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 3 II. Team 6 III. Investment Strategy 8 IV. Performance Metrics 14 V. Operation & Risk Management 22 VI. Case Studies 24 VII. Terms & Structure 30 VIII. Appendix 34 a. Israeli Economy 35 b. Performance & Stats 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 raisted HEMWEEK "Lone/Short equity under S500m ard" EFTA00729832  Cumulative Net Performance Sphera Fund vs. Equity Indices 2001 — August 2010 450% 400% 350% 389.7% 300% 250% 200% 150% 100% 113.9% 50% -14.4% 0% -50% -20.5% -100% 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% 389.7 400% 350% 300% 250% 200% 150% 100% 84.2% 81.0% 50% 55.3% 0% -50% 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 I • Exceptional access and understanding of company managements 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 I • 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) 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 In-depth due New investments/ Exit company screening diligence updating positions investments • Review and assess macro • Strength & depth of • Ongoing dialogue with • Disciplined profit / loss trends and market dynamics management management strategy • Identify attractive sectors • "Bottom-up" business and • Quarterly one-to-one • Hedge sectors / companies for long/short positions financial analysis meetings to limit risk • Undervalued / overvalued • Competitive positioning companies (P/E, revenue & (technology, barriers, • Update investment thesis • Opportunistically increase/ profitability, cash flow, customers) and relative value decrease positions based balance sheet analysis) • Buy/Sell strength, proposition on market movements • Value proposition momentum, sensitivity • Assess risk/reward of analysis • Define objectives, triggers • Expert consultants position (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) 70% - 110% • Net — typical range 40% - 60% long • Net historical range neutral - 80% long • Turnover c.70%-100% per annum • Liquidity The entire portfolio can theoretically be liquidated in less than 15 days at a third of daily volume, >50% within 1 day • Short & Hedging Positions 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- 17.9% 8.4% 4% 1.6% W M -6% SPHERA TA100 NASDAQ 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. 14 EFTA00729843  Accumulated Performance Comparison Sphera* vs. Equity Indices 2004 — 2010 195% 154% 145% 1 96% 99% 95% 71% 45% 29% 27% 1 27% I 6% 2% I• 11 mop _796 -5% S -6% -6% -8% IIMP -9% 1 II -20% -24% -29% -55% Since 1.1.2004 Since 1.1.2005 Since 1.1.2006 Since 1.1.2007 Since 1.1.2008 1.1. 2008-31.12.2009 Since 1.1.2010 Crisis & Recovery SPHERA TA 100 NASDAQ SP500 *Sphera returns are net of all fees; 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 Long Short Period Net Exposure (%) Contribution Contribution Comments (% of profit) (% of profit) 2001 32% 74% 26% 2002 47% -164% 264% 2003 53% 108% -8% 2004 65% 101% -1% 2005 58% 123% -23% Approximately 0% net exposure during and 2006 67% 116% -16% after the Lebanon war 2007 76% 106% -6% Net exposure of approximately 60% in Q1,2 2008 33% -243% 143% and 13% in Q3,4 2009 54% 122% -22% Q12010 76% 114% -14% Q2 2010 71% -132% 32% Q3 2010 40% 68% 32% For the months of July & August 17 EFTA00729846 Historical Net Exposure 120% Quarterly Monthly Basis Basis 100% 80% 60% III 40% 20% 0% coe Z`11 • 00 ASP 01) ▪ •0 O-- s) 4 155) O- O ▪ .lac • •\S se$) 0E- tv- 18 EFTA00729847  Sharpe Ratio: Jan 2001 — Aug 2010 Annualized Std. Deviation: Jan 2001 — Aug 2010 2.0 30% 1.6 25% 1.5 23.9% 1.2 20% 21.3% 0.8 15% 16.1% 0.4 10% 10.7% 0.3 0 5% -0.2 -0.3 -0.4 0 SPHERA TA100 NASDAQ SEtP500 SPHERA TA100 NASDAQ SEtP500 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. 19 EFTA00729848  Rolling 12-months performance Sphera vs. Equity indices: Worst 12 months since 2001 5.00% .5.00% -12.80'4 15.00% 5.00% 55.00% -42. 29% -44.76% 15.00% -51.14% 55.00% SPHERA TA100 NASDAQ SEtP500 •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. 20 EFTA00729849  Sphera Fund - Assets under Management 250.000 Quarterly Monthly Basis Basis 200.000 150.000 100.000 50.000 n1 0 es ‘0 .0.1/4 O.). 3 WV' se99% tek). jot 05 (\cc- O /0 0 oct•0b mat 01 vs . 3 vic" es po• not og BPc ' seP IP jan10 ‘‘.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) I • 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 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% Correlation 70.7% 61.6% 57.6% Beta 35.4% 27.5% 35.4% Per *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 I 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 • Elbit System's market cap is approximately $3.0B El EFTA00729853  Case Study: Elbit Systems Ltd. 30000.0 Q4. 2009: Exit Position 25000.0 Q2. 2008: Increase Position 20000.0 dec. 2006: Establish Positron mar. 2009: 15000.0 Realize some profits may. 2007: 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 I • 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 $6.5b market cap 26 EFTA00729855  Case Study: Bezeq Ltd. 1200.0 Q2. 2010: Further increasing position 1000.0 feb. 09: 800.0 Ql. 2008: Increase position Establish Position Q2. 2008: Increase Position 600.0 400.0 200.0 dec. 08: Reduce Weight 0.0 jan. 07 mar. 07 may. 07 jul. 07 sep. 07 nov. 07 jan. 08 mar. 08 may. 08 jut. 08 sep. 08 nov. 08 jan. 09 mar. 09 may. 09 jul. 09 sep. 09 nov. 09 jan. 10 mar. 10 may. 10 TA100 Bezeq 27 EFTA00729856  Case Study: Delek Real Estate • Delek Real Estate is an international real estate firm engaged in investments in commercial income- yielding properties in Western Europe, Israel and Canada • The company's portfolio is primarily focused on commercial and office properties in the U.K, Germany, Israel, Switzerland and Canada • Following a massive assets acquisition strategy during 2055-2007, the company faced an overly leveraged balance sheet with debt comprising more than 90% of the capital structure. The company recently embarked in an aggressive de-leveraging process and assets dispositions • Having anticipated an industry-wide increase in cap rates as well as intensifying difficulties in refinancing debt, we established a short position in mid-2008 and increased it as we realized the magnitude of the issues in the marketplace • Subsequent to a steep drop in the stock price during the remainder of 2008, we covered the position in January 2009 as we assessed the stock had hit bottom EFTA00729857  Case Study: Delek Real Estate 4000.0 3500.0 3000.0 2500.0 2000.0 Sep. /Oct. 08: 1500.0 Increase short position Jan. 09: 1000.0 Cover position/close position 500.0 Jul. OS St d Du sii '()1 t POSIt 10'1 0.0 Jan. 07 mar. 07 may. 07 jul. 07 sep. 07 nov. 07 jan. 08 mar. 08 may. 08 jut. 08 sep. OS nov. 08 Jan. 09 mar. 09 may. 09 jut. 09 sep. 09 nay. 09 jan. 10 jan. 10 TA100 Detek RE 29 EFTA00729858 Terms and Structure • Annual management fees 1.5% (for US$ 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 I • 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 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% W Business GDP (0/0) 4.5% -0.2% 4.6% 6.0% ct) Source: Israel's Central Bureau of Statistics 36 EFTA00729865 Israel Recent Economic Highlights Domestic Bonds Overseas Bonds Rating Finn Term Forecast Rating Rating Long Al Al Moody's she e Short Pt Long AA- A Standard & Poor's Sho e Short A 1- A-1 Long Ai A Fitch Sho e 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 - 4 1-71CI I 11 H a cc' 5.7% 5.6% 5.4% 5.0% 5.10% 4.6% 4.2% 3.6% 3.2% 3.1% 2.8% 2.50% 2.6% 2.0% 1.5% 1.6% 0.8% 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 I in it's GDP -2.5% -3.5% Advanced Economies * Israel Growth -3.20°4 39 Source: Israel's Ministry of Finance EFTA00729868 IMD World Competitiveness Yearbook 2010 Israel is at: Israel is ✓ Resilience of the economy to economic cycles ✓ Youth unemployment ✓ Central Bank policy ✓ Finance skills ✓ Skilled labor ✓ Entrepreneurship of managers ✓ Public and private sector ventures ✓ Flexibility and adaptability of people ✓ Innovative capacity ✓ Scientific research (public and private) ✓ Total expenditure on R&D ✓ Business expenditure on R&D Source: International Institute for Management and Development (IMD), World Competitiveness Yearbook 2010