EFTA00729830.pdf

SPHERA FUND ,..rm.....,... , SPHERA This presentation is provided to the recipient for information purposes only and no representation or warranty, express or implied, is made as to the completeness or accuracy of the information contained herein. This presentation does not constitute an offer to sell, or a solicitation of an offer to buy, any interests in Sphera Fund. August 2010 EFTA00729830 Table of Content I. Introduction II. Team III. Investment Strategy IV. Performance Metrics V. Operation & Risk Management VI. Case Studies VII. Terms & Structure VIII. Appendix a. Israeli Economy b. Performance & Stats 3 6 8 14 22 24 30 34 35 45 EFTA00729831 Premier hedge fund manager based in Israel (over $370M of locally and internationally sourced assets under management) Proven track record (17.9% net annual return since 2001) Strong management team that has been with the fund for the past 9 years 18 staff with 10 investment professionals r aisted HEM WEEK "Lone/Short equity under S500m ard" EFTA00729832 Cumulative Net Performance Sphera Fund vs. Equity Indices 2001 — August 2010 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% -50% -100% 389.7% 113.9% -14.4% -20.5% dec.00 jul.01 feb.02 sep.02 apr.03 nov.03 jun.04 jan.05 aug.05 mar.06 oct.06 may.07 dec.07 jul.08 feb.09 sep.09 apr.10 SPHERA TA 100 NASDAQ SP500 •Sphera returns are net of all fees; 2004 present returns are all in U.S. Dollars (portfolio fuly hedged); Historical returns for 2001-2003 are presented in Shekels and were audited b). KPMG. 4 EFTA00729833 Cumulative Net Performance Sphera Fund vs. Hedge Fund Indices 2001 — July2010** 450% 400% 350% 300% 250% 200% 150% 100% 50% 0% -50% 389.7 84.2% 81.0% 55.3% jan.01 jan.02 jan.03 jan.04 jan.05 jan.05 jan.06 jan.07 jan.08 jan.09 jan.10 SPHERA HFRI index CSFB Tremont — Ba clay global hedge index •Sphera returns are net of all fees; 2004-present returns are all in U.S. Dollars (portfolio fully hedged); Historical returns for 20O1.2003 are presented in Shekels and were audited by KPMG. • • Hedge fund indices are on a monthly basis. Updates are published on the 2Ct" of the following month, therefore, the above returns are updated for the previous month. 5 EFTA00729834 Sphera Management Ron Senator, Managing Partner • Head of JPMorgan Chase in Israel; responsible for investment banking and asset management business in the Israeli market • Vice President, investment banking, JPMorgan New York; SG Cowen Securities • Business development manager, Gilat Satellite Networks • Yale University, MBA Israel Mor, Managing Partner • Managed SF Group's proprietary capital, 1996-2003; returns outperformed all major equity indices each year since 1996 • Senior Investment Manager, Dikla Funds, First International Bank's mutual funds arm • Investment Advisor, Bank Leumi 6 EFTA00729835 Sphera Management Doron Breen, Managing Partner • Managing Partner of the Sphera Global Healthcare Fund • Managed Sphera Fund 2004-2006; returns outperformed all major equity indices • Managed SF Group's proprietary capital since 2001; returns outperformed all major equity indices • Managing Director, Investment Banking, SF Group; spearheaded SF's international investment banking practice Ronen Elgali, Head of Research • Head of Investment Research Department, Migdal Insurance (Israel's largest insurance company) • Head of Research Advisory Practice, United Mizrahi Bank • Senior Research Analyst, Ofek Securities EFTA00729836 The Strategy • Primary focus on Israeli-related equities listed in Israel, US and Europe • Fundamentally driven, "bottom-up" approach to stock picking with emphasis on in-depth company research • Exceptional access and understanding of company managements I 8 EFTA00729837 The Opportunity: "All Weather Approach" • Capture emerging market-style returns with developed market-style volatility • Consistent capture of market gains (strong stock picking) and capital preservation in periods of turbulence (careful risk management, shorts and index options) I 9 EFTA00729838 Value Based Investment Style "Bottom-up", fundamental research coupled with close, ongoing dialogue with management • Highly experienced, multi-sector research capabilities • Regular direct contacts with company management (c.250 companies) • Invest only with quality managements with proven track records, transparency and integrity • Emphasis on companies with established growth and strong earnings prospects (reverse for shorts) • Opportunistic short positions to profit from overvalued sectors or companies (c.1/2 of shorts) • Defensive shorting to neutralize adverse market moves (c.1/2 of shorts) I 10 EFTA00729839 • Value Scenarios and Catalysts Strong management teams operating quality companies with proven competitive edge and attractive valuations (reverse, plus catalysts for shorts) • Companies trading below intrinsic value, highly liquid balance sheets with established valuation floors (reverse, plus catalysts for shorts) • Dislocated trading multiples due to temporary macro concerns (reverse, plus catalysts for shorts) • Shifts in product cycles and market sentiment • Restructuring stories, e.g. M&A activity • VC and Private Equity transitions to market EFTA00729840 Investment Process A Sector and company screening In-depth due diligence New investments/ updating positions Exit investments • Review and assess macro • Strength & depth of • Ongoing dialogue with • Disciplined profit / loss trends and market dynamics management management strategy • Identify attractive sectors for long/short positions • "Bottom-up" business and financial analysis • Quarterly one-to-one meetings • Hedge sectors / companies to limit risk • Undervalued / overvalued • Competitive positioning companies (P/E, revenue & profitability, cash flow, balance sheet analysis) • Value proposition • Define objectives, triggers (technology, barriers, customers) • Buy/Sell strength, momentum, sensitivity analysis • Expert consultants • Update investment thesis and relative value proposition • Assess risk/reward of position • Opportunistically increase/ decrease positions based on market movements (1p4 Intimate access to management teams, robust analytic platform, proven success 12 EFTA00729841 Portfolio Construction ■ No of positions 40 - 50 ■ Position sizes 1% - 3% on entry ■ Max position size 15% (typically 10-12%) ■ Average market cap. >$1 billion • Typical concentration "Core" top 10 holdings = 35% - 45% Exposure • Gross — typical range (min/max) • Net — typical range • Net historical range • Turnover • Liquidity • Short & Hedging Positions 70% - 110% 40% - 60% long neutral - 80% long c.70%-100% per annum The entire portfolio can theoretically be liquidated in less than 15 days at a third of daily volume, >50% within 1 day Individual shorts, ETFs, stock and index options. Options for currency hedging EFTA00729842 Average Net Annual Returns Average Net Annual Returns* 2001 — Aug 2010 2,1 19- 4% -6% 17.9% SPHERA TA100 1.6% NASDAQ 8.4% SEtP500 TA25 4Sphera returns are net of all fees; 2004-Present returns are all in U.S. Dollar terms; Historical returns for 2001-2003 are presented in Shekels and were reviewed and audited by KPMG. M W 14 EFTA00729843 Accumulated Performance Comparison Sphera* vs. Equity Indices 2004 — 2010 195% 145% 95% 45% -5% -55% 154% 96% I 6% -6% Since 1.1.2004 99% 1 *Sphera returns are net of all fees; 71% 1 27% Since 1.1.2005 Since 1.1.2006 29% -9% 1 II -20% -29% Since 1.1.2007 Since 1.1.2008 27% S -8% IIMP -24% 2% I• 11 _796 mop -6% 1.1. 2008-31.12.2009 Since 1.1.2010 Crisis & Recovery SPHERA TA 100 NASDAQ SP500 15 EFTA00729844 Monthly Net Returns Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Sphera S8. 5010) TA 100 2010 1.2% 1.9% 4.4% -2.0% -5.3% -1.0% 2.5% 0.4% 1.9% -5.9% -1.7% 2009 3.0% 0.5% 2.5 % 6.0% 4.0% 0.7% 5.3% 1.2% 2.9% 2.4% 2.2% 4.3% 40.7% 23.4% 88.8% 2008 -3.1% -0.8% -3.7% 1.3% 2.1% -2.1% -1.2% -0.1% -4.0% 0.3% 0.3% 1.1% -9.98% -38.5% -51.1% 2007 2.3% 2.1% 2.0% 3.3% 4.0% 1.7% 1.4% -3.2% 3.2% 5.5% -2.9% 1.1% 22.1% 3.5% 25.3% 2006 2.7% -0.3% -0.3% 3.4% -0.3% -3.0% 0.3% 2.0% -1.0% 2.0% 1.5% 1.5% 8.6% 13.6% 12.0% 2005 3.8% 4.5% 0.7% -1.2% 0.6% -3.1% 2.1% 1.5% 3.0% -0.1% 2.5% 0.7% 16.0% 3.0% 29.4% 2004 7.1% -0.4% -0.1% 1.3% -1.7% 2.6% -2.7% 0.9% 2.4% 1.1% 8.8% 6.35 28.0% 9.0% 19.0% 2003 4.6% 1.1% 4.5% 6.3% 8.2% 4.9% 2.1% -0.1% 4.7% 6.2% 3.6% 1.0% 58.3% 26.4% 60.7% 2002 -1.4% -0.4% 0.9% -2.5% 0.4% -2.9% -1.0% 1.1% -0.5% 0.8% 5.8% -0.3% -0.2% -23.4% -25.6% 2001 5.2% -3.9% -4.7% 9.6% 5.8% 2.6% -1.1% 3.9% -8.0% -0.8% 5.1% 8.0% 22.0% -13.0% -8.7% *Sphera returns are net of all fees; 2004-present returns are all in U.S. Dollar terms. All investments are $ hedged; Historical returns for 2001-2003 are presented in Shekels and were reviewed and approved by KPMG. 16 EFTA00729845 Net Exposure & Short Contribu ion Period Net Exposure (%) Long Contribution (% of profit) Short Contribution (% of profit) 2001 32% 74% 26% 2002 47% -164% 264% 2003 53% 108% -8% 2004 65% 101% -1% 2005 58% 123% -23% 2006 67% 116% -16% 2007 76% 106% -6% 2008 33% -243% 143% 2009 54% 122% -22% Q12010 76% 114% -14% Q2 2010 71% -132% 32% Q3 2010 40% 68% 32% Comments Approximately 0% net exposure during and after the Lebanon war Net exposure of approximately 60% in Q1,2 and 13% in Q3,4 For the months of July & August 17 EFTA00729846 Historical Net Exposure 120% 100% 80% 60% 40% 20% 0% Quarterly Monthly Basis Basis III coe Z`11 se$) . • • S 4 155) la ▪ c O- O \ • 0 0 ASP 01) ▪ • 0 O-- s) 0E- tv- 18 EFTA00729847 Sharpe Ratio: Jan 2001 — Aug 2010 Annualized Std. Deviation: Jan 2001 — Aug 2010 2.0 1.6 1.2 0.8 0.4 0 -0.4 1.5 SPHERA 0.3 -0.2 TA100 NASDAQ -0.3 SEtP500 30% 25% 20% 15% 10% 5% 0 10.7% SPHERA 21.3% TA100 4Sphera returns are net of all fees; 2004-present returns are all in U.S. Dollar terms; Historical returns for 2001-2003 are presented in Shekels and were reviewed and approved by KPMG. 23.9% NASDAQ 16.1% SEtP500 19 EFTA00729848 Rolling 12-months performance 5.00% .5.00% 15.00% 5.00% 55.00% 15.00% 55.00% -12.80'4 SPHERA Sphera vs. Equity indices: Worst 12 months since 2001 -51.14% TA100 -42. 29% NASDAQ -44.76% •Sphera returns are net of all fees; 2004-present returns are all in U.S. Dollar terms; Historical returns for 2001-2003 are presented in Shekels and were reviewed and approved by KPMG. SEtP500 20 EFTA00729849 Sphera Fund - Assets under Management 200.000 150.000 100.000 50.000 250.000 Quarterly Monthly Basis Basis n1 0 0b es og IP .0.1/4 O.). 3 WV' se99% tek). jot 05 (\cc-O /0 0 oct• mat 01 vs . 3 vic" es po• not BPc ' seP jan 10 ‘‘.0"" ‘0 21 EFTA00729850 Disciplined Risk Management Strict emphasis on risk reduction and diversification tools • Broad sector diversification and ample liquidity • Maximum 15% concentration in a single investment • No foreign currency exposure — portfolio is dollar-hedged (An Israeli Shekel Feeder Fund was launched in July 2008) • Strict liquidity policy (internal liquidity benchmark) • No use of leverage • Manage volatility and exposure through derivatives and options Disciplined trading strategies • Frequent use of stop-loss and position hedging • Using multiple international and local brokers for optimizing order execution and efficiency El I EFTA00729851 Risk Analysis January 2001 to August 2010 Sphera TA100 Nasdaq S&P500 Compounded ROR 17.9% 8.2% -1.6% -2.3% Mean Return (Monthly) 1.4% 0.7% -0.1% -0.2% 0/0 of Positive Months 68.4% 60.7% 52.1% 58.1% Months Sphera outperformed index when index declined 97.8% 94.5% 91.7% Months Sphera outperformed index when index gained 18.1% 19.4% 59.4% Annualized Standard Deviation since inception 10.7% 21.3% 23.9% 16.1% Per Correlation 70.7% 61.6% 57.6% Beta 35.4% 27.5% 35.4% *Sphera returns are net of all fees; 2004-present returns are all in U.S. Dollar terms; Historical returns for 2001-2003 are presented in Shekels and wee reviewed and approved by KPMG. 23 EFTA00729852 Case Study: Elbit Systems Ltd. • Elbit Systems Ltd. is an international defense electronics company engaged in a wide range of defense- related programs throughout the world • The company develops, manufactures and integrates advanced high-performance defense electronic and electro-optic systems for its customers • Elbit systems also focuses on the upgrading of existing military platforms and developing new technologies for defense and homeland security applications • Among Elbit System's larger clients are the Israeli Defense Force, U.S. military and DoD, and may other security agencies • The company has been an active consolidator in the Israeli defense industry, investing over $1 billion in the last few years to scale up and build a truly global defense vendor • Sphera established an initial position in Elbit Systems towards the end of 2006, following a broad review and analysis of the company's markets, positioning and potential future earning power. Further, we have developed an ongoing close dialogue with Elbit's senior management which provides us with better insight into the business, challenges and opportunities I • Elbit System's market cap is approximately $3.0B El EFTA00729853 Case Study: Elbit Systems Ltd. 30000.0 Q4. 2009: 25000.0 Exit Position Q2. 2008: 20000.0 dec. 2006: Increase Position Establish Positron mar. 2009: 15000.0 may. 2007: Realize some profits 10000.0 ir.creme. Ho;d:r:;s 5000.0 ( 0.0 a-‹ Jan. 07 mar. 07 may. 07 Jul. 07 sep. 07 nov. 07 Jan. 08 mar. 08 may. 08 Jul. 08 sep. 08 nov. 08 jan. 09 mar. 09 may. 09 jut. 09 sep. 09 nov. 09 jan. 10 T.4100 ELBIT Systems 25 EFTA00729854 Case Study: Bezeq Ltd. • Bezeq is Israel's largest telecommunications service provider. Bezeq and its subsidiaries offer the full range of telecommunication services including domestic, international and cellular phone services; broadband Internet and other data communications services; multi-channel television; leased lines, and corporate networks • Bezeq has a highly defensive business model with low debt/capital, FCF yield of over 12% and >10% dividend yield • Following an extensive analysis and research that covered Bezeq's strategic initiatives, cost reduction efforts and expected imminent regulatory relief, we established a meaningful position in 1Q:2008 in the stock with the intention of benefiting from strong dividend yield as well as capital appreciation from expanding multiples. We believe Bezeq is among the best positioned companies to weather the downturn and strengthen its competitive positioning over the next 12-24 months • Bezeq is traded at $6.5b market cap I 26 EFTA00729855 Case Study: Bezeq Ltd. 1200.0 1000.0 800.0 600.0 400.0 200.0 0.0 jan. 07 mar. 07 may. 07 jul. 07 sep. 07 nov. 07 jan. 08 mar. 08 may. 08 jut. 08 sep. 08 nov. 08 jan. 09 mar. 09 may. 09 jul. 09 sep. 09 nov. 09 jan. 10 mar. 10 may. 10 TA100 Bezeq Ql. 2008: Establish Position Q2. 2008: Increase Position feb. 09: Increase position Q2. 2010: Further increasing position dec. 08: Reduce Weight 27 EFTA00729856 Case Study: Delek Real Estate • Delek Real Estate is an international real estate firm engaged in investments in commercial income- yielding properties in Western Europe, Israel and Canada • The company's portfolio is primarily focused on commercial and office properties in the U.K, Germany, Israel, Switzerland and Canada • Following a massive assets acquisition strategy during 2055-2007, the company faced an overly leveraged balance sheet with debt comprising more than 90% of the capital structure. The company recently embarked in an aggressive de-leveraging process and assets dispositions • Having anticipated an industry-wide increase in cap rates as well as intensifying difficulties in refinancing debt, we established a short position in mid-2008 and increased it as we realized the magnitude of the issues in the marketplace • Subsequent to a steep drop in the stock price during the remainder of 2008, we covered the position in January 2009 as we assessed the stock had hit bottom EFTA00729857 Case Study: Delek Real Estate 4000.0 3500.0 3000.0 2500.0 2000.0 1500.0 1000.0 500.0 0.0 Sep. /Oct. 08: Increase short position Jul. OS St d Du sii '()1 t POSIt 10'1 Jan. 09: Cover position/close position Jan. 07 mar. 07 may. 07 jul. 07 sep. 07 nov. 07 jan. 08 mar. 08 may. 08 jut. 08 sep. OS nov. 08 Jan. 09 mar. 09 may. 09 jut. 09 sep. 09 nay. 09 jan. 10 jan. 10 TA100 Detek RE 29 EFTA00729858 Terms and Structure • Annual management fees 1.5% (for US$ feeder) or 1.75% (for NIS feeder), collected monthly • 20% performance fees, subject to high water mark • Minimum investment $500,000 • Monthly subscriptions and valuations • Quarterly liquidity with 30 days' notice • Domicile: British Virgin Island • Master-feeder structure (can admit US taxable investors) 30 EFTA00729859 Who invested in Sphera? The largest insurance companies in Israel Provident funds and pension funds The biggest banks in Israel (Prop Accounts) Private wealth management customers of different Banks The largest family offices in Israel Several tens of investors and wealthy families from Israel, Europe and the US Leading fund of funds abroad Foundations & Endowments EFTA00729860 Service Providers Administrator: Citi Hedge Fund Services (Ireland) Limited Custodian & Prime Broker: Bank Hapoalim B.M. Auditor: KPMG Legal counsel: Herzog, Fox & Neeman, Maples and Calder Ropes & Gray (USA) Tax Trustee: Rave Ravid, CPA EFTA00729861 Transparency — Accounting, Trustees & Auditors • All of our funds maintain accounts exclusively with regulated banks: Bank Hapoalim and United Mizrahi Bank • Fund administrator & independent trustee supervise all money transferred in and out of the Funds' accounts to third parties • CITI Hedge Fund Services (Ireland) Limited • Poalim Trust Services Limited • The valuation of the Funds assets are supervised monthly by an objective party. Capital accounts are reviewed on a monthly basis by Rave Ravid CPA which is retained by the fund as tax trustee for the Israeli Tax Authorities • The Funds' auditors are KPMG • The Fund produces financial reports quarterly and audited reports annually EFTA00729862 Appendix 34 EFTA00729863 The Israeli Economy The Israeli economy has resumed its fast GDP growth rates • Mild and brief recession ended in Q2:09 • 2Q:2010 GDP growth of 4.7% • Robust domestic consumption; growing real-estate sector • Unleveraged consumer, healthy B/S • Export markets bottomed in 2009, shifting weight to EM • Well-positioned to benefit from global recovery amid lower downside risk (large FX reserves, current account surplus) • Stable and balanced economy with defensive structure • Highly attractive valuation multiples vs. developed and developing markets (11xP/E 2010) Historically low interest rates (1.75%), contained inflation (2-3%) support improving fundamentals and fixed investments I EFTA00729864 Israel Recent Economic Highlights 2008 2009 1Q2010 2Q2010 Real GDP Growth Rate (0/0) 4.2% 0.8% 3.6% 4.7% Unemployment Rate (%) 6.1% 7.6% 7.0% 6.2% Current Account Surplus ( 0/0 of GDP) 0.7% 3.8% Inflation Rate (%) 4.5% 3.3% -0.9% 1.5% Business GDP (0/0) 4.5% -0.2% 4.6% 6.0% W ct) Source: Israel's Central Bureau of Statistics 36 EFTA00729865 Israel Recent Economic Highlights Rating Finn Term Domestic Bonds Forecast Overseas Bonds Rating Rating Long Al she e Al Moody's Short Pt Long AA- Sho e A Standard & Poor's Short A 1 - A-1 Long Ai Sho e A Fitch Short Ft Source: Israel's Ministry of Finance 37 EFTA00729866 Israel Recent Economic Highlights Moodys & Fitch AaTAA- _ Al/A+ A2/A ANA- Baal /BBB+ Baa2/EIBB BaalBBB- Moody's S&P Fitch 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: Israel's Ministry of Finance 38 EFTA00729867 1 - 41-71CI H a cc' I 11 5.6% 4.6% 3.6% 3.2% 5.0% 5.10% 3.1% 5.7% 5.4% 4.2% 2.8% 2.50% 2.6% 2.0% 1.5% 1.6% 0.5% 0.5% -0.5% 2003 2004 2005 2006 2007 2008 Since 2004, Israel's growth rate has exceeded the average growth rate of advanced economies. -1.5% In 2009, as most of the world experienced a decline in GDP, Israel experienced a 0.7% growth in it's GDP -2.5% I -3.5% Advanced Economies * Israel Growth 0.8% -3.20°4 39 Source: Israel's Ministry of Finance EFTA00729868 IMD World Competitiveness Yearbook 2010 Israel is at:  Resilience of the economy to economic cycles  Central Bank policy  Skilled labor  Public and private sector ventures  Innovative capacity  Total expenditure on R&D  Business expenditure on R&D Israel is  Youth unemployment  Finance skills  Entrepreneurship of managers  Flexibility and adaptability of people  Scientific research (public and private) Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 2010 EFTA00729869 Central Bank Interest Rates: Israel and U.S.A 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% Bank of Israel Rate (BOI) 0.5% U.S. Federal Funds Rate 0.0% % 1 % 9 N9 <L. \ 2 9 bi 9 Co % 9 -0.5% (19 The Bank of Israel was the first in the western world to raise interest since the outburst of the economic crisis. The rate was raised gradually from 0.5% to 1.75% 1.25% 1.75% 1.50% 1.50% NO \N. \q, q, tx <0 Co A cb (19 ( 41 Source: Bank of Israel (8O1), Federal Reserve EFTA00729870 5.00 4.50 4.00 3.50 3.00 2.50 2.00 1.50 1.00 0.50 0.00 Israel - Expenditure on R&D Israel is ranked ist of all OECD countries by expenditure on R&D (research & development) as percentage of GDP (4.864 %), demonstrating innovation, development and creativity. (selected countries, as percentage of GDP, 2008) ....m iimmilmillii ill II II 4.86 a , .1, ,, e 4* 4P I q si 43 . z:, , z,-- 4, 1) 4, e e 4? 4 p o e p # es & .4P 4 e 4P / co e 4) 1 45 i & .4,, & ? -41 gt‘ a 4\ 5 * 4 € e 4 13 $ 't al) kt 6 41 d 'co e -0 ) kor c., & & 6 `I) 41 42, e t ,' ; tb N- 0, ?t, 4) --f' 0 tir so e. 4 4, Ci .` 48) # 1.O & -% Q -tu b 4% • se cl3 A- s 0 1 0 .t ct -z-. .7.)? & ,s- # 4, .0 05' k # * ... c." S et' S 42- Source: OECD 42 EFTA00729871 Israel — Real GDP Growth (selected countries, annual percentage of change, 2009) 4 2 0 -2 -4 -6 -8 -10 J ct* St OO its* cl dat ke° ep \ e 60 e \ c5* # Jo Source: OECD ( .03\ tk• ez1 4, ,1 <e- ere 40 ,f) O ts‘ q 09 c)i> (e) e e Pe e <I> it\ cog Es° a (,) # .;) se 4C"' esb bet. eep (S, 4 s\ er 45\ 1 . # er O 4. i d, 4 \12P ° to • + • # qt. It• c31% +es Go 04, O S 43 EFTA00729872 Sphera in light of Political, Financial and Security Events 400.00% 350.00% 300.00% 250.00% Jul 06: 2nd Lebanon War Sep 08: Lehman Brother file C. 11 340, it. Mar 03: Dec 08: Operation 200.00% Iraq war Cast Lead Mar 02: Operation 150.00% 89.6% Defensive Shield 100.00% 2000: 3rd Intifada 20022004: 50.00% Israel at Recession -14.1% 0.00% ( -50.00% -19.9% •100.00% dec.00 jun.01 dec.01 jun.02 dec.02 jun.03 dec.03 jun.04 dec.04 jun.05 dec.05 jun.06 dec.06 jun.07 dec.07 jun.08 dec.08 jun.09 SPHERA TA-100 NASDAQ SP500 44 EFTA00729873 Sphera's Performance Vs. Hedge Fund Indices January 2001 to July 2010 2010 YTD 2009 2008 2007 2006 2005 2004 2003 2002 2001 Sphera 1.9% 40.7% -10.0% 22.10/0 8.6% 16.0% 28.0% 58.3% -0.2% 22.0% CS/T HF Index CS Long/ Short HF 2.5% -1.9% 18.6% 19.5% -19.8% 13.7% 14.4% 7.6% 9.6% 15.4% 9.7% 11.6% 17.3% 3.0% -0.02% 4.4% -3.7% *Sphera returns are net of all fees; 2004-present returns are all in U.S. Dollar terms; Historical returns for 2001-2003 are presented in Shekels and were reviewed and approved by KPMG. 45 EFTA00729874 Performance in Turbulent Conditions Sphera vs. TA100 Falls > 3% 10.00% 5.00% 0 -5.00% -10.00 -15.00% I I II • II pl l HI p p 1 riv I' ON 0 0 1' a a a ot a \a “fr c9 e,e e e e e ~ ay NO \e' eSIP' seC'ke0' (O' e' se' ern' Sec' LstP"t1 • ty 20%. v.t• .t1- 2O 0 1' ..st• 02-(- \‘31‘. Q. 0O-* JOB • oec' zEP • SPHERA • TA-100 46 EFTA00729875 Performance in Turbulent Conditions Sphera vs. Nasdaq Falls > 3% 10.00% 5.00% 0 -5.00% -10.00 -15.00% -20.00% -25.00% I 111 Pr 11 I I' P r 0 0 0 0 0 61. <SI. 0' '0' 61. 61. Ot* 0‘ # \ 0 3 0 0% 0% # Q") 'Zoe/ cf/ 1° 1 1° kelp (k-* tPCIi sekv• t seC. efr. '\*P. SC. e t P • CO. P C‘. kit). OCC. ke•Sr 06C. SP - e t • SPHERA • Nasdaq 47 EFTA00729876 Sphera Contact Persons Dana Zwillinger Director of Global Marketing & Investors Relations Tel: + Mob: E-mail: Miki Zaharia Director of Marketing & Investors Relation E-mail: EFTA00729877 CERTAIN RISKS OF HEDGE FUND INVESTING Due to the risks of investing in a hedge fund, it is important to perform proper due diligence in evaluating and choosing fund managers to place your money with. Additional information on hedge funds is available from several soirees including (in the United States) the SEC •- Hedging Your Bests: A Heads Up on Hedge Funds and Funds of Hedge Funds (httplAvww.sec.goWansivers/hedoe.htm) and the Financial Industry Regulatory Authority FINRA Investor Alert - Funds of Hedge Funds - Higher Costs and Risks for Higher Potential Returns (http:fiwynv.finre.oraiInvestors/ProtectYourseffilrwestorAlerts/MutualFunds/P006015). This summary of certain risks is not a complete list of the risks and other important disclosures involved in investing in a hedge fund, and is subject to the more complete disclosures contained in a specific hedge fund's respective offering documents. You should read those documents carefully before you invest to determine whether an investment is suitable for you in light of, among other things, your financial situation, need for liquidity, tax situation, and other investments. Privately offered investment vehicles commonly called hedge funds ("Hedge Funds," which include fund of funds) are unregistered private collective investment funds that invest and trade n many different markets, strategies, and instruments (includig securities, nonsectrities, and derivatives). There are substantial risks of investing in Hedge Funds. You could lose all or a substantial portion of your investment in a Hedge Fund. You must have the financial ability, sophistication, experience, and willingnms to bear the risks of an investment in a Hedge Fund. An I-tvestment in a Hedge Fund entails risks that are different from more traditional investments and is not suitable or desirable for all investors. Only qualified eligible investors should invest in Hedge Funds. You should obtain investment and tax advice from you advisers before deciding to invest. Index rettrns are shown for illustrative purposes only and are not representative of any particular product. The S&P 500 Index is an unmanaged index used as a general measure of market performance. Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in Steely. The risks associated with investing in a Hedge Fund generally include: * Absence of Regulatory Oversight - Since Hedge Funds are typically prwate investments, they are not subject to the oversight and scattily from financial regulatory entities such as the Securities and Exchange Commission ("SEC") or the UK's Financial Services Authority ("FSA") and are not subject to the same regulatory requirements as regulated open-end investment companies, mutual funds or Undertakings for CoIective Investment in Transferable Securities ("UCITS"), including requirements for such entities to provide certain periodic pricing and valuation information to investors, or certain dosed•end investment companies. Hedge fund offering documents are not reviewed or approved by the SEC or any US state securities administrator or by the FSA or any other national, supranational or local regulatory body. Also, managers may not be required by law or regulation to supply investors with their portfolio holdings, pricing, or valuation information. * Portfolio Concentration; Volatility - Many Hedge Funds may have a more concentrated or less diversified portfolio than an average mutual fund, UCITS, or other authorized collective investment scheme. Fa example, a mutual fund or other authorized collective 1-westment scheme may have 100 to 200 positions while a Hedge Fund can average between 25 and 45 positions. While a more concentrated portfolio can have good results when a manager is correct, it can also cause a portfolio to have higher volatility. • Strategy Risk - Many Hedge Funds employ a single investment strategy. Thus, a Hedge Fund may be subject to strategy risk, associated with the failure or deterioration of an entire strategy. Strategy spedk losses can result from excessive concentration by multiple Hedge Fund managers in the same investment or broad events that adversely affect particular strategies. • Use of Leverage and Other Speculative Investment Practices - Since many Hedge Fund managers use leverage and speculative investment strategies such as options and short sales, investors should be aware of the potential risks. When used prudently and for the purpose of risk reduction, thrse instruments can add value ['Deport-folio. However, when leverage is used excessively and the market goes down, a portfolio can suffer tremendously. Also, managers can face additional risk when selling short. In theory, the loss associated with shorted stocks is infinite, because stacks can go up indefinitely. So, while selling short can add return and risk reduction to a portfolio, managers need to pay special attention to their short positions. In the same way, when options are used to hedge a portfolio (i.e., short calls and buy puts), the pordofio's volatility can be reduced. However, when options are used to speculate (i.e., buy calls, short puts), a portfolio's returns can suffer and the risk of the portfolio can increase. * Valuations - Further there have been a number of high profile instances where Hedge Fund managers have mispriced portfolios, either as an act of fraud or negligence. * Past Performance - Past performance is not necessariy indicative and is not a guarantee of a Hedge Fund's future results or performance. Some Hedge Funds may have Me or no operating history or performance and may use hypothetical or pro forma performance that may not reflect actual trading done by the manager or advisor and should be reviewed carefully. Investors should not place undue reliance on hypothetical or pro forma performance. * Limited Liquidity - Investors in Hedge Funds often have limited rights to redeem or transfer their investments. In addition, site Hedge Funds are not fisted on any exchange, it is not expected that there will be a secondary market for them. Repurchases may be available, but only on a limited basis. A Hedge Fund's manager may deny a request to transfer if it determines that the transfer may result n adverse legal or tax consequences for the Hedge Fund. • Tax Risks - Investors in certain jurisdictions and in Hedge Funds may be subject to pass-through tax treatment on their investment. This may result in an investor inning tax liabilities during a year in which the investor does not receive a distribution of any cash from the Fund. In addition, an investor may not receive any or only limited tax information Iran Hedge Fund and funds of Hedge Funds may not receive tax information from underlying managers in a sufficiently timely manner to enable an investor to file its retum without requesting an extension of time to file. In certain jurisoctiors a lack of tax information may result in an Investor being taxed on a deemed basis at an adverse rate of tax. •Reliance on Fund Manager; Lack of Transparency - A Hedge Funds manager or adviser has total trading authority over the Hedge Fund. There is often a lack of transparency as to a Hedge Fund's uncle-rig investments Because of this lack of transparency, an investor may be unable to monitor the specific investments made by the Hedge Fund or to know whether the underlying fund's investments are consistent with the Hedge Fund's historic investment philosophy or risk levels. Due to the risks mentioned above, it is important to perform proper due diligence in evaluating and choosing Hedge Fuld managers to place your money with. There have been occasions when Hedge Fund managers took on too much risk n their portfolio and lost a substantial amount of thS investors' money. 49 EFTA00729878 This presentation is issued by Sphere Funds Management ("Sphere). 21 Hearbeah Street. Tel Aviv which is not an authorized or regulated advisor. In the UK this presentation is exempt from the general restriction on the communication of invitations or inducements to engage in ',vestment activity contakied in Section 21 of the Financial Services and Markets Act 2000 on the grounds that it is deeded only at persons who are of a kind to whom the Fund may lawfully be promoted under the Financial Services and Markets Act 2000 (Financial Promotion) Order 2035 (the 'Order). being: Investment professionals within the mewing of Article 19 of the Order. being persons having professional experience', matters relating to investments high nel worth corporations and partnerships and the trustees of high value trusts within the meaning of Article 49 of the Order Sophisticated investors with', the meaning of Article 50 of the Order. being persons who have a current certificate signed by an authorized person to the effect that they are sufficiently knowledgeable to understand the risks associated with the investments described in this presentation and have signed in the 12 months prior to this presentation a statement in the form sel out in Article 50 of the Order Associations of high net worth corporations or scphisticated investors within the meaning of Article 51 of the Order The shares in the Fund (the 'Shares") will not be registered under the US Securities Act of 1933. as amended (the '1933 Act') or under the securities legislation of any state of the United States or approved by the US Securities and Exchange Commission or any other federal or state government or self-regulatory agency. No governmental or other agency has passed or nil pass cpinion on the accuracy or adequacy of this presentation. Any representation to the contrary is a criminal offence. The Shares will be offered for investment only to 'accredited investors' within the meaning of Regulation D under the 1933 Act pursuant to the exemption from registration provided by section 4(2) of the 1933 Act and certain relevant state securities laws. Since the Shares have not been registered under the 1933 Ad or any other relevant US state securities laws, purchasers of the Shares will be required to bear the economic risk of their investment for an indefinite period unless such interests are subsequently registered under the 1933 Act or such state laws or an exemption therefrom is available. and purchasers will be required to agree that the Shares wi not be transferred without such registration or an exemption therefrom. An investment in the Fund will be available only to the types of person listed above. Please identify yourself immediately if you are not such a person. No other person should ad or rely on the contents of this presentation. By accepting this presentation. by your edict, you warrant. represent. acknowledge and agree that you are one or more of the types of person listed above. The content of this presentation has not been approved by an authorized person within the mearkig of the Financial Services and Markets Act 2000. Reliance on this presentation for the purpose of engaging in any investment activity may expose an individual to a significant risk of losing all of the properly or other assets invested or of ilcurring further fiabilly. The presentation refers to certain events as having occurred which have not occurred on the date of this document, but which are expected to occur prior to the publication of the Listing Particulars relation to the Fund. Any person in doubt about the investment to which this presentation relates should consult an authorized person specializing in advising on investments of this nature. These materials are strictly confidential and may not be reproduced or redistributed in whole or in part nor may their contents be disclosed to any other person without the prior written consent of Sphere Funds Management Limited. The proposals outlined in this presentation are preliminary. This presentation neither constitutes a prospectus nor an offer nor an invitation to apply for interests in the Fund. The information provided in this presentation is for background purposes only and may be materially updated, ewer:feted. revised or amended. It is subject to verification. No reliance should be placed on the information provided in this presentation and no representation or warranty, express or implied is made by the Fund.. Sphere Funds Management and its affiliates or any of their respective directors. officers or employees or any other person. and no liability whatsoever is accepted by any such person, in relation thereto. Applications for the Shares in the Fund may be made only on the basis of the Private Offering Memorandum relating to the Fund . 50 EFTA00729879