Subject: Investment Activities in Israel -
                 Overview of Relevant Legislation
Author: George Rosenberg and Hilla Shie
Date: January, 2005

This Memorandum presents a general survey of the relevant legislation which governs the
regulatory and the general civil law aspects relating to the marketing of investment services
and of securities (shares, debentures, fund units, etc.) in Israel.
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TABLE OF CONTENTS

A. Regulatory Legislation

It is important to point out at the outset that - as you will note from the specific
legislation covered below - there is no all-encompassing general statute in Israel
dealing with the regulation of “investment business” as such. Rather, we have
specific Laws regulating investment counseling and portfolio management, and
the issue and trade of securities.

Any other matter which might be related to “investment business”, but which
does not fall within the definitions of the specific laws, is not specifically
regulated, although it may be subject to other statutes in our general civil law.
A good example of such “non-regulated” activity is that of the “broker”, i.e. the
“pure” broker in the narrow technical sense of that word.

Thus, a person who trades securities strictly upon the initiative, and in
accordance with instructions, of a customer, without giving any advice and
without exercising any discretion, is not regulated under Israeli law since he
is not covered by either of the “investment” laws, even though he is certainly
conducting an “investment business” of some kind.

1. Regulation of Investment Counseling and Portfolio
Management Law, 5755-1995 ("RIL")

1.1. The RIL

The RIL, enacted in 1995, deals with the regulation of
investment counseling and discretionary portfolio management. Before 1995,
there was no specific law regulating these activities.

1.2. Subordinate Legislation

The following subordinate legislation in the form of regulations ("the Regulations")
was enacted by the Minister of Finance during 1997:

· Regulation of Investment Counseling and Portfolio Management Regulations
(Application for License, Examinations, Internship and Fees) 5757-1997 ("the
License Regulations"); and

· Regulation of Investment Counseling and Portfolio Management Regulations
(Equity and Insurance) 5757-1997 ("the Equity Regulations").

1.3. Investment Activities Defined

Investment counseling - "giving advice to others on the profitability of an
investment, on the possession, acquisition or sale of securities and of financial
assets; for this purpose, "advice" - whether direct or indirect, including by
means of advertising, in circulars, in professional opinions, by use of the mails,
of facsimile or of any other medium, exclusive of advertising by the State or by a
body corporate that performs a lawful function within the limits of its objective;"

Investment portfolio management - "the performance of transactions, at the
performer's discretion, on another person's account;"

(Section 1)

The Securities Authority ("the Authority") has issued a directive to the banking
corporations and investment companies, stating that the provision of information
regarding a security or any other financial vehicle is considered investment
counseling, even of no explicit recommendation to invest is given, under the
following cumulative circumstances:

· when the information is chosen according to the discretion of the provider
of the information, or his employer; and

· when the information may lead the recipient to a conclusion in respect of
the profitability of the investment in the security/vehicle.

In April 2000 the Securities Authority (“the Authority”) issued a directive to the
banking corporations and investment companies, stating that the provision of
information regarding a security or any other financial vehicle is considered
investment counseling, even if no explicit recommendation to invest is given,
under the following cumulative circumstances: when the information is chosen
according to the discretion of the provider of the information, or his employer;
and when the information may lead the recipient to a conclusion in respect of
the profitability of the investment in the security/vehicle.

The bank’s subsequent appeals to the Authority to revoke or alternatively to mitigate
the Directive did not succeed. In March 2001 the banks challenged the Directive
before the District Court in Tel-Aviv, on the grounds that it was issued ultra vires,
and that it is unreasonable. In June 2001 the Court issued an interim injunction
according to which the Directive was suspended until the final Judgment. In
October 2002 a final Judgment was rendered, which provides guidelines for the
work of investment personnel, who are not licensed under the RIL to act as investment
counselors.

The Judgment states that counseling cannot always be equivalent to the provision
of information, and vice versa. The criterion, which characterizes counseling and
which separates it from “innocent” provision of information, is the effect that the
information provided may have on the decision regarding the profitability of an
investment. This criterion is changeable according to the circumstances, and may
be affected by the information itself, by the nature of the specific client and by the
information the client already possesses.

1.4. License Requirement

No person shall engage either in investment portfolio management or in
investment counseling, unless he holds a license issued by the Authority
(Section 2).

According to the Authority's directive, a counselor license is required even if
counseling is not the exclusive occupation of the counselor, and even when
counseling is not a necessary part of the principal occupation and is rendered
only occasionally.

The RIL sets out: the requirements for obtaining a manager's or counselor's
license by an individual, a partnership or a company; a list of activities not
requiring a license; the obligations and conduct rules applying to a license
holder; and related matters.

1.5. Conditions for Granting Investment Counselor's / Portfolio Manager's
License to a Company -

· Company employees who provide investment counseling / portfolio
management must hold licenses personally.

· Person known to have been convicted of an offense may not serve as an
officer.

· Company must have a minimum equity capital of NIS 300,000 (indexed
annually in accordance with the Cost of Living Index).

· For investment counseling the company must carry insurance
(to cover both negligence and breach of trust), for an amount of
NIS 1,200,000 (indexed periodically); for portfolio management,
insurance for a certain percentage (between 3% and 9%) of the
assets’ value, depending on their value, or a certain amount, whichever
the higher; up to two-thirds of the insurance may be replaced by a
bank guarantee, (cash) deposits, or securities, according to the
conditions specified in regulations.

· Company must not engage in underwriting. In respect of portfolio managers,
there is also the condition that the company engage only in the management
of investment portfolios, in investment counseling, in the performance of stock
exchange operations, and in the performance of required attendant operations.

(Sections 7(c), 8(b))

Since the RIL requires that all employees employed by a company, and engaged
in investment counseling / portfolio management, individually hold a license,
following are the Conditions for Granting Investment Counselor's / Portfolio
Manager's License to an Individual:

· He must be 21 years of age.

· He must be a citizen or resident of Israel.

· He must /not have been convicted of an offense.

· He has passed professional examinations as prescribed by the License
Regulations.

· He has completed internship as prescribed by the License regulations;
in case of portfolio managers, the internship may be substituted by 3 years
experience as a licensed investment counselor.

· He is covered by insurance for a minimum amount of NIS 600,000 in case
of investment counseling, and for a certain percentage (between 3% and 9%)
of the assets’ value, depending on their value, or a certain amount,
whichever the higher, in case of portfolio management. This does not
apply to individual license holders who are employees of an insured
company.

(Sections 7(a), 8(a))

Note: An individual, licensed as a portfolio manager, may not carry on business
as an individual but only as an employee of a company, which holds a
Portfolio Management license .

1.6. Activities not Requiring a License

Investment counseling or portfolio management -

· performed, without discretion, according to customer's instructions;

· for five persons or less;

· in communication media;

· (Portfolio Management) for a company by its employee, in the course of his work

· by an auditor, lawyer, or tax consultant in conjunction with professional
services rendered by him;

does not require a license (Section 3 - partial list).

1.7. Licensing Procedure

The RIL and especially the License Regulations describe the licensing
procedures in great detail. Following is a brief resume:

Individuals must pass examinations on various topics dealing with securities law
and professional ethics, accounting, statistics and finance, economics, analysis of
securities and financial instruments. Auditors, lawyers and other professionals
and academics may be exempt from part of the examinations.

Individual applicants must submit an affidavit attesting to the fulfillment of the
required conditions for obtaining a license, as well as a certificate by their trainer
and a certificate by an auditor regarding the required insurance. The internship
period for counselors is six months, and for portfolio managers - nine months.
Companies need to submit an auditor's certificate for the same purposes and an
undertaking regarding future fulfillment of the conditions.

License holders must pay an annual fee (642 NIS by individuals and 3,857 NIS
by companies - indexed regularly), in addition to fees for license applications,
examinations and internship registration.

1.8. Activities Prohibited for License Holder

An individual license holder shall not hold securities and shall not acquire
securities for himself, except where securities are issued by the State of Israel or
by a company in which the license holder is employed or serves as an officer; or
where the securities are units of an open fund. "Prohibited" securities may be
held for the license holder by a trustee in a blind trust . An individual portfolio
manager shall not manage investment portfolios for a relative or for a company
controlled by him or his relative (Section 4).

1.9. Conduct of Business Rules

Chapter 3 of the RIL contains detailed rules regarding a counselor's and
manager's "obligation of honesty and caution". License holders must act honestly,
devotedly - adjusted to the customer's particular interests - and with caution and
reasonable expertise. They must disclose a conflict of interest if it exists, and
must not prefer their own securities. They must not acquire any benefit from a
customer's transaction, or absence of transaction, except for payment of fees and
expenses.

Section 14 in Chapter 3 requires counselors to make proper disclosure of all
substantial aspects of a proposed transaction or of the advice given. The Minister
of Finance may, in consultation with the Authority, prescribe matters which shall
be deemed substantial for a transaction or for advice, as well as rules on the
manner of proper disclosure.

Section 18 in Chapter 3 requires a counselor to inform the customer of transaction
involving "special risks", which are defined - non limitatively - to include
transactions described in a relevant prospectus as involving special risks, or
transactions which involve short sales or future contracts.

Chapter 4 adds special rules for portfolio managers. Managers must warn
customers of special risks. They must segregate their own assets from
those of their customers, must not use customers' assets for any purpose
other than for the transactions for which they have been engaged by
the customer, and must report to their customers periodically.

Both counselors and managers must enter into a written agreement with a
customer prior to commencing the performance of the services. Section 13 of the
RIL provides at length the items that must be mentioned in such agreement,
including:

· details of the customer;

· the customer's needs and guidelines;

· charges and refund of expenses, and their calculation;

· the customer's right to cancel the contract with the license holder at any time;

· option / no option of providing counseling by telephone;

· obligation of license holder to provide information under any enactment
notwithstanding obligation of confidentiality.

Section 13 also lists additional items relating to managers only, such as: details of
the power of attorney, details regarding the availability of credit, provisions
regarding the categories of securities and financial assets to be included in the
portfolio, and specific authorization to buy / sell securities at higher / lower prices
than market.

Special conduct of business rules exist in respect of counselors / managers who
are members of the Tel Aviv Stock Exchange ("the TASE") or banking
corporations rendering such investment services.

A judgment handed down by the Supreme Court in 1999 (“the Eisenberg case”)
has defined certain duties of license holders, and has established each of the
following as independent causes of action against license holders:

The performance of many futile purchase and sale transactions in respect
of securities, which set-off each other, do not provide any gain to the
customer, are intended to over-debit the customer with fees for these
actions thus benefiting the portfolio manager at the customer’s account;

Failure by a portfolio manager to advise the customer of a conflict of
interest, irrespective of the damage suffered by the customer.

The portfolio manager placing himself in a situation of conflict of interests
with the customer’s interests, irrespective of whether or not the manager
advised the customer of such conflict.

The court held in the Eisenberg case that the duty of trust may vary according
to the extent of powers given to the portfolio manager: The wider the powers
and discretion given to the manager, the stricter the duty of trust he must owe
to the customer.

The Eisenberg case also serves as a precedent on the question of quantum of
damage. It was held that when the manager’s duty of trust was violated
repeatedly, the customer is entitled to the gain, which was prevented from
him by the manager’s behavior.

1.10. Foreign Counselor

The conditions outlined above, which are applicable under the RIL to a company,
do not apply, on the face of it, to a company formed under a foreign law. A
"company" is defined under the RIL by reference to that definition in the
Companies Ordinance [New Version] 5743-1983 ("the Ordinance"), which defined
"company" as one that is formed and registered under the Ordinance, or previous
Ordinances, i.e. under Israeli law.

Nevertheless, there is one specific reference in the RIL to the licensing
of a foreign person, in Section 48(2) (entitled “Transitional Provisions”),
which states that that the Authority may grant a license to whoever (was)
engaged in portfolio management and investment counseling abroad, if
the Authority is satisfied that, in light of the securities legislation in the
country where he engaged in the said services, he may be considered
qualified to receive a license under the RIL.

1.11. Sanctions for Non-Compliance

The RIL provides disciplinary sanctions for non-compliance with the conduct of
business rules, and penal sanctions for engaging in investment counseling or
portfolio management without a license (imprisonment and fines).

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2. Securities Law, 5728-1968 ("SL")

1.1. Regulation of Securities - Applicability

The SL is the principal law regulating the transaction of securities in Israel.
"Securities" are defined as:

"certificates issued in a series by a company, a cooperative society or any
other body corporate, which confer a right of membership or participation in
it or a claim against it, and certificates that confer a right to acquire securities
- all irrespective of whether registered or to bearer - but not including
securities issued by the Government..." (Section 1);

The definition of the term "Company" in the SL specifically includes a "foreign
company", as that term is defined in the Ordinance, i.e. "a company registered
outside Israel and any body of persons - other than a partnership - registered or
incorporated outside Israel".

2.2. Offer to the Public - Prospectus Requirement

The SL mandates, in general, that no securities may be offered to the public
"otherwise than by a prospectus, the publication of which has been permitted by
the [Securities] Authority" (Section 15).

The phrase "offer to the public" is defined in an amendment to the SL (which
came into force in May 24, 2000) as an action, the purpose of which is to cause
the public to purchase securities, including the registration of securities for trade
on an exchange, and an approach to the public to make offers to purchase
securities. The number of persons consisting a "public" according to the new
amendment was fixed in Regulations as any number exceeding 35 persons.

(Before this amendment to the SL, our courts have held that the mere decision
- even if not expressed on a formal basis or in the format of an offer - of a person's
preparedness to sell securities to any buyer is equivalent to an "offer" of securities
to the public. In interpreting the term "public", our courts have held that although
a numerical test may be considered, it is not necessarily conclusive. Rather, the
courts held that the relationship between the offeror and the offeree, the need of
the latter for protection and his access to the type of information normally included
in a prospectus, are of greater importance.)

2.3. As of the above mentioned amendment to the SL, the prospectus requirement
does not apply to the following offers of securities (partial list) (Sections 15A, 15B,
15D):

· an offer to 35 investors or less over a period of 12 months;

· an offer of securities in an un-listed company, made to more than 35
investors, if the price received does not exceed 2 million NIS, and the capital
issued does not exceed 5 percent of the issued and paid-up capital of the
company, provided that the total capital issued other than by way of a
prospectus does not exceed 10 percent of the company's capital, and that the
total number of investors who purchased the company's securities other than
by way of a prospectus does not exceed 75 (rates will be indexed periodically);

· an issue of bonus shares;

· an offer of securities registered on a stock exchange, in the course of their
trade;

· an offer to any of the following investors : joint investment trust
funds, provident funds, insurers, banking corporations,
portfolio managers (purchasing securities for themselves and for clients
who are investors as those indicated in Section 15A(b) of the
SL (hereinafter: “Investors”)), investment counselors (purchasing
securities for themselves), members of the Tel-Aviv Stock Exchange
(purchasing securities for themselves and for clients who are Investors),
underwriters, high risk funds, companies the main business of which
is the capital market and companies whose main personal capital
exceeds NIS 250 million (Section 15A(b));

· an offer to a company incorporated abroad, if the Authority is of the opinion
that it can receive the information required for a decision to invest in securities,
which would normally appear in a prospectus (Section 15A(b));

· an offer to a controlling shareholder, a general manager or a director in the
offeror or to a company controlled by the offering company (Section 15A(b)).

· a publication of an intention to sell securities to Investors or to offerors, the
number of which will not exceed 35, and who will be chosen in a certain
procedure and of an intention to sell securities to any of the investors
indicated in Section 15A(b);

· certain offers of securities to employees of the offeror or a controlled
company, as part of employee benefit plans.

Guiding rules to the appliance of the Authority's discretion in granting exemptions
from some or all of the prospectus requirements in the SL, to types of
offers/offerors/companies/securities, may be fixed and published by the Authority.

2.4. The SL contains lengthy and detailed provisions governing the disclosure and
other requirements of a prospectus and the procedure for having it approved by
the Authority. The Securities Regulations (Particulars of Prospectus, its Structure
and Form) 5729-1969 require that the following particulars, among others, be
included in any
prospectus:

· notice of the permit required for the offer and of the registration of securities
offered on a stock exchange;

· description of the securities and rights offered, their price and payment terms;

· description of the issuer, and details on the issuer's securities and capital;

· details on convertible securities or securities which can have their rights
altered;

· details of the intended use of the consideration paid for the offered securities;

· details of subsidiaries and associated companies of the issuer;

· details of interested parties in the issuer;

· certain financial reports.

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3. Joint Investment Trusts Law, 5754-1994 ("JIL")

3.1. Funds

The JIL applies to any arrangement, the objective of which is joint
investment in securities and joint production of profit from holding
and transacting in them, which is not regulated under any other law.
A “fund” is defined in the JIL as an arrangement of joint investment,
founded by a trust management agreement under the JIL. A fund is
composed of units, each of which entitles to an equal share in the fund.
Israeli funds, governed by the JIL, are un-incorporated funds.

A “foreign fund” is defined as an arrangement or an incorporated body,
established in a foreign country under its laws, the purpose of which is joint
investment in securities and joint production of profit resulting from holding and
transacting in the securities. It follows that foreign companies, the purpose
of which is joint investment in securities, are considered funds and are
subject to the JIL, and the securities they issue are considered fund units,
whereas other foreign investment companies issuing securities are subject
to the SL.

3.2. Prospectus Requirement

The JIL contains provisions generally similar to those in the SL
regarding the requirement to publish a prospectus, approved by
the Authority, in relation to fund units (Sections 25 and 26). The JIL
lists certain exemptions from the duty to publish a prospectus,
including, specifically, units of a closed fund which are traded on
the TASE or on any other recognized exchanges (Section 25).

Although the JIL does not include other exemptions similar to those
included in the SL, the Securities Authority, by way of interpretation
of the term “public offer” in Section 25(a), applies to the JIL certain
exemptions included in the SL. These exemptions are:

• an offer to 35 investors or less over a period of 12 months;

• an offer to any of the following investors: joint investment trust funds,
provident funds, insurers, banking corporations, portfolio managers
(purchasing securities for themselves and for clients who are investors
as those indicated in Section 15A(b) of theSL (hereinafter: “Investors”),
investment counselors (purchasing securities for themselves), members
of the Tel-Aviv Stock Exchange (purchasing securities for themselves
and for clients who are Investors), underwriters, high risk funds,
companies the main business of which is the capital market and
companies whose personal capital exceeds NIS 250 million
(Section 15A(b) of the SL);

• an offer to a company incorporated abroad, if the Authority
is of the opinion that it can receive the information required
for a decision to invest in securities, which would normally appear
in a prospectus (Section 15A(b)of the SL);

• an offer to a controlling shareholder, a general manager or a
director in the offeror or to a company controlled by the offering
company (Section 15A(b) of the SL).

• a publication of an intention to sell securities to any of the investors
indicated in Section 15A(b) of the SL.

The Securities Regulations  (Particulars of Prospectus of Investment
Trust Fund, Its structure and Form) 5730-1969 detail the provisions
required in a prospectus, which must be published in connection
with an offer to the public of units in an investment trust fund (i.e. mutual fund).
Those provisions include the particulars of the fund, its units, asset investment
policy, profit distribution policy, redemption policy, as well as particulars
regarding the trustee, manager, and interested parties in the fund.

3.3. Offer of Units by a Foreign Fund

Where the securities offered to the Israeli public are units of a foreign
fund, the disclosure and other requirements of a prospectus are
governed by the Securities Regulations (Particulars of Prospectus
of Investment Trust Fund Created Outside of Israel, its Structure
and Form) 5730-1970 (“Foreign Prospectus Regulations”). They
include - in addition to provisions generally similar to those required
in a prospectus of an Israeli fund - specific provisions applicable to
foreign funds. Among the more important matters which these latter
provisions must include are the following:

· notice of required permits and licenses obtained in accordance with
Israeli law and the law of the country where the fund is established;

· identification of the offeror - in accordance with the prospectus - in
Israel, and of the fund’s representative in Israel;

· indication that in the country where the fund is established, there
exists / does not exist an official authority which supervises the offer
of units by the fund, including offers to the Israeli public;

· indication of the powers vested in the fund’s Israeli representative,
and if the representative is responsible for its operations in Israel, the
extent of such responsibility;

· identification of the Israeli bank through which the units will be traded
in Israel and indication of the security deposited with the said bank;

· details regarding foreign exchange control provisions which are applicable
to the operation of the fund and distribution of its units in Israel.

According to an amendment of the RIL (of April 1999), an offeror of units in
a foreign fund will be subject to the provisions applicable to a fund
manager.The Authority may exempt an offeror of a foreign fund from
some or all of the requirements applicable to fund managers, if it is
satisfied that the laws of the country in which the foreign fund is registered
adequately safeguard the interests of the investing public in
Israel (Section 129A).

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4. Currency Control Law, 5738-1978

In May 1998 and in subsequent enactments, the currency restrictions in
Israel were virtually abolished. Under the Currency Control Permit - 1998
(the “Permit”), issued by the Controller of Foreign Currency at the Bank of
Israel (the “Controller”), all activities and transactions, which were previously
prohibited, are now allowed.

The Permit stipulates extensive reporting obligations imposed on all Israeli
residents in respect of transactions with foreign residents or in foreign currency.
The minimal threshold for the reports is normally US$ 5 million. Special reporting
obligations apply to banking corporations, currency exchangers, brokers and
portfolio managers. The Controller is authorized to demand such reports, and
the information contained in the reports is confidential.

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5.  Anti-Money Laundering Law, 5760-2000 (“AML”)

5.1. Prohibition of Money-Laundering

In August 2000 a new Anti-Money Laundering Law was passed by
the Knesset, prohibiting laundering of monies sourced from offenses
related to, among others: drugs, arms, prostitution, gambling, bribery,
murder, auto theft, forgery, and violations of intellectual property rights
such as patents, copyright, etc.

The holding, sale, receipt, transfer, brokerage, etc. of property originating
from, or used for, such offenses, with the intent to conceal the source,
owners, location, movements, or acts relating to such property, or with
the knowledge that such property is related to such offenses, is an offense
punishable by fines of up to NIS 4,040,000 and imprisonment of up to 10 years.
The Law allows the forfeiture of property of a person convicted in a
money laundering offense.

5.2. Reporting Obligations

In 2001 and 2002 Anti-Money Laundering Orders were enacted regarding
duties of identification, reports and registration of banking corporations,
provident funds, portfolio managers, insurers and insurance agents,
exchange members and the postal bank. The Orders oblige the above
bodies to identify and verify the identification of clients, and to report
specified transactions. Banks are required to report the following
transactions:

· certain transactions of NIS 200,000 and over;

· certain cash transactions of NIS 50,000 and over;

· transfers to and from Israel of NIS 1,000,000 and over;

· acts which seem to be irregular;

irregular acts include:

(i) transactions which seem to be intended to circumvent the
reporting duties; frequent use of safe deposit box by a large number
of persons, without any apparent reason; transactions which indicate
that the account owner is managing the account for others, without
having declared this;

(ii) transactions of NIS 200,000 and over carried out by an attorney
who is not registered as an authorized signatory; monies and securities
are being drawn soon after their deposit in the account, not in the
regular course of business; transfers in and out of the country, when
the foreign party is not identified by name or account number; the
transaction is not characteristic and without any apparent reason;
several transactions to the same destination or from the same source,
without any apparent reason; deposit of funds, without any apparent
reason, by a person who is not the account owner nor an authorized
signatory.

In addition, the AML stipulates reporting obligations, applicable to the
general public, which include the following:

· persons entering into, and leaving, Israel are required to report sums
held by them, which exceed NIS 80,000;

· new immigrants are required to report sums of over NIS 1 million
imported by them;

· bankers, investment managers, stock exchange members, insurers,
brokers and provident funds are required to register and report certain
transactions.

The reports are kept confidential, and are not forwarded to any authority,
unless the information is required for the investigation of money
laundering offenses and security offenses, under certain conditions.
The tax authorities may, under certain conditions, be required to
forward information to the bodies authorized under this law, for the
purpose of investigating money laundering offenses.

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6. Banking (Licensing) Law, 5741-1981

Section 21 of the Banking (Licensing) Law restricts two categories of activities, which
may only be carried out by licensed banking corporations:

· acceptance of deposits together with supply of credit - as a single transaction
(certain transactions - not relevant to the normal activities of a broker - are excluded
from the term "supply of credit");

· issue of securities (essentially debt securities only), which are subject to the duty to
publish a prospectus, together with supply of credit - as a single transaction.

The term "acceptance of deposits" is defined as acceptance of deposits from 30
persons or more at any one time, save for acceptance of: credit from a banking
corporation or from creditors; advance payments from purchasers; and deposits
as security for obligations.

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B. General Applicable Legislation - Brokerage Services

The following legislation is applicable to all matters not specifically governed by
a regulatory law.

1. Contracts Law (General Part), 5733-1973
("Contracts Law")

Non-Discretionary Brokerage Services

In addition to regulatory laws, and particularly where no specific regulatory law applies,
all contractual aspects of the investment business, such as the contractual relationship
between the counselor/manager/broker and the customer, would be governed by the
Contracts Law, which is the primary Israeli law dealing with contracts. Among other
matters, it states that obligations and rights included in a contract must be performed by
the parties in good faith.

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2. Trust Law , 5739-1979 ("Trust Law")

2.1. Fiduciary Duty

The "Trust Law" defines a "trust" as a "relationship to any property, by virtue of
which a trustee is bound to hold the same or to act in respect thereof in the
interest of a beneficiary or for some other purpose". As such, funds or securities
held by a broker in a customer's account are held in "trust" for that customer.

2.2. Trustee's Obligations

The trustee shall:

· perform his duty faithfully and with diligence, as a reasonable person would in
the same circumstances;

· be responsible for damages caused on the trust property or to the beneficiary
as a result of a breach of the trustee's duties, and any unlawful gain in the
hands of the trustee resulting from the trust shall be deemed to be part of the
trust property;

· subject to the specific provisions of the contract -

· preserve, manage and enhance the trust property;

· not delegate his powers to others;

· not acquire any of the trust property, nor derive any benefit from the trust
property or from the activities of the trust, nor do anything which involves a
conflict of interest between the trust and the trustee - the whole, in respect of
the trustee himself or of any person or entity not at arm's length with the
trustee.

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3. Bailees Law, 5727-1967 ("Bailees Law")

3.1. Applicability to Custodial Services

Custodial/depository services performed by a broker or manager which are not
governed specifically by a regulatory law, may be governed by the Bailees Law,
which applies, among other, to the holding (lawful possession) of property other
than by way of ownership or loan, for consideration.

3.2. Duty of Care

The Bailees Law imposes a duty of care on the bailee, and, under certain
circumstances, holds him liable for loss or damage to the property even if no
negligence is involved - the whole subject to terms agreed between the parties.

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4. Agency Law, 5725-1965 ("Agency Law")

4.1. Applicability and Scope

Where not governed by a specific law, the relationship between a
broker/manager and a customer may also be governed by the general principles
of agency under the Agency Law. The scope of the agency is determined
according to the power of attorney granted by the principal (customer) to the
agent (broker/manager) and extends to all other reasonably necessary actions as
well.

4.2. Obligations of Agent to Principal

The agent owes an obligation of loyalty to the principal and must act in
accordance with his instructions. The agent must disclose to the principal all
information related to the object of the agency, must not receive any benefit from
the object of the agency without the principal's consent, and must generally
refrain from doing anything which may involve a conflict of interests.

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C. General Applicable Legislation - Solicitation/Advertising

1. Protection of Privacy Law, 5741-1981 ("Privacy Law")

1.1. Restrictions on Solicitation

Solicitation is restricted under the Privacy Law . Solicitation, which may consist of
pursuing someone in a way that might cause him nuisance, causing nuisance in
another way, or using information regarding a person's private life or
communicating such information to others for a different purpose than the one for
which it was given, is a prohibited invasion of privacy, and therefore a civil tort
and a criminal offense.

1.2. Direct Marketing

Direct marketing based on the use of names out of a data base is only permitted
if the data base is registered at the Registrar of Data Bases. Not only the data
listed, but also all the information regarding the personal affairs of the person is
protected.

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2. Consumer Protection Law, 5741-1981 ("CPL")

2.1. Restrictions in Advertising

Advertising is restricted by the provisions of the CPL. Violation of its provisions
constitutes a civil tort and a criminal offense. The CPL prohibits misleading
advertisement, including an advertisement that may have a potential to mislead.

2.2. Disclosure Obligations

The CPL obliges the disclosure of essential or unique details regarding the
business in question. Taking advantage of a consumer's distress is also
prohibited. This includes undue influence for the purpose of attaining a contract
consisting of unusual or unreasonable terms.

2.3. Foreign Advertising

The provisions of the CPL also relate to advertisement published outside of
Israel. Such foreign advertisement is prohibited if it has the potential of
misleading an Israeli consumer.

2.4. Transactions on Credit

The CPL and the regulations enacted under it set out special disclosure
requirements in respect of transactions made on credit, and fix the ways by which
interest rate may be calculated in such transactions.

2.5. Remote Marketing and Transactions

A recent amendment to the CPL, dated July 1998, specifically addresses modern
means of marketing and carrying out transactions.

"Remote marketing" is defined as "an approach by a dealer to a consumer by
means of mail, telephone, radio, television, electronic communications of any
kind, facsimile, publication of catalogs or of advertisements, or by similar means,
for the purpose of entering into a transaction not in the joint presence of the
parties, but by any of the above mentioned means". A "remote sales transaction"
is defined as "entering into a transaction for the sale of an asset or the rendering
of a service, where the transaction is entered into as a result of remote marketing,
not in the joint presence of the parties" (Section 14C(f)).

Remote marketing gives rise to disclosure requirements in respect of a list of
substantive details regarding the dealer, the asset / service, the price and
payment terms, delivery, the term of the offer, warranty and a notice of the
consumer's right to cancel the transaction (Section 14C(a)).

In a remote sales transaction the dealer must supply a document to the
consumer, written in Hebrew or in the language of the marketing offer, no later
than the date on which the asset / service is supplied, and which document must
include the particulars of the transaction, as specified in the amendment (Section
14C(b)).

The consumer may cancel a remote transaction by written notice (including by
facsimile or other electronic communications) within 14 days from the day the
transaction was executed (Section 14C(c)). The amendment prohibits any
debiting of cancellation charges when a transaction was canceled by the
consumer as a result of a defect or incompatibility in the asset / service, and
restricts the cancellation charges to 5% of the asset price in other cases of
cancellation by the consumer (Section 14C(e)).

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