1. Government Debt Management Unit Primary Market – Auctions of Tradable Government Bonds (Draft for comments)

2. BONDS TYPE This presentation refers to: New bonds (to be issued after 01.04.2006) Fixed rate bonds. Fixed rate bonds. FRN bonds. FRN bonds. CPI-Linked bonds. CPI-Linked bonds. Existing bonds (will be issued until the existing series will be completed) Shahar (Nominal fixed coupon). Shahar (Nominal fixed coupon). Gilon - Unlinked Bond Bearing Floating Rate of Interest. Gilon - Unlinked Bond Bearing Floating Rate of Interest. Galil - CPI Linked Bond Bearing a Fixed Annual Rate of Interest. Galil - CPI Linked Bond Bearing a Fixed Annual Rate of Interest.

3. General Information Auction platform : The Bloomberg Bond Auction System. Auction platform : The Bloomberg Bond Auction System. Schedule of the auctions will be announced at the beginning of each month or quarter. Schedule of the auctions will be announced at the beginning of each month or quarter. Primary Dealer are entitled to bid exclusively for 80% of the nominal fixed coupon bonds. Primary Dealer are entitled to bid exclusively for 80% of the nominal fixed coupon bonds. Discriminative/Multi-price auction. Discriminative/Multi-price auction. Pro-rata allotment, at the cut-off price. Pro-rata allotment, at the cut-off price.

4. Publication Of Auction Details Publication will be over the internet on an on going basis and in the newspapers (each month). Publication will be over the internet on an on going basis and in the newspapers (each month). Will be published at least 3 Israeli business days prior to the auction. Will be published at least 3 Israeli business days prior to the auction. The publication will include The publication will include IGBs to be issued. IGBs to be issued. Amounts. Amounts. Closing time for bids. Closing time for bids. Announcement time of the results of the auction. Announcement time of the results of the auction.

5. Primary Dealer Auctions Minimum bid 10 million ILS, and increments of 1 million ILS. Minimum bid 10 million ILS, and increments of 1 million ILS. Primary Dealer are required to purchase each year tradable domestic bonds for a total amount which is the smaller of ILS 2 billion or 5% of fixed-coupon nominal bonds issued during a calendar year. Primary Dealer are required to purchase each year tradable domestic bonds for a total amount which is the smaller of ILS 2 billion or 5% of fixed-coupon nominal bonds issued during a calendar year.

6. Public Auctions Retail: Minimum bid 10,000 ILS, and increments of 10,000 ILS. Retail: Minimum bid 10,000 ILS, and increments of 10,000 ILS. Institutional: Institutional: Primary Dealers (proprietary) Primary Dealers (proprietary) Providen funds Providen funds Pension funds Pension funds Insurance companies Insurance companies Banks Banks Minimum bid 10 million ILS, and increments of 1 million ILS. Minimum bid 10 million ILS, and increments of 1 million ILS.

7. Multi-Price Auction Each bid shall include: quantity (nominal) and price in percentages. Each bid shall include: quantity (nominal) and price in percentages. Bids in the order of the highest to the lowest. Bids in the order of the highest to the lowest. The increments between bids will be 0.01%. The increments between bids will be 0.01%. All successful bids will be allotted at the price offered by the buyer. All successful bids will be allotted at the price offered by the buyer. Partial allotment shall be made in respect of bids that fall within the cut-off price. Partial allotment shall be made in respect of bids that fall within the cut-off price.

8. Auction Results Results will be announced within 30 minutes of the close of the auction. Results will be announced within 30 minutes of the close of the auction. Announcement will include: Announcement will include: total principal amount of bids received total principal amount of bids received total number of bids received total number of bids received total number of bids allotted total number of bids allotted highest price allotted highest price allotted lowest price allotted lowest price allotted weighted average price weighted average price ratio of allotment at cut-off price. ratio of allotment at cut-off price. The M.O.F will notify each Primary Dealer of the quantity and price of each successful bid. The M.O.F will notify each Primary Dealer of the quantity and price of each successful bid.

9. Payment and Transfer of Securities The M.O.F will designate an account at the bank of Israel for each auction participant. The M.O.F will designate an account at the bank of Israel for each auction participant. Primary Dealer which are not TASE members will carry out the payment through the designated account on the day following the auction. Primary Dealer which are not TASE members will carry out the payment through the designated account on the day following the auction. The M.O.F will transfer the bonds on the day following payment. The M.O.F will transfer the bonds on the day following payment. Members of the TASE will receive the bonds to their TACH account. Members of the TASE will receive the bonds to their TACH account. Primary Dealers which are not TASE members shall inform the M.O.F which TASE-member account should be credited with the bonds. Primary Dealers which are not TASE members shall inform the M.O.F which TASE-member account should be credited with the bonds.

10. Payment and Transfer of Securities – cont d Members of the TASE can choose between two modes of payment: Members of the TASE can choose between two modes of payment: 1. Through TACH - Payment on the day of the auction, receiving the bonds the day following the auction.* 2. Independent payment - Payment on the day following the auction, receiving the bonds two days after the auction.* Each participant will inform the M.O.F of the prefered mode of payment. Each participant will inform the M.O.F of the prefered mode of payment. * Comment: When the Bank Of Israel will complete the RTGS system, bonds can be received on the day of the payment.

11. Errors in Auctions The M.O.F will handle applications regarding errors in auctions subject to a few conditions: The M.O.F will handle applications regarding errors in auctions subject to a few conditions: The application should be within the first two hours after the auction results are published. The application should be within the first two hours after the auction results are published. Only bidding mistakes. Only bidding mistakes. The request will be submitted by a senior person in the company. The request will be submitted by a senior person in the company. The bid price is 2% or more above the auction price. The bid price is 2% or more above the auction price. Damage above 100,000 ILS. Damage above 100,000 ILS. In case of correction the buyer shall sell back the bonds to M.O.F at the auction price and will pay a fine of 100,000 ILS. In case of correction the buyer shall sell back the bonds to M.O.F at the auction price and will pay a fine of 100,000 ILS.

12. Errors in Payments A buyer who pays more then necessary - will get the money back less 5,000 ILS fine. A buyer who pays more then necessary - will get the money back less 5,000 ILS fine. A buyer who pays less then 95% of required payment - will not receive any bonds and will pay a fine of 50,000 ILS. A buyer who pays less then 95% of required payment - will not receive any bonds and will pay a fine of 50,000 ILS. A buyer who pays less then required but not less than 95% of the required payment – bonds will be deducted as follows (see next slide): A buyer who pays less then required but not less than 95% of the required payment – bonds will be deducted as follows (see next slide):

13. Errors in Payments – cont d A participant who purchases and pays for more than one series of bonds at the same time - the deduction will be according to the following order: A participant who purchases and pays for more than one series of bonds at the same time - the deduction will be according to the following order: Fixed rate bonds. Fixed rate bonds. Shahar (Nominal fixed coupon). Shahar (Nominal fixed coupon). CPI-Linked bonds. CPI-Linked bonds. Galil - CPI Linked Bond Bearing a Fixed Annual Rate of Interest. Galil - CPI Linked Bond Bearing a Fixed Annual Rate of Interest. FRN bonds. FRN bonds. Gilon - Unlinked Bond Bearing Floating Rate of Interest. Gilon - Unlinked Bond Bearing Floating Rate of Interest. A participant who wins a few bonds of the same type - the deduction will be from the bond which has the longest maturity to the bond with the shortest maturity. A participant who wins a few bonds of the same type - the deduction will be from the bond which has the longest maturity to the bond with the shortest maturity. A participant who wins several offers to purchase the same bond with various prices – the deduction will be from the bond with the lowest price to the bond with the highest price. A participant who wins several offers to purchase the same bond with various prices – the deduction will be from the bond with the lowest price to the bond with the highest price.

14. Non Competitive Bidding An additional 15% of the principal amount of IGBs auctioned shall be available on a non-competitive basis for a period of 24 hours from the closing time of the original auction. An additional 15% of the principal amount of IGBs auctioned shall be available on a non-competitive basis for a period of 24 hours from the closing time of the original auction. Non-competitive bids shall be allocated at the average price of the competitive auction. Non-competitive bids shall be allocated at the average price of the competitive auction. Conducted on the Bloomberg Bond Auction system. Conducted on the Bloomberg Bond Auction system.

15. Remarks Remarks regarding the auction procedures can be sent to: Fax number: 03-9778778 Fax number: 03-9778778 E-mail: gdmu@inbal.co.il E-mail: gdmu@inbal.co.il