Executive Summary: In recent months, there has been a renewed legislative effort to enable the offering of units (“Units”) of foreign mutual funds (including exchange traded funds, or ETFs) (each, a “Fund”) in Israel. The proposed legislation will allow foreign Fund managers who meet certain criteria to publicly offer Units in Israel.

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Currently, the distribution and offering of Units requires the filing of a prospectus in Israel and compliance with other legal requirements, including ongoing reporting and disclosure obligations. In addition, Israeli law prohibits Israeli banks, the primary distribution channel of Funds, from receiving fees for distributing Units from foreign Fund managers.

The proposed legislation, if adopted, will enable foreign Fund managers, following receipt of approval from the Israeli Securities Authority (the “ISA”) (after filing a fairly simple application), to publicly offer Units to retail clients in Israel, relying on reports issued by such foreign Fund managers in their country of origin. As proposed, there would not be a need to file a prospectus in Israel or to comply with significant ongoing reporting or disclosure obligations. The Units may be publicly offered through local or foreign investment advisors, through the Tel Aviv Stock Exchange, or both.

In order to be granted approval by the ISA to publicly offer the Units in Israel, the criteria that must be met include:

1. The foreign Fund manager must manage no less than five Funds, the units of which have been publicly offered for at least five years, with each Fund having assets with a total value of at least US$500 million during the preceding two years.
2. The total value of the Funds’ assets and client portfolios managed by the Fund manager, any person controlling the foreign Fund manager, and any entity controlled by such person, must be at least US$20 billion.
3. The value of the foreign Fund’s net assets must be at least US$50 million, and its units are available for purchase in Europe or the United States.
4. The foreign Fund must operate under the U.S. Investment Company Act or the European directive UCITS.
5. The price of the Units must be regularly published on a website and be available to the public without cost.
6. If the Fund is publicly traded in Israel, then the Units must also be listed for trade on a foreign stock exchange
7. The foreign Fund cannot specialize in investments in Israel.
8. The foreign Fund manager must deposit a bank guaranty issued by an Israeli bank of at least ILS 1 million (~US$285,000) for the benefit of the ISA, or place a senior lien and floating charge, in favor of the ISA, on a deposit in such amount placed in an Israeli bank.
9. The foreign Fund manager must deposit ILS 3 million (~US$860,000) in an Israeli bank account.
10. The foreign Fund manager must appoint a representative in Israel to serve as liaison between such manager and the ISA and between such manager and the Unit holders in Israel.

Based on recent data, the total value of the mutual fund market in Israel is, as of January 2014, over US$66 billion. Only 4% of such amount is invested in funds that specialize in securities traded outside of Israel. The entry of foreign funds into the Israeli market is expected to substantially increase the total value of mutual funds held by the Israeli public, particularly with respect to funds that invest in securities traded outside of Israel.

The legislation process described above seems to be in its final stages, and we expect that it could conclude by as early as the end of June 2014.