in global economic growth. • Though housing prices continue to rise, the Bank of Israel believes it and other government agencies have other tools to

prevent a housing price bubble. • The Treasury’s Accountant General hedged another $75 million of the government’s external debt, bringing the total

amount hedged in the past two months to $600 million. 10% of all government external debt is hedged, a move which seeks to exploit the appreciation of the shekel and we believe signals an upcoming move to curb the appreciation of the shekel.

• The unemployment rate fell to 6.1% in August, the lowest level in nearly 20 years: the labor market participation rate rose, confirming the the unemployment rate decline is due to real job creation rather than Israelis dropping out of the labor force.

• The Israel Export and International Cooperation Institute cut its export growth expectations for 2013 to 0% from 3% citing lower global economic growth rates and shekel appreciation: exports to Africa, however, rose by 250% over the past year.

• Home sales reached a 10 year high as the Ministry of Housing and Construction released plans to expedite regulatory requirements for housing construction: it is widely believed that Israel’s hot housing market is as much, if not more, a supply-side issue than it is a demand issue.

• Foreign investors bought a net $320 million of TASE-listed shares in July after buying a net $970 million throughout the first half of the year (an average of $161 million/month so far in 2013).

• Standard and Poor’s reaffirmed Israel’s A+ foreign currency credit rating with a stable outlook.

September Economic Highlights

Israeli Equities Since 1997