---

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# UNITED STATESSECURITIES AND
EXCHANGE COMMISSIONWashington, D.C. 20549

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# FORM 10-K/A(Amendment No. 1)

# FOR ANNUAL AND
TRANSITION REPORTS 
PURSUANT TO SECTIONS 13 OR 15(d) OF THE 
SECURITIES EXCHANGE
ACT OF 1934

---

# (Mark One)

|x | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the fiscal year ended
December 31, 2003

OR

|o | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE          ACT OF 1934
|- | -------------------------------------------------------------------------------------------------

For the transition period from _______________ to _____________

Commission file number
0-538

AMPAL-AMERICAN ISRAEL
CORPORATION (Exact Name of
Registrant as Specified in Its Charter)

|                                         |                    
|---------------------------------------- | -------------------
|
|
|
|
|New York                                 | 13-0435685         
|(State or Other Jurisdiction of          | (I.R.S. Employer   
|Incorporation or Organization)           | Identification No.)
|                                        
|111 Arlozorov Street, Tel Aviv, Israel   | 62098              
|(Address of Principal Executive Offices) | (Zip Code)         

Registrant's telephone number, including area code (866) 447-8636
Securities registered pursuant to Section 12(b) of the Act: None

# Securities
registered pursuant to Section 12(g) of the Act:
Class A Stock,
par value $1.00 per share 
4% Cumulative
Convertible Preferred Stock, par value $5.00 per share 
6 1/2% Cumulative Convertible
Preferred Stock, par value $5.00 per share 
(Titles of Classes)

---

Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

Yes   x    No o

Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
not contained herein, and will not be contained, to the best of registrants
knowledge, in definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K
x.

Indicate
by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2).

Yes o No   x

The
aggregate market value of the registrants voting stock held by non  affiliates
of the registrant on June 30, 2003, the last business day of the registrants most
recently completed second fiscal quarter was $22,630,620 based upon the closing market
price of such stock on that date. As of March 9, 2004, the number of shares outstanding of
the registrants Class A Stock, its only authorized and outstanding common stock, is
19,808,855.



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# Explanatory Note

As disclosed in the original Form
10-K for the year ended December 31, 2003, Ampal-American Israel Corporation (the
Company) determined that Granite Hacarmel Investments Ltd.
(Granite) qualified as a significant subsidiary under Reg. S-X
3-09(b)(2). Granite is a foreign business and the due date for filing stand-alone
financial statements for Granite is June 30, 2004. Accordingly, we are filing this Form
10-K/A to include the financial statements of Granite Hacarmel Investments Ltd. as part of
Item 15 of Part IV of Form 10-K.

# PART IV.

ITEM 15. EXHIBITS, FINANCIAL
STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

| | (a) | Except
as otherwise provided herein, the following documents were filed as a           part of
the Companys annual report on Form 10-K filed on March 29, 2004 :
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (1) | Financial
Statements and Supplementary Data
| | --- | -------------------------------------------

| | Ampal-American
Israel Corporation and Subsidiaries
| | --------------------------------------------------

| | Report
of Independent Auditors
Consolidated
Statements of Income for the years ended December 31, 2003, 2002 and 2001
| | ---------------------------------------------------------------------------------------------------------------------

| | Consolidated
Balance Sheets as at December 31, 2003 and 2002
| | ------------------------------------------------------------

| | Consolidated
Statements of Cash Flows for the years ended December 31, 2003, 2002 and 2001 Consolidated
Statements of Changes in Shareholders Equity for the
years ended December 31, 2003, 2002 and 2001 Consolidated
Statements of Comprehensive Income for the years ended December 31, 2003, 2002
and 2001 Notes to
Consolidated Financial Statements Supplementary
Data:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Selected
quarterly financial data for the years ended December 31, 2003 and 2002
| | --------------------------------------------------------------------------------

| | (2) | Financial
Statement Schedules
| | --- | -----------------------------

| | (i) | Schedule
of Representative Rates of Exchange between the U.S. dollar and New      Israeli
Shekel for three years ended December 31, 2003
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------



---

---

Representative Rates of Exchange
Between the U.S. Dollar and the New Israeli Shekel
For the Three Years Ended December 31, 2003

The following table shows the amount
of New Israeli Shekels equivalent to one U.S. Dollar 
on the dates indicated:

|             | 2003  | 2002  | 2001 
|------------ | ----- | ----- | -----
|
|
|
|
|March 31     | 4.687 | 4.668 | 4.192
|June 30      | 4.312 | 4.769 | 4.165
|September 30 | 4.441 | 4.871 | 4.355
|December 31  | 4.379 | 4.737 | 4.416

| | (ii) | Consolidated
financial statements filed pursuant to Rule 3-09 of Regulation S-X
| | ---- | -------------------------------------------------------------------------------

Granite Hacarmel
Investments Ltd. 1

| | Report
of Certified Public Accountants
| | --------------------------------------

| | Consolidated
Balance Sheets as at December 31, 2003 and 2002.
| | -------------------------------------------------------------

| | Consolidated
Statements of Income for the years ended December 31, 2003, 2002 and 2001 Consolidated
Statements of Changes in Shareholders Equity for the years ended December 31, 2003,
2002 and 2001 Consolidated Statements of Cash Flows
for the years ended December 31, 2003, 2002 and 2001 Notes
to Financial Statements
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Ophir Holdings Ltd.

| | Report
of Certified Public Accountants
| | --------------------------------------

| | Consolidated
Balance Sheets as at December 31, 2003 and 2002.
| | -------------------------------------------------------------

| | Consolidated
Statements of Income for the years ended December 31, 2003, 2002 and 2001 Consolidated
Statements of Changes in Shareholders Equity for the years ended December 31, 2003,
2002 and 2001 Consolidated Statements of Cash Flows
for the years ended December 31, 2003, 2002 and 2001 Notes
to Financial Statements
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

OphirTech Ltd.

| | Report
of Certified Public Accountants
| | --------------------------------------

| | Balance
Sheets as at December 31, 2003 and 2002
| | -----------------------------------------------

| | Statements
of Income for the years ended December 31, 2003, 2002 and 2001
| | -------------------------------------------------------------------------

| | Statements
of Changes in Shareholders Equity for the years ended December 31, 2003, 2002 and
2001 Statements of Cash Flows for the years ended
December 31, 2003, 2002 and 2001 Notes to Financial
Statements
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|1 | The
Company is filing pursuant to Reg. S-X 3-09(b)(2) the financial statements of Granite as
part of this report on Form 10-K/A.
|- | --------------------------------------------------------------------------------------------------------------------------------



---

---

Trinet Venture Capital Ltd.

| | Report
of Certified Public Accountants 
Balance Sheets as at December 31, 2001 and 2000
| | ---------------------------------------------------------------------------------------

| | Statements of Income for the years ended December 31, 2001, 2000 and 1999 
Statements of Shareholders deficiency for the years ended December 31, 2001, 2000
and 1999
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Notes
to Financial Statements
| | -----------------------------

| | (iii)
Reports of Other Certified Public Accountants filed pursuant to Rule 2-05 of Regulation
S-X:
| | --------------------------------------------------------------------------------------------------

| | AM-HAL
Ltd.         Bay Heart Ltd.         Carmel Container Systems Ltd.         Coral World
International Limited         Country Club Kfar Saba Limited         Epsilon Investment
House Ltd.         Granite Hacarmel Investments Limited.         Hod Hasharon Sport
Center Ltd.         Hod Hasharon Sport Center (1992) Limited Partnership
        Renaissance Investment Co. Ltd.         Shmey-Bar Real Estate 1993 Ltd.
        Shmey-Bar (I.A.) 1993 Ltd.         Shmey-Bar (T.H.) 1993 Ltd.         Trinet
Investment in High-Tech Ltd.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

(3) Exhibits
Required by Item 601 of Regulation S-K Exhibit 2            Plan of
Acquisition, Reorganization, Arrangement, Liquidation or           Succession

| | 2a. | Purchase
and Sale Agreement, dated January 5, 1998, between Ampal                Communications,
Inc. and Motorola Communications Israel Ltd. (Includes as                Exhibit A the
form of Partnership Agreement between Ampal Communications, Inc.                and
Motorola Communications Israel Ltd. and as Exhibit B the form of                 Shareholders Agreement
between Ampal Communications, Inc. and Motorola                Communications Israel
Ltd.) (Filed as Exhibit 2 to a Current Report on Form 8-K,                dated February
5, 1998, and incorporated herein  by reference, File No. 0-538.)
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 2b. | Amendment,
dated January 22, 1998, to (i) Purchase and Sale Agreement, dated                January
5, 1998, between Ampal Communications, Inc. and Motorola Communications
               Israel Ltd., (ii) Partnership Agreement between Ampal Communications, Inc.
and                Motorola Communications Israel Ltd. and (iii) form of Shareholders                 Agreement
between Ampal Communications, Inc. and Motorola Communications Israel                Ltd.
(Filed as Exhibit 2a to a Current Report on Form 8-K, dated February 5,
               1998, and incorporated herein by reference, File
No. 0-538.)
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Exhibit 3 - Articles of
Incorporation and By-Laws

| | 3a. | Amended
and Restated Certificate of Incorporation of Ampal-American Israel
               Corporation, dated May 28, 1997. (Filed as Exhibit 3a. to Form
10-Q, for                the quarter ended June 30, 1997 and incorporated herein by
reference, File No.                0-5380).
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 3b. | By-Laws
of Ampal-American Israel Corporation as amended, dated February 14, 2002 (incorporated by
reference to Exhibit 3b. of Ampals Form 10-K filed on March 27, 2002).
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

---

Exhibit 4 - Instruments
Defining the Rights of Security Holders, Including Indentures

| | 4a. | Form
of Indenture dated as of November 1, 1984. (Filed as Exhibit 4a. to Registration
Statement No. 2-88582 and incorporated herein by reference).
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------

| | 4b. | Form
of Indenture dated as of May 1, 1986. (Filed as Exhibit 4a. to Pre-Effective
Amendment No. 1 to Registration Statement No. 33-5578 and incorporated herein by
reference).
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Exhibit 10 - Material
Contracts

| | 10a. | Agreement,
dated March 22, 1993, between the Investment Company of Bank Leumi, Ltd., and Ophir
Holdings Ltd., Mercazim Investments Ltd., Diur B.P. Ltd. and Mivnat Holdings Ltd. (Filed
as Exhibit   10.4 to Pre-Effective Amendment No. 1 to Registration Statement No.
33-51023 and incorporated herein by reference).
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10b. | Agreement,
dated March 30, 1994, between Poalim Investments Ltd., Ampal (Israel) Ltd. and Ampal
Industries (Israel) Ltd. (Translation). (Filed as Exhibit 10l, to Form 10-K for the
fiscal year ended December 31, 1994 and incorporated herein by reference, File No.
0-538).
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10c. | Loan
Agreement, dated April 27, 1998, between Bank Hapoalim Ltd. and Ampal Communications
Limited Partnership (Filed as Exhibit 10.1 to Report on Form 10-Q for the quarter ended
June 30, 1998, File No. 0-538).
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10d. | Form
of Loan Agreement between Ampal Communications Limited Partnership and Bank Leumi
Le-Israel B.M. Filed as Exhibit 10.2 to Report on Form 10-Q for the quarter ended June
30, 1998, File No. 0-538).
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10e. | Sale
and Purchase Agreement, dated November 8, 2000, between Ampal Realty Corporation and
Second 800 LLC. (filed as Exhibit 10I to Form 10-K for the fiscal year ended December 31,
2002, File No. 000-00538).
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10f. | The
Companys 1998 Long-Term Incentive Plan (filed as Exhibit A to the Companys
Proxy Statement for the 1998 Annual Meeting of Shareholders).*
| | ---- | -----------------------------------------------------------------------------------------------------------------------------------------------

| | 10g. | The
Companys 2000 Incentive Plan (filed as an exhibit to the Companys Proxy
Statement for the 2000 Annual Meeting of Shareholders).*
| | ---- | --------------------------------------------------------------------------------------------------------------------------------------

| | 10h. | Amendment
to the Companys 1998 Long Term Incentive Plan adopted by the Board of Directors on
February 14, 2002.* (Filed as Exhibit 10h to the report on Form 10K. Filed on March 27,
2003)
| | ---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 10i | Amendment
to the Companys 2000 Incentive Plan adopted by the Board of Directors on February
14, 2002.* (Filed as Exhibit 10i to the report on Form 10K filed on March 27, 2003).
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

# Exhibit 11 
Computation of Earnings Per Share

# Exhibit 12  Statement
re Computation of Ratios

# Exhibit 21  List
of Subsidiaries

# Exhibit 23  Consents
of Auditors:

|23.1 
23.2 
23.3 
23.4 
23.5 
23.6 
23.7 
23.8 
23.9 
23.10
23.11
23.12
23.13
23.14
23.15
23.16
23.17
23.18
23.19 | AM-HAL Ltd.                                      
Ampal-American Israel Corporation                
Bay Heart, Ltd.                                  
Carmel Container Systems Ltd.                    
Coral World International Ltd.                   
Country Club Kfar Saba Limited                   
Epsilon Investment House Ltd.                    
Granite Hacarmel Investment Limited              
Hod Hasharon Sport Center Ltd.                   
Hod Hasharon Sport Center (1992) Ltd. Partnership
Ophir Holdings Ltd.                              
Ophirtech Ltd.                                   
Renaissance Investment Co. Ltd.                  
Shmey-Bar Real Estate 1993 Ltd.                  
Shmey-Bar (T.H.) 1993 Ltd.                       
Shmey-Bar (I.A.) 1993 Ltd.                       
Trinet Investment in High-Tech Ltd.              
Trinet Venture Capital Ltd.                      
Granite Hacarmel Investment Limited | E-23.1  
E-23.2  
E-23.3  
E-23.4  
E-23.5  
E-23.6  
E-23.7  
E-23.8  
E-23.9  
E-23.10 
E-23.11 
E-23.12 
E-23.13 
E-23.14 
E-23.15 
E-23.16 
E-23.17 
E-23.18
E-23.192
|----------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



---

---

Exhibit 31.1  Certification
of Jack Bigio pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Exhibit 31.2  Certification of
Irit Eluz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

# Exhibit 31.3 
Certification of Jack Bigio pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.3

# Exhibit 31.4 -
Certification of Irit Eluz pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.3

Exhibit 32  Certification of
Jack Bigio and Irit Eluz pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.

Exhibit 32.1  Certification
of Jack Bigio and Irit Eluz pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.3

* Management contract, compensatory
plan or arrangement.

Reports on Form 8-K

No reports on Form 8-K were filed
during the quarter ended at December 31, 2003.

---

|2 | In
connection with the filing of the financial statements of Granite for the fiscal year
ended December 31, 2003 with this report on Form 10-K/A, the Company is filing a consent
of the auditors of Granite as Exhibit 23.19 to this report on Form 10-K/A.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3 | The
certifications are being filed pursuant to Rule 12b-15 promulgated under the Securities
Exchange Act of 1934 as exhibits to this report on Form 10-K/A.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------



---

---

Granite
Hacarmel Investments Limited
and  its Subsidiaries

Financial Statements

as at December 31, 2003

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Financial Statements  December 31,
  2003
|------------------------------------------
|                                          

CONTENTS

|                                                             | Page   
|------------------------------------------------------------ | -------
|                                                             |        
|                                                             |        
|Auditors report to the shareholders                         | 3      
|                                                             |        
|Consolidated balance sheets                                  | 4 -5   
|                                                             |        
|Consolidated statements of income                            | 6      
|                                                             |        
|Consolidated statements of changes
  in shareholders equity | 7      
|                                                             |        
|Consolidated statements of cash
  flows                      | 8 - 10 
|                                                             |        
|Notes to the financial statements                            | 11 - 78
|                                                             |        
|List of the main investee companies
  -                      | 79 - 80

-2-

---

---

Somekh
Chaikin

# REPORT OF  INDEPENDENT  PUBLIC ACCOUNTING FIRM

# THE SHAREHOLDERS OF
GRANITE HACARMEL INVESTMENTS LIMITED

We have audited the accompanying
consolidated balance sheets of Granite Hacarmel Investments Limited and its subsidiaries
(the Company) as of December 31, 2003 and 2002, and the related consolidated statements of
income, shareholders equity and cash flows for each of the years in the three-year
period ended December 31, 2003. These consolidated financial statements are the
responsibility of the Companys Board of Directors and of its Management. Our
responsibility is to express an opinion on these consolidated financial statements based
on our audits. We did not audit the financial statement of the following affiliates:

| |  | Nitzba Holdings 1995 Ltd. (Nitzba), a 10 percent owned investee company, in
respect to which the Companys investment was NIS 75,400 thousands as of December 31,
2003 and the Companys equity in its losses was NIS 9,900 thousands for the year then
ended. Those financial statements were prepared on the basis of generally accepted
accounting principles in Israel ( Israeli GAAP).
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | L.D.I. Leasing Dynamics International Ltd. (LDI), a 25 percent owned investee
company, in respect to which the Companys investment was NIS 9,200 thousands and NIS
9,900 thousands as of December 31, 2003 and 2002, respectively and the Companys
equity in its losses was NIS 700 thousand and 1,000 thousands for the years ended December
31 2003 and 2002, respectively. Those financial statements were prepared on the basis of
Israeli GAAP.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Oganim Beyarok Ltd (Oganim)., a 50 percent owned investee company, in respect
to which the Companys excess of accumulated losses over the cost of investments was
NIS 300 thousands and NIS 140 thousands as of December 31, 2003 and 2002, respectively and
the Companys equity in its losses was NIS 1,000 thousand and NIS 2,300 thousands for
the years ended December 31, 2003 and 2002, respectively. Those financial statements were
prepared on the basis of Israeli GAAP with reconciliation from Israeli GAAP to generally
accepted accounting principles in the United States ( U.S. GAAP).
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The financial statements of the
affiliates referred above were audited by other auditors whose reports thereon were
furnished to us, and our opinion, insofar as it relates to the amounts included for Nitzba
and LDI, before conversion to U.S. GAAP and to Oganim for both Israeli GAAP and conversion
to U.S GAAP, is based solely on the said reports of the other auditors.



---

---

We conducted our audits in accordance
with generally accepted auditing standards, including standards prescribed by the Auditors
Regulation (Manner of Auditors Performance) 1973 and in accordance with the
standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Board of Directors and by Management, as well as
evaluating the overall financial statement presentation. We believe that our audits (which
include procedures relating to the adjustments to convert information with respect to
Nitzba and LDI as reported under Israeli GAAP to amounts reported under generally accepted
accounting principles in the United States) providea reasonable basis for our
opinion.

In our opinion, based on our audits
and the reports of the other auditors, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial position of the
Company as of December 31, 2003 and 2002, and the results of their operations and their
cash flows for each of the years, in the three-year period ended December 31, 2003 in
conformity with accounting principles generally accepted in Israel.

Accounting principles generally
accepted in Israel vary in certain significant respects from accounting principles
generally accepted in the United States of America. Information relating to the nature of
such differences is presented in Note 32 to the consolidated financial statements.

As explained in Note 2, the above
mentioned consolidated financial statements are stated in values adjusted for the changes
in the general purchasing power of the Israeli currency, in accordance with opinions of
the Institute of Certified Public Accountants in Israel.

As discussed in Note 28.B.2 to the
financial statements there are few claims against consolidated companies which the court
has been asked to recognize as class actions and other claims against consolidated
companies claiming that their agreements with their customers are restrictive trade
arrangements.

Somekh Chaikin Certified
Public Accountants (Israel)

Haifa Israel, March 25,
2004

-3-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

|Consolidated balance sheets as at
  December 31
|-----------------------------------------------
|                                               
|Adjusted to NIS of December 2003               

|                                               |  |      |    |               | 2003 |               | 2002      | 
|---------------------------------------------- |  | ---- | -- | ------------- | ---- | ------------- | --------- | 
|                                               |  |      |    |               |      |               |           | 
|                                               |  | Note |    | NIS thousands |      | NIS thousands |          
|                                               |  |      |    |               |      |               |          
|                                               |  |      |    |               |      |               |           | 
|Current assets                                 |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               |           | 
|Cash and cash equivalents                      |  |      | 5  |               |      |               | 7,479     | 
|Marketable securities                          |  |      |    |               |      |               | 2,927     | 
|Trade receivables                              |  |      | 6  |               |      |               | 965,614   | 
|Other receivables                              |  |      | 6  |               |      |               | 71,737    | 
|Receivables for work in progress               |  |      | 6  |               |      |               | 14,443    | 
|Inventories                                    |  |      | 7  |               |      |               | 195,842   | 
|Affiliated company designated for sale         |  |      | 8  |               |      |               | 12,516    | 
|                                               |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               | 1,270,558 | 
|                                               |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               |           | 
|Non-current inventories                        |  |      | 7  |               |      |               | 110,981   | 
|                                               |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               |           | 
|Investments, loans and long-term
  receivables |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               |           | 
|Affiliated companies and other investments     |  |      | 8  |               |      |               | 130,504   | 
|Long-term loans and receivables                |  |      | 9  |               |      |               | 129,837   | 
|                                               |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               | 260,341   | 
|                                               |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               |           | 
|Fixed assets, net                              |  |      | 10 |               |      |               | 1,186,561 | 
|                                               |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               |           | 
|Other assets                                   |  |      | 11 |               |      |               | 209,049   | 
|                                               |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               |           | 
|                                               |  |      |    |               |      |               | 3,037,490 | 
|                                               |  |      |    |               |      |               |           | 

* Reclassified

The notes to the
financial statements are an integral part thereof.

-4-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

|Consolidated balance sheets as at
  December 31
|-----------------------------------------------
|                                               
|Adjusted to NIS of December 2003               

|                                                     |  |      |    |               | 2003 |               | 2002      | 
|---------------------------------------------------- |  | ---- | -- | ------------- | ---- | ------------- | --------- | 
|                                                     |  |      |    |               |      |               |           | 
|                                                     |  | Note |    | NIS thousands |      | NIS thousands |          
|                                                     |  |      |    |               |      |               |          
|                                                     |  |      |    |               |      |               |           | 
|Current liabilities                                  |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               |           | 
|Credit from banks and others                         |  |      | 12 |               |      |               | 1,322,402 | 
|Trade payables                                       |  |      | 13 |               |      |               | 189,090   | 
|Other payables                                       |  |      | 14 |               |      |               | 195,788   | 
|                                                     |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               | 1,707,280 | 
|                                                     |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               |           | 
|Long-term liabilities                                |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               |           | 
|Long-term loans                                      |  |      | 15 |               |      |               | 720,083   | 
|Customers deposits                                  |  |      | 16 |               |      |               | 58,102    | 
|Liabilities for severance pay, net                   |  |      | 17 |               |      |               | 22,835    | 
|Deferred taxes                                       |  |      | 26 |               |      |               | 68,585    | 
|                                                     |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               | 869,605   | 
|                                                     |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               |           | 
|Minority interests                                   |  |      |    |               |      |               | 8,133     | 
|                                                     |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               |           | 
|Collateral, commitments and
  contingent liabilities |  |      | 28 |               |      |               |           | 
|                                                     |  |      |    |               |      |               |           | 
|Shareholders equity                                 |  |      | 19 |               |      |               | 452,472   | 
|                                                     |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               |           | 
|                                                     |  |      |    |               |      |               | 3,037,490 | 
|                                                     |  |      |    |               |      |               |           | 
|* Reclassified                                       |  |      |    |               |      |               |           | 

Prof. I.
Borovich  Chairman of the
Board          _____________________

A. Sagis  President and Chief Executive
Officer            ___________________________

J.
Frohlich  Executive Vice President and Chief Financial Officer             __________________________

Date of
approval of statements:  March 25, 2004

The notes to the
financial statements are an integral part thereof.

-5-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

|Consolidated statements
  of income for the year ended December 31
|------------------------------------------------------------------
|                                                                  
|Adjusted to NIS of December 2003                                  

|                                                                                   |  |      |    |               | 2003 |  | 2002      |   | 2001 |          
|---------------------------------------------------------------------------------- |  | ---- | -- | ------------- | ---- |  | --------- | - | ---- | ---------
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  | Note |    | NIS thousands |     
|                                                                                   |  |      |    |               |     
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|Sales                                                                              |  |      |    |               |      |  | 4,263,369 |   |      | 4,274,194
|Less: Government imposts                                                           |  |      |    |               |      |  | 1,376,296 |   |      | 1,380,089
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|Net sales                                                                          |  |      | 20 |               |      |  | 2,887,073 |   |      | 2,894,105
|Cost of sales                                                                      |  |      | 21 |               |      |  | 2,127,117 |   |      | 2,134,658
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|Gross profit                                                                       |  |      |    |               |      |  | 759,956   |   |      | 759,447  
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|Selling and marketing expenses                                                     |  |      | 22 |               |      |  | 500,843   |   |      | 480,784  
|General and administrative expenses                                                |  |      | 23 |               |      |  | 154,012   |   |      | 109,968  
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  | 654,855   |   |      | 590,752  
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|Income from operations                                                             |  |      |    |               |      |  | 105,101   |   |      | 168,695  
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|Financing expenses, net                                                            |  |      | 24 |               |      |  | (130,505  | ) |      | (85,137  
|Other (expenses) income, net                                                       |  |      | 25 |               |      |  | (62,167   | ) |      | (23,830  
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  | (192,672  | ) |      | (108,967 
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|(Loss) 
  Income before taxes on income                                            |  |      |    |               |      |  | (87,571   | ) |      | 59,728   
|Taxes on income                                                                    |  |      | 26 |               |      |  | 9,628     |   |      | (28,109  
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|(Loss) Income after taxes on income                                                |  |      |    |               |      |  | (77,943   | ) |      | 31,619   
|Companys share in results of affiliated
       companies, net                     |  |      |    |               |      |  | (17,189   | ) |      | (5,184   
|Minority interest in the results of 
       subsidiaries                           |  |      |    |               |      |  | (914      | ) |      | (2,268   
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|Net (loss) income for the year                                                     |  |      |    |               |      |  | (96,046   | ) |      | 24,167   
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|Net (loss)earnings 
  per NIS 1 par value of
       ordinary shares (in NIS):      |  |      | 19 |               |      |  |           |   |      |          
|Primary and diluted (loss) income                                                  |  |      |    |               |      |  | (0.7      | ) |      | 0.17     
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|Number of shares of NIS 1 par value each 
  used in the calculation (in thousands) |  |      |    |               |      |  | 137,770   |   |      | 138,381  
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|                                                                                   |  |      |    |               |      |  |           |   |      |          
|* Reclassified                                                                     |  |      |    |               |      |  |           |   |      |          

The notes to the
financial statements are an integral part thereof.

-6-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

|Consolidated statements of changes
  in shareholders equity
|------------------------------------------------------------
|                                                            
|Adjusted to NIS of December 2003                            

|                                                        |  | Share 
  capital |         | Premium 
  on shares |  | Less
  Company
  shares held
  by a
  subsidiary |  | Dividend 
  declared 
  subsequent 
  to  balance 
  sheet date |        | Retained 
  earnings |  | Total   |  
|------------------------------------------------------- |  | ---------------- | ------- | -------------------- |  | ------------------------------------------------ |  | --------------------------------------------------------------- | ------ | -------------------- |  | ------- | -
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|                                                        |  | NIS
  thousands  |        
|                                                        |  |                  |        
|Balance as at January 1, 2001                           |  |                  | 269,295 |                      |  | 274,365                                          |  |                                                                 | (3,603 | )                    |  | -       |  
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|Changes in 2001:                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|Net income for the year                                 |  |                  | -       |                      |  | -                                                |  |                                                                 | -      |                      |  | -       |  
|Dividend paid                                           |  |                  |         |                      |  | -                                                |  |                                                                 | -      |                      |  | -       |  
|Acquisition of Companys shares 
       by a subsidiary |  |                  | -       |                      |  | -                                                |  |                                                                 | (280   | )                    |  | -       |  
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|Balance as at December 31, 2001                         |  |                  | 269,295 |                      |  | 274,365                                          |  |                                                                 | (3,883 | )                    |  | -       |  
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|Changes in 2002:                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|Net income for the year                                 |  |                  | -       |                      |  | -                                                |  |                                                                 | -      |                      |  | -       |  
|Dividend declared                                       |  |                  | -       |                      |  | -                                                |  |                                                                 | -      |                      |  | 77,009  | *
|Acquisition of Companys shares 
       by a subsidiary |  |                  | -       |                      |  | -                                                |  |                                                                 | (5,838 | )                    |  | -       |  
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|Balance as at December 31, 2002                         |  |                  | 269,295 |                      |  | 274,365                                          |  |                                                                 | (9,721 | )                    |  | 77,009  |  
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|Changes in 2003:                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|Net loss for the year                                   |  |                  | -       |                      |  | -                                                |  |                                                                 | -      |                      |  | -       |  
|Dividend paid                                           |  |                  | -       |                      |  | -                                                |  |                                                                 | -      |                      |  | (77,161 | )
|Erosion of dividend paid                                |  |                  | -       |                      |  | -                                                |  |                                                                 | -      |                      |  | 152     |  
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  
|Balance as at December 31, 2003                         |  |                  | 269,295 |                      |  | 274,365                                          |  |                                                                 | (9,721 | )                    |  | -       |  
|                                                        |  |                  |         |                      |  |                                                  |  |                                                                 |        |                      |  |         |  

*Reclassified

The notes to the
financial statements are an integral part thereof.

-7-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

|Consolidated statements of cash
  flows for the year ended December 31
|----------------------------------------------------------------------
|                                                                      
|Adjusted to NIS of December 2003                                      

|                                                                                    |  | 2003          |          | 2002 |  | 2001     |   
|----------------------------------------------------------------------------------- |  | ------------- | -------- | ---- |  | -------- | --
|                                                                                    |  |               |          |      |  |          |   
|                                                                                    |  | NIS Thousands |         
|                                                                                    |  |               |         
|                                                                                    |  |               |          |      |  |          |   
|                                                                                    |  |               |          |      |  |          |   
|Cash flows from operating
  activities                                              |  |               |          |      |  |          |   
|Net (loss) income                                                                   |  |               | (96,046  | )    |  | 24,167   |   
|Reconciliations required to present cash flows 
     from operating activities (A)  |  |               | 232,622  |      |  | 118,362  |   
|                                                                                    |  |               |          |      |  |          |   
|Net cash provided by operating activities                                           |  |               | 136,576  |      |  | 142,529  |   
|                                                                                    |  |               |          |      |  |          |   
|Cash flows from investing
  activities                                              |  |               |          |      |  |          |   
|Acquisition of fixed assets                                                         |  |               | (102,357 | )    |  | (112,890 | ) 
|Proceeds from the sale of fixed assets                                              |  |               | 12,274   |      |  | 12,750   |   
|Proceeds from the sale of investments in 
     companies presented by equity method |  |               | -        |      |  | 20       |   
|Investments in long-term loans                                                      |  |               | (17,195  | )    |  | (53,267  | )*
|Collection of long-term loans                                                       |  |               | 73,460   |      |  | 29,574   |   
|Investments in other assets and deferred expenses                                   |  |               | (51,123  | )    |  | (33,365  | ) 
|Acquisition of affiliated companies shares                                         |  |               | (646     | )    |  | (1,617   | )*
|Sale of marketable securities, net                                                  |  |               | 19,436   |      |  | 2,594    |   
|Investments in companies carried at cost                                            |  |               | (77      | )    |  | (72      | ) 
|Acquisition of subsidiarys shares                                                  |  |               | -        |      |  | (17,423  | ) 
|Investment in capital note of affiliated company                                    |  |               | -        |      |  | (6,114   | ) 
|Acquisition of initially consolidated companies(B)                                  |  |               | 138      |      |  | (2,434   | ) 
|Proceeds from the sale a previously consolidated 
     company (C)                  |  |               | -        |      |  | (5,480   | ) 
|                                                                                    |  |               |          |      |  |          |   
|Net cash used in investing activities                                               |  |               | (66,090  | )    |  | (187,724 | ) 
|                                                                                    |  |               |          |      |  |          |   
|Cash flows from financing
  activities                                              |  |               |          |      |  |          |   
|Dividend paid                                                                       |  |               | (77,161  | )    |  | -        |   
|Dividend to minority shareholders in subsidiaries                                   |  |               | (555     | )    |  | (893     | ) 
|Short-term credit from banks and others, net                                        |  |               | 107,946  |      |  | (221,810 | ) 
|Receipt of long-term loans                                                          |  |               | 10,492   |      |  | 371,277  |   
|Repayment of long-term loans                                                        |  |               | (137,298 | )    |  | (85,629  | ) 
|Deposits received from customers                                                    |  |               | 2,170    |      |  | 1,452    |   
|Deposits refunded to customers                                                      |  |               | (1,850   | )    |  | (873     | ) 
|Repayment of debentures                                                             |  |               | -        |      |  | (14,249  | ) 
|Acquisition of Companys shares by subsidiary                                       |  |               | -        |      |  | (5,838   | ) 
|Proceeds from the issuance (redemption)  of 
  
     capital note                   |  |               | -        |      |  | (615     | ) 
|                                                                                    |  |               |          |      |  |          |   
|Net cash (provided by) used for  financing activities                               |  |               | (96,256  | )    |  | 42,822   |   
|                                                                                    |  |               |          |      |  |          |   
|(Decrease) increase in cash and cash equivalents                                    |  |               | (25,770  | )    |  | (2,373   | ) 
|Cash and cash equivalents at beginning of year                                      |  |               | 33,249   |      |  | 35,622   |   
|                                                                                    |  |               |          |      |  |          |   
|Cash and cash equivalents at end of year                                            |  |               | 7,479    |      |  | 33,249   | * 
|                                                                                    |  |               |          |      |  |          |   

* Reclassified

The notes to the
financial statements are an integral part thereof.

-8-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

|Consolidated statements of cash
  flows for the year ended December 31
|----------------------------------------------------------------------
|                                                                      
|Adjusted to NIS of December 2003                                      

|    |                                                                                                                                |  | 2003          |         | 2002 |  | 2001    |   
|--- | ------------------------------------------------------------------------------------------------------------------------------ |  | ------------- | ------- | ---- |  | ------- | --
|    |                                                                                                                                |  |               |         |      |  |         |   
|    |                                                                                                                                |  | NIS Thousands |        
|    |                                                                                                                                |  |               |        
|(A) | Reconciliations required to present
  cash flows from 
  operating activities                                                  |  |               |         |      |  |         |   
|    | Income and expenses not requiring
  cash flows                                                                                 |  |               |         |      |  |         |   
|    | Depreciation and amortization, net                                                                                             |  |               | 128,820 |      |  | 118,773 |   
|    | Deferred taxes, net                                                                                                            |  |               | (31,396 | )    |  | (10,987 | )*
|    | (Decrease) increase in liabilities for severance
  pay, net                                                                    |  |               | (7,478  | )    |  | (8,527  | ) 
|    | Minority interest in income of subsidiaries                                                                                    |  |               | 914     |      |  | 2,268   |   
|    | Groups 
  share in undistributed losses of affiliated 
  companies, net                                                       |  |               | 17,492  |      |  | 6,597   |   
|    | Capital (gains) losses                                                                                                         |  |               | (1,408  | )    |  | 9,404   |   
|    | Erosion of long-term loans, debentures and capital 
  notes issued                                                             |  |               | 5,044   |      |  | (8,983  | ) 
|    | Erosion of loans granted                                                                                                       |  |               | (267    | )    |  | (5,346  | ) 
|    | (Increase) decrease in value of marketable
  securities, net                                                                   |  |               | (5,098  | )    |  | 8,143   |   
|    | Erosion and write-off of customers deposits                                                                                    |  |               | (3,268  | )    |  | (3,835  | ) 
|    | Decrease in value of investments in affiliated
  company 
  and other companies, net                                           |  |               | 3,347   |      |  | 20,014  |   
|    | Decrease in value of fixed assets                                                                                              |  |               | 35,480  |      |  | -       |   
|    | Gain from decrease in percent ownership in an
  affiliated 
  company                                                          |  |               | -       |      |  | (629    | ) 
|    | Loss (profit) from the sale of  investments in subsidiary                                                                      |  |               | -       |      |  | 21      |   
|    | Changes in assets and liabilities:                                                                                             |  |               |         |      |  |         |   
|    | Decrease (increase) in trade receivables, notes and 
  long-term checks for collection and receivables for 
  work in progress |  |               | 26,199  |      |  | (74,520 | )*
|    | Decrease (increase) in other receivables                                                                                       |  |               | 17,912  |      |  | (23,462 | ) 
|    | Decrease (increase) in inventories and non-current 
  inventories                                                              |  |               | 24,542  |      |  | 68,343  |   
|    | Increase (decrease) in trade payables                                                                                          |  |               | 939     |      |  | 20,530  | * 
|    | Increase (decrease) in other payables                                                                                          |  |               | 20,848  |      |  | 558     |   
|    |                                                                                                                                |  |               |         |      |  |         |   
|    |                                                                                                                                |  |               | 232,622 |      |  | 118,362 |   
|    |                                                                                                                                |  |               |         |      |  |         |   
|(B) | Acquisition of initially
  consolidated companies                                                                              |  |               |         |      |  |         |   
|    | Working capital (excluding cash and cash
  equivalents)                                                                        |  |               | 19,216  |      |  | (3,363  | ) 
|    | Fixed assets                                                                                                                   |  |               | (17,431 | )    |  | (1,384  | ) 
|    | Long-term liabilities, net                                                                                                     |  |               | -       |      |  | 15      |   
|    | Investment in affiliated company                                                                                               |  |               | (1,647  | )    |  | 2,812   |   
|    | Goodwill created at the time of acquisition                                                                                    |  |               | -       |      |  | (514    | ) 
|    | Minority rights on the date of the acquisition                                                                                 |  |               | -       |      |  | -       |   
|    |                                                                                                                                |  |               |         |      |  |         |   
|    |                                                                                                                                |  |               | 138     |      |  | (2,434  | ) 
|    |                                                                                                                                |  |               |         |      |  |         |   
|(C) | Proceeds from the sale of
  investment in a previously 
  consolidated company                                                 |  |               |         |      |  |         |   
|    | Working capital (excluding cash and cash
  equivalents)                                                                        |  |               | -       |      |  | (7,314  | ) 
|    | Fixed and other assets                                                                                                         |  |               | -       |      |  | 2,526   |   
|    | Long-term (liabilities) receivables, net                                                                                       |  |               | -       |      |  | (343    | ) 
|    | Goodwill                                                                                                                       |  |               | -       |      |  | -       |   
|    | Minority rights on date of sale                                                                                                |  |               | -       |      |  | (328    | ) 
|    | Capital (loss) gain from sale of investment in
  subsidiary                                                                    |  |               | -       |      |  | (21     | ) 
|    |                                                                                                                                |  |               |         |      |  |         |   
|    | Proceeds from sale of subsidiary                                                                                               |  |               | -       |      |  | (5,480  | ) 
|    |                                                                                                                                |  |               |         |      |  |         |   
|    | * Reclassified                                                                                                                 |  |               |         |      |  |         |   

The
notes to the financial statements are an integral part thereof.

-9-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

|Consolidated statements of cash
  flows for the year ended December 31
|----------------------------------------------------------------------
|                                                                      
|Adjusted to NIS of December 2003                                      

(D)     Non-cash
items:

|                                                     |  | 2003          |        | 2002 |  | 2001   | 
|---------------------------------------------------- |  | ------------- | ------ | ---- |  | ------ | 
|                                                     |  |               |        |      |  |        | 
|                                                     |  | NIS Thousands |       
|                                                     |  |               |       
|                                                     |  |               |        |      |  |        | 
|Conversion of trade receivables to long-term loans   |  |               | 13,294 |      |  | 16,823 | 
|                                                     |  |               |        |      |  |        | 
|                                                     |  |               |        |      |  |        | 
|Acquisition of fixed assets against suppliers credit |  |               | 2,247  |      |  | 356    | 
|                                                     |  |               |        |      |  |        | 
|                                                     |  |               |        |      |  |        | 
|Acquisition of other assets on credit                |  |               | -      |      |  | 3,775  | 
|                                                     |  |               |        |      |  |        | 
|                                                     |  |               |        |      |  |        | 
|Minority interest in dividend declared by subsidiary |  |               | -      |      |  | 65     | 
|                                                     |  |               |        |      |  |        | 

The notes to the
financial statements are an integral part thereof.

-10-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 1 - | General                                                                                                                                                         
|-------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|         |                                                                                                                                                                 
|A.       | Granite Hacarmel Investments Ltd. (hereinafter: the
  Company) (Public Company 520037177) and its subsidiaries are engaged mainly
  in the following branches:
|         |                                                                                                                                                                 
|         | 1.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 2.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 3.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 4.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 5.                                                                                                                                                              
|         |                                                                                                                                                                 
|B.       | In these financial statements -                                                                                                                                 
|         |                                                                                                                                                                 
|         | 1.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 2.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 3.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 4.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 5.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 6.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 7.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 8.                                                                                                                                                              
|         |                                                                                                                                                                 
|         | 9.                                                                                                                                                              

-11-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 2 - | Reporting
  rules and accounting principles
|-------- | -------------------------------------------

|A. | Principles
  of adjustment and consolidation of financial statements
|-- | --------------------------------------------------------------------
|   |                                                                     
|   | 1.                                                                  
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   | 2.                                                                  
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     
|   |                                                                     

-12-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 2 - | Reporting
  rules and accounting principles (contd.)
|-------- | ----------------------------------------------------

|A. | Principles
  of adjustment and consolidation of financial statements (contd.)
|-- | -----------------------------------------------------------------------------
|   |                                                                              
|   | 3.                                                                           
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   |                                                                              
|   | 4.                                                                           
|   |                                                                              
|   |                                                                              

-13-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 2 - | Reporting
  rules and accounting principles (contd.)
|-------- | ----------------------------------------------------

|A. | Principles
  of adjustment and consolidation of financial statements(contd.)
|-- | ----------------------------------------------------------------------------
|   |                                                                             
|   | 5.                                                                          
|   |                                                                             
|   |                                                                             
|   |                                                                             
|   |                                                                             
|   |                                                                             
|   |                                                                             
|   |                                                                             
|   |                                                                             
|   |                                                                             
|   |                                                                             
|   |                                                                             
|   |                                                                             
|B. | Investments in Companies                                                    
|   |                                                                             
|   | 1.                                                                          
|   |                                                                             
|   |                                                                             
|   |                                                                             

-14-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 2 - | Reporting
  rules and accounting principles (contd.)
|-------- | ----------------------------------------------------

|B. | Investments in Companies  (contd.)
|-- | ----------------------------------
|   |                                   
|   | 1.                                
|   |                                   
|   |                                   
|   |                                   
|   |                                   
|   |                                   
|   |                                   
|   |                                   
|   |                                   
|   |                                   
|   |                                   
|   | 2.                                
|   |                                   
|   |                                   
|C. | Valuation of Inventories          
|   |                                   
|   | 1.                                
|   |                                   
|   |                                   
|   |                                   
|   |                                   

-15-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 2 - | Reporting
  rules and accounting principles (contd.)
|-------- | ----------------------------------------------------

|C. | Valuation of Inventories (contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | 2.                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|D. | Fixed assets                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | Fixed assets are presented at cost less accumulated
  depreciation (cost  plus excess costs relating to specific assets).
  Improvements and refinements are charged to the cost of the assets while
  maintenance expenses and repairs are charged as incurred to the statement of
  income. Depreciation is calculated by the straight line method at annual
  rates based on their estimated useful lives. 
  Capitalization of credit costs  see Note 2(n) below.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   | Annual rates of depreciation are:                                                                                                                                                                                                                                                                                                                                                                                                                                      

| |                                                                         |  | % |                                                                                
| | ----------------------------------------------------------------------- |  | - | -------------------------------------------------------------------------------
| |                                                                         |  |   |                                                                                
| | Buildings (including temporary buildings
    and buildings for leasing) |  |   | 2-10                                                                           
| | Machinery and equipment                                                 |  |   | 5-33                                                                           
| | Vehicles                                                                |  |   | 15-20                                                                          
| | Computers                                                               |  |   | 20-33                                                                          
| | Office furniture and equipment                                          |  |   | 6-20                                                                           
| | Leasehold improvements                                                  |  |   | over the period of lease which does not exceed the
  economic life of the asset
| |                                                                         |  |   |                                                                                

| | Excess costs relating to specific assets are
  depreciated according to the estimated balance of the period of use of the
  assets to which they relate.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | Amortization of leasehold rights are over the period
  of the lease.                                                                                    
| | Depreciation of buildings on leased land is over the
  period of the lease.                                                                             

-16-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 2 - | Reporting
  rules and accounting principles (contd.)
|-------- | ----------------------------------------------------

|E. | Other assets                                                                                                                                                 
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                              
|   | Other assets are presented at cost and amortized at
  annual rates from the start of their utilization as follows:                                           
|   | Deferred rental  over the period of the lease at
  equal annual rates.                                                                                      
|   | Goodwill  see Note 2(a)(5).                                                                                                                                 
|   | Distribution rights  over 20 years or according to
  the period of the agreement.                                                                           
|   | Delivery 
  rights  over 10 years or according to the period of agreement.                                                                                  
|   | Others over the period of the expected benefit.                                                                                                             
|   |                                                                                                                                                              
|F. | Foreign currency and linkage                                                                                                                                 
|   |                                                                                                                                                              
|   | Assets (excluding securities) and liabilities in
  foreign currency or linked to it, are included at rates of exchange in effect
  on the balance sheet date.
|   | Assets (excluding securities) and liabilities linked
  to the consumer price index are included according to the linkage terms
  applying to each balance.   
|   |                                                                                                                                                              
|   | Data on the consumer price index and rates of
  exchange:                                                                                                    

| |                                                        |  | Dec. 31,
  2003 |        | Dec. 31,
  2002 |  | Dec. 31,
  2001 |  | %
  change
  2003 |       | %
  change
  2002 |  | %
  change
  2001 |  
| | ------------------------------------------------------ |  | --------------- | ------ | --------------- |  | --------------- |  | ----------------- | ----- | ----------------- |  | ----------------- | -
| |                                                        |  |                 |        |                 |  |                 |  |                   |       |                   |  |                   |  
| |                                                        |  |                 |        |                 |  |                 |  |                   |       |                   |  |                   |  
| | Consumer price index-                                  |  |                 |        |                 |  |                 |  |                   |       |                   |  |                   |  
| | In points                                              |  |                 | 112.95 |                 |  | 115.12          |  |                   | 108.1 |                   |  | (1.9              | )
| |                                                        |  |                 |        |                 |  |                 |  |                   |       |                   |  |                   |  
| | Representative rate of 
  exchange of the US 
  dollar |  |                 | 4.379  |                 |  | 4.737           |  |                   | 4.416 |                   |  | (7.6              | )

|G. | Marketable securities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Marketable securities held as short term investments
  are presented on the basis of their 
  realizable value on the stock exchange as of the balance sheet date.                                                                                                                                                                                                                                                                                                                                              
|   | Marketable securities which are permanent
  investments are presented at cost less a provision for a decline in their
  value which is other than a temporary nature (see also Note 2(b)(2) above).                                                                                                                                                                                                                                                                                                             
|   | Changes in the value of securities are fully
  reflected in the statement of income.                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|H. | Provision for doubtful debts                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The financial statements include a provision for
  doubtful debts which adequately reflect, according to managements
  evaluation, the loss inherent in debts whose collection is in doubt.  The provision for doubtful debts includes
  specific provisions. Management, in determining the adequacy of provisions,
  considered, inter alia, information available regarding the financial
  condition of customers, the extent of their operations and an evaluation of
  the collateral received from them.

-17-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 2 - | Reporting
  rules and accounting principles (contd.)
|-------- | ----------------------------------------------------

|I. | Deferred taxes                                                                                                                                                                                                                                                                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                         
|   | The companies in the Group apportion taxes as a
  result of temporary differences. Temporary differences are differences
  between the value for tax purposes of assets and liabilities and their book
  value.  The said apportionment is made
  on account of differences relating to assets whose usage or expense are
  recognized for tax purposes.
|   | The balance of deferred taxes (asset or liability)
  is calculated by the liability method at tax rates which are expected to be
  in effect when the deferred taxes will be utilized, using tax rates and tax
  laws which were legislated or whose legislation was completed as of the
  balance sheet date.                                          
|   | The main factors in respect of which deferred taxes
  have not been calculated are:                                                                                                                                                                                                                                                                     
|   | 1.                                                                                                                                                                                                                                                                                                                                                      
|   | 2.                                                                                                                                                                                                                                                                                                                                                      
|   | 3.                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                         
|J. | Recognition of revenues                                                                                                                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                                                                                                                         
|   | 1.                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                         
|   | 2.                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                         
|   | 3.                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                                                                                                                         

-18-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 2 - | Reporting
  rules and accounting principles (contd.)
|-------- | ----------------------------------------------------

|K. | Provision for linkage differences
  on customers deposits                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Supergas, a subsidiary, is obligated by law to pay
  customers who terminate their gas purchasing agreement  an amount equal to the latest approved
  deposit authorized by the Ministry of Industry and Trade, plus linkage
  differences from the date of the last approval until the actual payment date.
  The liability, included on the basis of the present value is determined
  according to the actual liability as mentioned above.  The provision for this liability is made
  on a present value basis.                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|L. | Earnings per share                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | Earnings per share is calculated in accordance with
  Pronouncement 55 of the Institute of Certified Public Accountants in Israel.                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | In calculating the primary
  earnings per share, the convertible securities issued by the Company were
  taken into account if there is a likelihood of their conversion or
  realization in accordance with the tests set forth in the Pronouncement.                                                                                                                                                                                                                                                                                                                      
|   | In calculating diluted
  earnings per share, convertible securities issued by the Company and its
  investee companies which were not included in calculating the primary
  earnings per share were taken into account, provided that their conversion or
  realization does not result in an increase in earnings per share
  (anti-dilutive effect).                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|M. | Use of
  estimates                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | In preparing the financial
  statements in accordance with generally accepted accounting principles,
  management applies estimates and evaluations which affect the reported
  amounts of assets and liabilities, the disclosure regarding contingent assets
  and liabilities and also the amounts of income and expenses recorded in the
  reporting period.  Actual results may
  differ from these estimates.                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|N. | Capitalization
  of credit costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   | The Company capitalizes
  credit costs in accordance with Accounting Standard No. 3 which relates to
  capitalization of credit costs. 
  According to this Standard, specific credit costs and non-specific
  credit costs should be capitalized to eligible assets.  The credit costs which are non-specific
  are capitalized to that investment or that part of it which was not financed
  by specific credit, while applying a rate which is a weighted average of the
  cost for those sources of financing whose costs were not capitalized on a
  specific basis.

-19-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 2 - | Reporting
  rules and accounting principles (contd.)
|-------- | ----------------------------------------------------

|O. | Presentation
  of transactions between the Company and a controlling party                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   | Transactions between the
  Company and a controlling party in the Company are presented according to the
  Securities Regulations (Presentation of Transactions between a Company and a
  Controlling Party in the Financial Statements)  1996.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|P. | Derivative
  financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | Forward currency
  transactions  derivative financial instruments not for hedging purposes are
  presented in the balance sheet at their fair value.  Changes in fair value are posted to the financing item in the
  statement of income.  Results of
  derivative financial instruments which are intended for hedging are posted to
  the statement of income concurrently with posting the results of the hedged
  item.                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|Q. | Decline
  in value of assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | The Company adopted
  Accounting Standard No. 15  Decline in the Value of Assets (hereinafter:
  the Standard).  The Standard sets
  forth procedures which the Company must implement in order to ensure that the
  assets in its consolidated balance sheet (to which the Standard applies),
  will not be presented at an amount exceeding their recoverable value, which
  is the higher of the net selling price and the usage value (the present value
  of the expected cash flows expected to result from the use of an asset and
  its realization).                                                                                                                                                                                                                                                                                
|   | The Standard applies to
  all assets in the consolidated balance sheet excluding tax assets and
  monetary assets (apart from monetary assets which are investments in investee
  companies that are not subsidiaries).  In addition the Standard
  stipulates the rules of presentation and disclosure regarding assets whose
  value declined.  Where the value of an
  asset in the consolidated balance sheet exceeds its recoverable amount,  the Company recognizes a loss from the
  decline in the value in the amount of the difference between the book value
  of the asset and its recoverable amount. The loss recognized will be
  cancelled only if there are changes in the estimates used in determining the
  recoverable amount of the asset from the last date in which the loss from the
  decline in value was recognized.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|   | In September 2003, the
  Israeli Accounting Standards Board published Clarification No. 1 regarding
  the accounting treatment for a decline in the value of an investment in an
  investee company which is not a subsidiary (hereinafter: the
  Clarification). The Clarification stipulates that during periods subsequent
  to the period in which the provision for the decline in the value of an
  investee company which is not a subsidiary was first recorded, the investment
  in the investee company must be presented at the lower of the recoverable
  amount and the amount of the investment using the equity method, where the
  recoverable amount is calculated for every reporting period in which there
  are indications that there is a change in the recoverable amount.                                             

-20-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 2 - | Reporting
  rules and accounting principles (contd.)
|-------- | ----------------------------------------------------

|R. | Environmental costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | Current operating 
  and maintenance costs of facilities used  to prevent pollution of the environment and expected provisions
  for costs relating to restoring the environment, resulting from current
  operations or past operations, are charged to the statement of income. The
  costs of establishing facilities to prevent environmental pollution, which
  increase the life or efficiency of a facility or reduce or prevent
  environmental pollution, are charged to the cost of the fixed assets and
  depreciated according to the depreciation policy of the Company.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|S. | Disclosure of the effects of new
  accounting standards during the period prior to their implementation                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   | a.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

-21-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

Note 2 -    Reporting rules and accounting principles
(contd.)

|T.                                             | Disclosure of effects of new
  accounting standards during the period prior to their implementation (contd.)                                                              
|---------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                                               |                                                                                                                                                                           
|                                               | 3.                                                                                                                                                                        
|                                               |                                                                                                                                                                           
|                                               |                                                                                                                                                                           
|                                               |                                                                                                                                                                           
|                                              
|Note 3 -
    Consolidated financial statements
|                                              
|Initially
  consolidated companies            
|                                               |                                                                                                                                                                           
|                                               | During the current year
  the financial statements of Kleeson Holdings (1999) Ltd. were consolidated
  for the first time.                                                
|                                               |                                                                                                                                                                           
|                                               | Following are amounts
  included in the consolidated financial statements (prior to the increase in
  the rate of holding the company was presented by the equity method).

| |                                                                     |  | Date ofacquisition ofcontrol |         | December
  31, 2003and the period fromthe acquisition up tothe above date | 
| | ------------------------------------------------------------------- |  | ---------------------------- | ------- | ------------------------------------------------------------------------- | 
| |                                                                     |  |                              |         |                                                                           | 
| |                                                                     |  | NIS
  thousands              |        
| |                                                                     |  |                              |        
| | Balance
  sheet                                                     |  |                              |         |                                                                           | 
| | Cash
  and cash equivalents                                         |  |                              | 138     |                                                                           | 
| | Working
  capital (excluding cash and
       cash equivalents), net |  |                              | (19,216 | )                                                                         | 
| | Fixed
  assets, after deducting accumulated
          depreciation  |  |                              | 17,431  |                                                                           | 
| | Investment
  in affiliated company                                  |  |                              | (1,647  | )                                                                         | 
| |                                                                     |  |                              |         |                                                                           | 
| | Statement
  of income                                               |  |                              |         |                                                                           | 
| | Expenses
  and costs                                                |  |                              | -       |                                                                           | 

-22-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

|Note 4 - | Accounting
  with the Fuel Authority and government control in the energy sector  Sonol
|-------- | ----------------------------------------------------------------------------------------

|1. | Amounts due to or from the Fuel Authority, the
  government agency responsible for supervision of the fuel market in Israel,
  to the extent still provisional, are included in the accounts each year
  according to estimates prepared by Sonol Israel Ltd.s management
  (hereinafter: Sonol), a subsidiary, based on past experience.  Differences arising as a result of changes
  in the estimates are reflected in the results of the period of account in
  which they are determined.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2. | All the costs and expenses related to  the holding of Security inventories, are
  fully recoverable from the government. Costs of holding Commercial
  inventories are on Sonols account with all the attendant risks.                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3. | The sales prices of 95 and 96 octane gasoline at the
  public filling stations are subject to government control.                                                                                                                                                                                                                                                                                                                                                                                

Note 5 
  Cash and cash equivalents

Consist of:

|                      |  | December
  31   |      
|--------------------- |  | --------------- | -----
|                      |  |                 |      
|                      |  | 2003            |      
|                      |  |                 |      
|                      |  | NIS
  thousands |      
|                      |  |                 |      
|In local currency     |  |                 | 5,637
|In foreign currency** |  |                 | 1,842
|                      |  |                 |      
|                      |  |                 | 7,479
|                      |  |                 |      

Cash equivalents  bank
deposits, whose maturities at the time of the deposit, did not exceed 3 months.

*   Reclassified
** Mainly in US dollars.

-23-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

Note 6 
  Trade and other receivables

Consist of:

|    |                                                 |  | December
  31   |         
|--- | ----------------------------------------------- |  | --------------- | --------
|    |                                                 |  |                 |         
|    |                                                 |  | 2003            |         
|    |                                                 |  |                 |         
|    |                                                 |  | NIS
  thousands |         
|    |                                                 |  |                 |         
|(1) | Trade
  receivables:                            |  |                 |         
|    | Customers
   open accounts                     |  |                 | 714,253 
|    | Income
  receivable                             |  |                 | 19,800  
|    | Checks
  and notes receivable                   |  |                 | 204,622 
|    | Credit
  card companies                         |  |                 | 100,115 
|    | Current
  maturities of long-term loans granted |  |                 | 30,204  
|    | Less
  provision for doubtful debts             |  |                 | (103,380
|    |                                                 |  |                 |         
|    |                                                 |  |                 | 965,614 
|    |                                                 |  |                 |         
|(2) | Other
  receivables:                            |  |                 |         
|    | Fuel
  Authority                                |  |                 | 4,212   
|    | Government
  agencies                           |  |                 | 424     
|    | Income
  receivable                             |  |                 | 963     
|    | Income
  tax receivable                         |  |                 | 4,383   
|    | Employees                                       |  |                 | 1,188   
|    | Prepaid
  expenses                              |  |                 | 10,435  
|    | Deferred
  taxes, net**                         |  |                 | 33,896  
|    | Current
  maturities of long-term receivables   |  |                 | -       
|    | Others                                          |  |                 | 16,236  
|    |                                                 |  |                 |         
|    |                                                 |  |                 | 71,737  
|    |                                                 |  |                 |         
|(3) | Receivables
  for work in progress:             |  |                 |         
|    | Income
  receivable                             |  |                 | 62,114  
|    | Less
  receipts on account of work in progress  |  |                 | 47,671  
|    |                                                 |  |                 |         
|    |                                                 |  |                 | 14,443  
|    |                                                 |  |                 |         
|(4) | For credit risks see Note
  28e.                |  |                 |         
|    |                                                 |  |                 |         
|    | *   Reclassified                                |  |                 |         
|    | ** See Note 26                                  |  |                 |         

Note 7 
  Inventories

Consist of:

| |                                         |                                                    | December 31     |        
| | --------------------------------------- | -------------------------------------------------- | --------------- | -------
| |                                         |                                                    |                 |        
| |                                         |                                                    | 2003            |        
| |                                         |                                                    |                 |        
| |                                         |                                                    | NIS
  thousands |        
| |                                         |                                                    |                 |        
| |                                         |                                                    |                 |        
| | Crude oil and raw
  materials           |                                                    |                 | 48,184 
| | Finished goods                          |                                                    |                 | 234,055
| | Auxiliary materials                     |                                                    |                 | 12,933 
| | Goods in process                        |                                                    |                 | 6,574  
| | Inventory of work in
  process, net (1) |                                                    |                 | 5,077  
| |                                         |                                                    |                 |        
| |                                         |                                                    |                 | 306,823
| | Less non-current
  inventories (2)      |                                                    |                 | 110,981
| |                                         |                                                    |                 |        
| |                                         |                                                    |                 | 195,842
| |                                         |                                                    |                 |        
| |                                         |                                                    |                 |        
| |                                         |                                                    |                 |        
| | (1)                                     | Inventory of work in
  process                     |                 |        
| |                                         | Less amount reflected in
  the statement of income |                 |        
| |                                         |                                                    |                 |        
| |                                         |                                                    |                 | 5,077  
| |                                         |                                                    |                 |        
| | (2)                                     | See Note 2.c.1                                     |                 |        

-24-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

Note 8 
  Investee companies and other investments

| |                                                                                      |  | December
  31   |        
| | ------------------------------------------------------------------------------------ |  | --------------- | -------
| |                                                                                      |  |                 |        
| |                                                                                      |  | 2003            |        
| |                                                                                      |  |                 |        
| |                                                                                      |  | NIS
  thousands |        
| |                                                                                      |  |                 |        
| | Affiliated
  companies and others:                                                   |  |                 |        
| |                                                                                      |  |                 |        
| | Investments in affiliated
  companies                                                |  |                 |        
| |                                                                                      |  |                 |        
| | Balance of investments as
  at December 31, 1991                                     |  |                 | 12,575 
| |                                                                                      |  |                 |        
| | Changes as of January 1,
  1992:                                                     |  |                 |        
| | Cost of shares**                                                                     |  |                 | 146,693
| | Share in accumulated net
  losses                                                    |  |                 | (47,814
| | Write-down of investment                                                             |  |                 | (15,152
| | Long-term loans to
  affiliated companies (1)                                        |  |                 | 11,261 
| | Investment in capital
  notes of affiliated company (2)                              |  |                 | 6,936  
| | Classification to current
  assets (3)                                               |  |                 | (12,516
| | Presented in reserve for
  losses                                                    |  |                 | 1,530  
| |                                                                                      |  |                 |        
| |                                                                                      |  |                 | 103,513
| | Investment in shares on
  the cost basis after write down to
  recoverable value (4) |  |                 | 26,991 
| |                                                                                      |  |                 |        
| |                                                                                      |  |                 | 130,504
| |                                                                                      |  |                 |        
| |                                                                                      |  |                 |        
| | *   Reclassified                                                                     |  |                 |        
| | ** Including goodwill not
  yet fully amortized:                                     |  |                 |        
| |                                                                                      |  |                 |        
| | Original
  amount                                                                    |  |                 | 16,281 
| |                                                                                      |  |                 |        
| | Balance                                                                              |  |                 | 10,150 
| |                                                                                      |  |                 |        
| |                                                                                      |  |                 |        
| | Securities
  listed for trading on the Tel Aviv Stock Exchange:                      |  |                 |        
| |                                                                                      |  |                 |        
| | Affiliated companies:                                                                |  |                 |        
| |                                                                                      |  |                 |        
| | Book value                                                                           |  |                 | 75,437 
| |                                                                                      |  |                 |        
| | Stock exchange value                                                                 |  |                 | 28,381 
| |                                                                                      |  |                 |        
| |                                                                                      |  |                 |        
| | Companies at cost:                                                                   |  |                 |        
| |                                                                                      |  |                 |        
| | Book value                                                                           |  |                 | 3,369  
| |                                                                                      |  |                 |        
| | Stock exchange value                                                                 |  |                 | 7,580  
| |                                                                                      |  |                 |        

|(1) | The loans are index linked
  and bear interest at the rate of 0%-10% with no due date but not prior to
  January 1, 2005.   
|--- | ----------------------------------------------------------------------------------------------------------------------------
|(2) | Permanent capital notes
  issued by a limited partnership are unlinked and non-interest bearing.                            
|(3) | In January 2004, after
  signing MOU at December 2003, a subsidiary sold all its holdings in an
  affiliated company.       
|(4) | In 2003 a provision for a
  decline in the value of the investments of NIS 5,266 thousand was
  included.  See also Note 25.

-25-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

Note 8 
  Investee companies and other investments (contd.)

Changes in investment in affiliated companies:

| |                                                                                        |  | NIS
  thousands |  
| | -------------------------------------------------------------------------------------- |  | --------------- | -
| |                                                                                        |  |                 |  
| |                                                                                        |  |                 |  
| | Balance as at January 1,
  2003                                                        |  | 128,233         |  
| | Changes during the year:                                                               |  |                 |  
| | Investment in shares                                                                   |  | 646             |  
| | Investment in capital
  notes                                                          |  | 822             |  
| | Repayment of loans, net                                                                |  | (1,131          | )
| | Initial consolidation of
  former affiliated company (See Note 3)                      |  | 1,647           |  
| | Share in losses, net                                                                   |  | (17,189         | )
| | Reclassification of
  writedown of investment in affiliated company
  to equity losses |  | 1,919           |  
| | Dividend during the year
  of report                                                   |  | (303            | )
| | Reclassification to
  current assets                                                   |  | (12,516         | )
| | Changes in reserve for the
  losses                                                    |  | 1,385           |  
| |                                                                                        |  |                 |  
| |                                                                                        |  |                 |  
| | Balance as at December 31,
  2003                                                      |  | 103,513         |  
| |                                                                                        |  |                 |  

-26-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

Note 9 
  Loans and long-term receivables

|A. | In consolidated balance sheet
  comprised as follows:
|-- | -----------------------------------------------------

|                                                |  | December
  31   |        
|----------------------------------------------- |  | --------------- | -------
|                                                |  | 2003            |        
|                                                |  |                 |        
|                                                |  | NIS
  thousands |        
|                                                |  |                 |        
|                                                |  |                 |        
|Loans to customers (1)                          |  |                 | 141,910
|Other loans                                     |  |                 | 5,390  
|                                                |  |                 |        
|                                                |  |                 | 147,300
|Less current maturities                         |  |                 | 30,204 
|                                                |  |                 |        
|                                                |  |                 | 117,096
|                                                |  |                 |        
|                                                |  |                 |        
|Other receivables (2)                           |  |                 | -      
|Checks and notes for
  collection               |  |                 | 12,741 
|Less current maturities                         |  |                 | -      
|                                                |  |                 |        
|                                                |  |                 | 12,471 
|                                                |  |                 |        
|                                                |  |                 | 129,837
|                                                |  |                 |        
|                                                |  |                 |        
|Dates of repayment of
  loans:                  |  |                 |        
|Current maturities                              |  |                 | 30,204 
|Second year                                     |  |                 | 21,253 
|Third year                                      |  |                 | 18,967 
|Fourth year                                     |  |                 | 10,825 
|Fifth year                                      |  |                 | 9,068  
|Sixth year and thereafter
  or without due date |  |                 | 56,983 
|                                                |  |                 |        
|                                                |  |                 | 147,300
|                                                |  |                 |        
|*  Reclassified                                 |  |                 |        

|(1) | December 31, 2003  less provision of NIS 1,624
  thousand for the difference between the interest stated in the loan and
  market interest on the date of granting the credit to the customer.                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | Balance of long-term receivables in the Company from
  the sale of shares of an investee company. 
  According to the sales agreement, the balance of the debt that was
  linked to the consumer price index, was paid on April 22, 2003.  The discount rate of the balance of the
  debt in 2002 was 6%.

-27-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

Note 9 
  Loans and long-term receivables (contd.)

|B. | Breakdown
  of loans according to size of borrowers balances :
|-- | ---------------------------------------------------------------

| |                                       |  | December
  31, 2003 |    
| | ------------------------------------- |  | ------------------- | ---
| |                                       |  |                     |    
| | Borrowers balances of
  NIS thousands |  | Number of loans     |    
| |                                       |  |                     |    
| | Up to  1,000                          |  |                     | 125
| | From  1,000  10,000                  |  |                     | 43 
| | Over 10,000                           |  |                     | 2  
| |                                       |  |                     |    
| |                                       |  |                     | 170
| |                                       |  |                     |    

|   | A large part of the loans are covered by rental
  agreements and long-term supplier agreements in favor of companies in the
  Group and the companies have the right to offset amounts payable.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                
|C. | Linkage terms and interest rates on
  the loans:                                                                                                                                               

|                          |  | December
  31,  2003 | 
|------------------------- |  | -------------------- | 
|                          |  |                      | 
|                          |  | Unlinked             | 
|                          |  |                      | 
|Interest rates:           |  | 0%                   | 
|                          |  |                      | 
|                          |  | NIS
  thousands      | 
|                          |  |                      | 
|Loans to
  customers      |  | 6,335                | 
|Others                    |  | -                    | 
|                          |  |                      | 
|                          |  | 6,335                | 
|                          |  |                      | 
|Less current
  maturities |  |                      | 
|                          |  |                      | 
|                          |  |                      | 
|                          |  |                      | 

|D. | Regarding credit risks see Note 28.e.
|-- | -------------------------------------

-28-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

Note 10    Fixed assets

|a. | Consist
  of:
|-- | -------------

| |                                           |  | Land
  and
  buildings* |   | Machinery
  and
  equipment |   | Furniture,
  equipment and
  computers |   | Vehicles |   | Total     |  
| | ----------------------------------------- |  | ----------------------- | - | --------------------------- | - | -------------------------------------- | - | -------- | - | --------- | -
| |                                           |  |                         |   |                             |   |                                        |   |          |   |           |  
| |                                           |  | NIS
  thousands         |  
| |                                           |  |                         |  
| | Cost                                      |  |                         |   |                             |   |                                        |   |          |   |           |  
| | Balance at beginning
  of year            |  | 1,234,537               |   | 1,384,850                   |   | 166,216                                |   | 78,720   |   | 2,864,323 |  
| | Additions**                               |  | 55,275                  |   | 40,698                      |   | 12,936                                 |   | 7,391    |   | 116,300   |  
| | Disposals                                 |  | (7,173                  | ) | (3,121                      | ) | (766                                   | ) | (9,047   | ) | (20,107   | )
| |                                           |  |                         |   |                             |   |                                        |   |          |   |           |  
| | Balance at end of
  year                  |  | 1,282,639               |   | 1,422,427                   |   | 178,386                                |   | 77,064   |   | 2,960,516 |  
| |                                           |  |                         |   |                             |   |                                        |   |          |   |           |  
| | Accumulated
  depreciation                |  |                         |   |                             |   |                                        |   |          |   |           |  
| | Balance at beginning
  of year            |  | 455,402                 |   | 1,020,292                   |   | 115,594                                |   | 52,528   |   | 1,643,816 |  
| | Depreciation
  charged**                  |  | 30,979                  |   | 52,807                      |   | 18,763                                 |   | 7,300    |   | 109,849   |  
| | Depreciation on
  disposals               |  | (103                    | ) | (2,422                      | ) | (222                                   | ) | (6,631   | ) | (9,378    | )
| |                                           |  |                         |   |                             |   |                                        |   |          |   |           |  
| | Balance at end of
  year                  |  | 486,278                 |   | 1,070,677                   |   | 134,135                                |   | 53,197   |   | 1,744,287 |  
| |                                           |  |                         |   |                             |   |                                        |   |          |   |           |  
| | Provision for
  decline in value          |  |                         |   |                             |   |                                        |   |          |   |           |  
| | Losses from decline
  in value, net       |  | (29,752                 | ) | (3,013                      | ) | -                                      |   | -        |   | (32,765   | )
| | Withdrawals for
  assets sold             |  | 3,097                   |   | -                           |   | -                                      |   | -        |   | 3,097     |  
| |                                           |  |                         |   |                             |   |                                        |   |          |   |           |  
| | Balance at end of
  year                  |  | (26,655                 | ) | (3,013                      | ) | -                                      |   | -        |   | (29,668   | )
| |                                           |  |                         |   |                             |   |                                        |   |          |   |           |  
| | Depreciated balance
  as at Dec. 31, 2003 |  | 769,706                 |   | 348,737                     |   | 44,251                                 |   | 23,867   |   | 1,186,561 |  
| |                                           |  |                         |   |                             |   |                                        |   |          |   |           |  
| | Depreciated balance
  as at Dec. 31, 2002 |  | 779,135                 |   | 364,558                     |   | 50,622                                 |   | 26,192   |   | 1,220,507 |  
| |                                           |  |                         |   |                             |   |                                        |   |          |   |           |  

| | *   Including
  lesehold improvements 
  ** Including on behalf of an initially consolidated company (See Note 3).
| | ------------------------------------------------------------------------------------------------------------------

-29-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

Note 10 
  Fixed assets (contd.)_

|b. | Land and buildings include buildings on land leased
  by capital leasing at a cost of NIS 327,617 thousand for various original
  periods of 49-98 years ending in the years 2004-2072.  Land and buildings costing NIS 282,624
  thousand  have not yet been registered
  in the name of the Company or in subsidiaries in the Land Registry
  Office.  The main reason for the lack
  of registration is that the land settlement and subdivision procedures have
  not yet been completed.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | Land and buildings include buildings on leased land
  and leasehold improvements to rented property having a cost of NIS 20,359
  thousand and a depreciated cost of NIS 10,365 thousand.  The terms of the leases were for original  periods of 4 to 25 years.                                                                                                                                                                                                                              
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|c. | Financing expenses of NIS 5,458 thousand for loans
  and credit used to finance the construction of  fixed assets were charged to the cost of these assets.                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|d. | Regarding collaterals see Note 28.                                                                                                                                                                                                                                                                                                                                                                                                                                                           

Note 11 
  Other assets
Consist of:

|                                                |  | Depreciated
  balance |        
|----------------------------------------------- |  | --------------------- | -------
|                                                |  |                       |        
|                                                |  | December
  31         |        
|                                                |  |                       |        
|                                                |  | 2003                  |        
|                                                |  |                       |        
|                                                |  | NIS
  thousands       |        
|                                                |  |                       |        
|Other
  assets                                  |  |                       |        
|Leasing and deferred rental                     |  |                       | 31,612 
|Goodwill in subsidiaries                        |  |                       | 15,035 
|Concessions for oil and gas exploration (1)     |  |                       | 915    
|Delivery and filling station operation
  rights |  |                       | 69,829 
|Distribution rights                             |  |                       | 19,431 
|Others (2)                                      |  |                       | 21,015 
|                                                |  |                       |        
|                                                |  |                       | 157,837
|Long-term deferred taxes (See Note
  26)        |  |                       | 51,212 
|                                                |  |                       |        
|                                                |  |                       | 209,049
|                                                |  |                       |        

|(1) | See also Notes 25 and 31.a.                       
|--- | --------------------------------------------------
|(2) | After writeoff in the amount of NIS 2,715 thousand
|    |                                                   
|*   | Reclassified                                      

-30-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

Note 12
  -  Credits from banks and other credit
provided
Details of linkage and interest rates:

|                                        |  | December
  31, 2003  |  | December
  31,2002                  | 
|--------------------------------------- |  | -------------------- |  | ----------------------------------- | 
|                                        |  |                      |  |                                     | 
|Interest rates                          |  | Unlinked
  5.7%-9.4% |  | Linked to
  the
  index
  4.6%-6.5% | 
|                                        |  |                      |  |                                     | 
|                                        |  | NIS
  thousands      |  | NIS
  thousands                     | 
|                                        |  |                      |  |                                     | 
|Overdrafts                              |  | 1,345                |  | -                                   | 
|Short-term loans                        |  | 922,812              |  | -                                   | 
|Current maturities of
  long-term loans |  | 22,752               |  | 194,314                             | 
|                                        |  |                      |  |                                     | 
|Total credit from banks                 |  | 946,909              |  | 194,314                             | 
|Credit from others                      |  | -                    |  | 1,034                               | 
|                                        |  |                      |  |                                     | 
|                                        |  | 946,909              |  | 195,348                             | 
|                                        |  |                      |  |                                     | 

-31-

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Financial Statements  December 31,
  2003                 
|                                                           

Note 13
  Trade payables

The
liabilities include NIS 2,932 thousand balances of related and interested
parties (2002  NIS 36,437 thousand).
Linkage terms  See Note 18.

Note 14    Other payables

Consist of:

|                                                                |  | December
  31   |        
|--------------------------------------------------------------- |  | --------------- | -------
|                                                                |  | 2003            |        
|                                                                |  |                 |        
|                                                                |  | NIS
  thousands |        
|                                                                |  |                 |        
|                                                                |  |                 |        
|Liabilities to employees
  and other salary related liabilities |  |                 | 41,757 
|Institutions                                                    |  |                 | 72,390 
|Accrued expenses                                                |  |                 | 44,860 
|Income tax payable                                              |  |                 | 19,131 
|Deferred taxes                                                  |  |                 | 868    
|Reserve for losses of
  affiliated companies                    |  |                 | 1,530  
|Others                                                          |  |                 | 15,252 
|                                                                |  |                 |        
|                                                                |  |                 |        
|                                                                |  |                 | 195,788
|                                                                |  |                 |        

---

---

|Granite Hacarmel Investments
  Limited and its Subsidiaries
|-----------------------------------------------------------
|                                                           
|Notes to the Financial Statements
  as at December 31, 2003
|                                                           

Note 15 
  Long-term liabilities

|a. | Long-term
  loans
|-- | -----------------

Consist of:

|                                                    |  |          |         | December
  31   |              
|--------------------------------------------------- |  | -------- | ------- | --------------- | -------------
|                                                    |  | Rate of  |         |                 |              
|                                                    |  | interest |         | 2003            |              
|                                                    |  |          |         |                 |              
|                                                    |  | %        |         | NIS
  thousands |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|Loans
  from banks  index linked                   |  |          | 4.6-6.5 |                 |              
|Loans
  from banks  unlinked                       |  |          | 7.6     |                 |              
|Customers
  deposits  index linked                 |  |          | -       |                 |              
|Customers
  deposits  linked to foreign   currency |  |          | -       |                 |              
|Loans
  from banks  linked to foreign   currency   |  |          | 2.4     |                 |              
|Loans
  from others  index linked                  |  |          | 4.5     |                 |              
|Capital
  notes  unlinked                          |  |          | -       |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|Less
  current maturities                           |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|Maturity dates:                                     |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 | December 31  
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 | 2003         
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 | NIS thousands
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|First
  year  current maturities                   |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|Second
  year                                       |  |          |         |                 |              
|Third
  year                                        |  |          |         |                 |              
|Fourth
  year                                       |  |          |         |                 |              
|Fifth
  year                                        |  |          |         |                 |              
|Sixth
  year and thereafter                         |  |          |         |                 |              
|Without
  due date                                  |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              
|                                                    |  |          |         |                 |              

Accrued interest is included
in current liabilities in other payables.

*
Reclassified

-33-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 15   Long-term liabilities (contd.)

|b. | In order to obtain the long-term bank credit taken
  by the Company and Sonol, the Company undertook the following covenants to
  the main banks providing the credit:                                                                                                                                                                                   
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                          
|   | 1.                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                          
|   | 2.                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                          
|   | 3.                                                                                                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                                          
|   | On the date of editing the financial statements the
  Company has complied with the covenants. In addition the Company and certain
  subsidiaries agreed not to create a specific collateral on its assets
  (excluding a certain specific existing collateral, and excluding a collateral
  to finance the acquisition and development of those assets).

Note 16   Customers deposits

|a. | The deposits are
  calculated on the basis of present value at an annual rate of interest of 4%.                                  
|-- | ----------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                   
|b. | Customers deposits
  include NIS 32,747 thousand (2002  NIS 36,894 thousand) of linkage
  differences accrued on these deposits.

Note 17   Liabilities for severance pay, net

Consist of:

|                                           |  | December
  31 |       
|------------------------------------------ |  | ------------- | ------
|                                           |  |               |       
|                                           |  | 2003          |       
|                                           |  |               |       
|                                           |  | NIS thousands |       
|                                           |  |               |       
|Liabilities
  for severance pay (a)        |  |               | 14,305
|Less 
  Funded amounts deposited**        |  |               | 5,012 
|                                           |  |               |       
|                                           |  |               | 9,293 
|Liabilities
  for early pension (b)*       |  |               | 11,348
|Reserve
  for redemption of sick leave (c) |  |               | 2,194 
|                                           |  |               |       
|                                           |  |               | 22,835
|                                           |  |               |       

|*  | Does not include NIS 7,445 thousand (2002 - 8,897
  thousand) the current portion of severance pay, net, included in other
  payables.                                        
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                               
|** | The deposited funded amount can be withdrawn subject
  to the provisions of the law. 
  Accumulated profits on these funded amounts are included in the
  statement of income.

-34-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 17   Liabilities for severance pay, net (contd.)

|(a) | The Companys liabilities and those of its investee
  companies for payments of pension and severance pay are fully covered by
  provisions for severance pay, deposits in approved pension and severance pay
  funds and managers insurance programs. 
  The deposits in the approved pension and severance pay funds and the
  deposits in managers insurance programs are not included in the financial
  statements as they are not controlled by the companies.                                                                                                                                                                                     
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(b) | The liabilities for early pension are calculated at
  the present value of future liabilities for employees who retire.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|    | The liabilities are until such time when the
  employee reaches the age of 65 (women up to the age of 60) and are calculated
  at a fixed percentage of the maximum pension due to the employee from the
  pension fund.  The discount rate used
  in calculating the liability is based on the stock exchange discount rate for
  annual interest charged on index linked amounts, in effect on the date of the
  employees retirement from the Company.                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    | Subsequent to the balance sheet date a law was
  enacted in the Knesset, according to which retirement ages as of April 1,
  2004 will be delayed gradually until the age of 67 for men and 62 for
  women.  Against this the Minister of
  Finance submitted a letter to the chairman of the Finance Committee of the
  Knesset, according to which an annual fund for severance pay will be provided
  for those harmed by the implementation of the law, including employers.  The Companys management is examining all
  the financial and legal aspects as a result of the implementation of the law,
  and its effects on the Companys liabilities.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|(c) | According to labor agreements between investee
  companies and their employees, an employee who retires, is entitled to
  receive a partial redemption of the unused sick pay subject to a maximum
  number of sick days.  The reserve was
  prepared in part according to actuarial calculations and in part on the basis
  of past experience based, inter alia, on a net discount  rate (after taking into account the rate
  of real wage costs) of 3%.                                                                                                                                                                                                

-35-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 18   Linkage of monetary balances

|                                                                               |  | December 31, 2003       |         | December 31, 2002                     | 
|------------------------------------------------------------------------------ |  | ----------------------- | ------- | ------------------------------------- | 
|                                                                               |  |                         |         |                                       | 
|                                                                               |  | Linked
  to the
  index |         | Linked
  to
  foreign
  currency
  ** | 
|                                                                               |  |                         |         |                                       | 
|                                                                               |  | NIS thousands           |         | NIS thousands                         | 
|                                                                               |  |                         |         |                                       | 
|                                                                               |  |                         |         |                                       | 
|Financial assets:                                                              |  |                         |         |                                       | 
|                                                                               |  |                         |         |                                       | 
|Cash and cash equivalents                                                      |  |                         | -       |                                       | 
|Customers and receivables
  for
       work in progress                        |  |                         | 20,249  |                                       | 
|Other receivables                                                              |  |                         | 778     |                                       | 
|Investments in loans and
       capital notes                                  |  |                         | 7,255   |                                       | 
|Long-term loans, net                                                           |  |                         | 67,472  |                                       | 
|                                                                               |  |                         |         |                                       | 
|                                                                               |  |                         | 95,754  |                                       | 
|                                                                               |  |                         |         |                                       | 
|                                                                               |  |                         |         |                                       | 
|Financial liabilities:                                                         |  |                         |         |                                       | 
|                                                                               |  |                         |         |                                       | 
|Credit from banks and
  others
       (excluding 
  current
       maturities) |  |                         | 1,034   |                                       | 
|Trade payables                                                                 |  |                         | 2,343   |                                       | 
|Other payables                                                                 |  |                         | 24,524  |                                       | 
|Long-term loans (including
       current maturities)                          |  |                         | 706,841 |                                       | 
|Deposits from customers                                                        |  |                         | 58,102  |                                       | 
|                                                                               |  |                         |         |                                       | 
|                                                                               |  |                         | 792,844 |                                       | 
|                                                                               |  |                         |         |                                       | 

|*   | Reclassified                 
|--- | -----------------------------
|**  | Mainly US dollars            
|*** | Part of which bear
  interest

Against
the excess of liabilities linked to foreign currency totaling NIS 150,500
thousand (2002  NIS 152,100 thousand) Sonol holds inventories of fuel totaling
NIS 156,600 thousand (2002  NIS 181,900 thousand), which are mainly Security
inventories valued according to changes in the rate of exchange of the dollar
as explained in Note 2.c.1.

-36-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 19   Share capital

|a. | Nominal
|-- | -------

|                                                        |  | Authorized            |         | Issued and
  paid up* | 
|------------------------------------------------------- |  | --------------------- | ------- | --------------------- | 
|                                                        |  |                       |         |                       | 
|                                                        |  | December
  31,
  2003 |         | December
  31,
  2002 | 
|                                                        |  |                       |         |                       | 
|                                                        |  | NIS
  thousands       |         | NIS
  thousands       | 
|                                                        |  |                       |         |                       | 
|225,000,000 ordinary
  shares of
  NIS 1 par value each |  |                       | 225,000 |                       | 
|                                                        |  |                       |         |                       | 

|* | 139,335,657 ordinary
  shares                                                                  
|- | -----------------------------------------------------------------------------------------------
|  | As of December 31, 2003
  and 2002 a subsidiary holds 1,565,540 ordinary shares of the Company.
|  | All the shares are listed
  for trading on the Tel Aviv Stock Exchange.                        

|b. | (Loss)
  Earnings per share                                                       
|-- | ----------------------------------------------------------------------------------
|   |                                                                                   
|1. | Adjusted net (loss) income
  used in calculating earnings per share is as follows:

| |                                               |  | For the year ended December 31 |        
| | --------------------------------------------- |  | ------------------------------ | -------
| |                                               |  |                                |        
| |                                               |  | 2003                           |        
| |                                               |  |                                |        
| |                                               |  | NIS thousands                  |        
| |                                               |  |                                |        
| |                                               |  |                                |        
| | Net (loss) income per
  statement
  of income |  |                                | (96,046
| |                                               |  |                                |        

|2. | The par value of the
  shares used for calculating net income per NIS 1 par value of shares:
|-- | --------------------------------------------------------------------------------------------

| |                                                            |  | For the year ended December 31 |        
| | ---------------------------------------------------------- |  | ------------------------------ | -------
| |                                                            |  |                                |        
| |                                                            |  | 2003                           |        
| |                                                            |  |                                |        
| |                                                            |  | NIS thousands par value        |        
| |                                                            |  |                                |        
| |                                                            |  |                                |        
| | Share capital in
  calculating
  primary earning per share |  |                                | 137,770
| |                                                            |  |                                |        

Note 20   Net sales

| |                          |  | For the year ended December 31 |          
| | ------------------------ |  | ------------------------------ | ---------
| |                          |  |                                |          
| |                          |  | 2003                           |          
| |                          |  |                                |          
| |                          |  | NIS thousands                  |          
| |                          |  |                                |          
| |                          |  |                                |          
| | Commercial operations    |  |                                | 2,429,723
| | Manufacturing operations |  |                                | 439,654  
| | Other operations         |  |                                | 17,696   
| |                          |  |                                |          
| |                          |  |                                | 2,887,073
| |                          |  |                                |          

-37-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 21   Cost of sales

Consolidated:

|a. | Consist of:
|-- | -----------

| |                                           |  | For the year ended December 31 |          
| | ----------------------------------------- |  | ------------------------------ | ---------
| |                                           |  |                                |          
| |                                           |  | 2003                           |          
| |                                           |  |                                |          
| |                                           |  | NIS thousands                  |          
| |                                           |  |                                |          
| |                                           |  |                                |          
| | Fuel products and other
  materials used* |  |                                | 1,974,209
| |                                           |  |                                |          
| | Wages and outsourcing                     |  |                                | 42,971   
| |                                           |  |                                |          
| | Manufacturing expenses                    |  |                                | 89,439   
| |                                           |  |                                |          
| | Depreciation and
  amortization           |  |                                | 20,498   
| |                                           |  |                                |          
| |                                           |  |                                |          
| | Total cost of sales                       |  |                                | 2,127,117
| |                                           |  |                                |          
| |                                           |  |                                |          
| | Decrease (increase) in inventories        |  |                                | 24,542   
| |                                           |  |                                |          

|   | *                                          | Financing income
  (expenses) deriving from the erosion of dollar linked credit used  as a source of financing for the
  acquisition of inventories of fuel included in the Cost of sales (See also Note
  2.c.1)
|-- | ------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                           
|b. | Categories according to types of
  income:

| |                          |  | For the year ended December 31 |          
| | ------------------------ |  | ------------------------------ | ---------
| |                          |  |                                |          
| |                          |  | 2003                           |          
| |                          |  |                                |          
| |                          |  | NIS thousands                  |          
| |                          |  |                                |          
| |                          |  |                                |          
| | Commercial operations    |  |                                | 1,819,389
| |                          |  |                                |          
| | Manufacturing operations |  |                                | 298,606  
| |                          |  |                                |          
| | Other operations         |  |                                | 9,122    
| |                          |  |                                |          
| |                          |  |                                | 2,127,117
| |                          |  |                                |          

-38-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 22   Selling and marketing expenses

Consist
of:

| |                                                                       |  | For the year ended December 31 |        
| | --------------------------------------------------------------------- |  | ------------------------------ | -------
| |                                                                       |  |                                |        
| |                                                                       |  | 2003                           |        
| |                                                                       |  |                                |        
| |                                                                       |  | NIS thousands                  |        
| |                                                                       |  |                                |        
| |                                                                       |  |                                |        
| | Wages and salaries                                                    |  |                                | 162,731
| | Advertising                                                           |  |                                | 25,998 
| | Depreciation and
  amortization                                       |  |                                | 85,294 
| | Maintenance of buildings,
  installations and
       filling stations |  |                                | 31,728 
| | Rent and municipal taxes                                              |  |                                | 105,617
| | Transport and maintenance
  of commercial
       vehicles             |  |                                | 55,528 
| | Other expenses                                                        |  |                                | 33,947 
| |                                                                       |  |                                |        
| |                                                                       |  |                                | 500,843
| |                                                                       |  |                                |        

Note 23   General and administrative expenses

Consist
of:

| |                                    |  | For the year ended December 31 |        
| | ---------------------------------- |  | ------------------------------ | -------
| |                                    |  |                                |        
| |                                    |  | 2003                           |        
| |                                    |  |                                |        
| |                                    |  | NIS thousands                  |        
| |                                    |  |                                |        
| |                                    |  |                                |        
| | Wages and salaries                 |  |                                | 56,790 
| | Depreciation and
  amortization    |  |                                | 17,110 
| | Consulting, legal and
  auditing   |  |                                | 12,736 
| | Provision for doubtful/bad
  debts |  |                                | 48,954 
| | Other expenses                     |  |                                | 18,422 
| |                                    |  |                                |        
| |                                    |  |                                | 154,012
| |                                    |  |                                |        
| | * Reclassified                     |  |                                |        

Note 24   Financing (expenses) income, net

(Expenses)
income are derived from:

|                                                                                        |  | For the year ended December 31 |         
|--------------------------------------------------------------------------------------- |  | ------------------------------ | --------
|                                                                                        |  |                                |         
|                                                                                        |  | 2003                           |         
|                                                                                        |  |                                |         
|                                                                                        |  | NIS thousands                  |         
|                                                                                        |  |                                |         
|Long-term liabilities                                                                   |  |                                | (58,480 
|Marketable securities, net                                                              |  |                                | 5,460   
|Other receivables and
  payables                                                        |  |                                | 2,379   
|Short-term loans received                                                               |  |                                | (92,540 
|Convertible debentures
  linked to the dollar                                           |  |                                | -       
|(Loss) gain from forward
  transactions                                                 |  |                                | (1,308  
|Others, including erosion
  of other monetary
              assets and liabilities, net |  |                                | 13,984  
|                                                                                        |  |                                |         
|                                                                                        |  |                                | (130,505
|                                                                                        |  |                                |         

-39-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

| | Note 25   Other (expenses) income, net
| | ---------------------------------------
| |                                        
| | Consist of:                            

| |                                                                                  |  | For the year ended December 31 |        
| | -------------------------------------------------------------------------------- |  | ------------------------------ | -------
| |                                                                                  |  |                                |        
| |                                                                                  |  | 2003                           |        
| |                                                                                  |  |                                |        
| |                                                                                  |  | NIS thousands                  |        
| |                                                                                  |  |                                |        
| |                                                                                  |  |                                |        
| | Provisions for a decline
  in the value of
  fixed and other assets (a)          |  |                                | (35,480
| | Amortization of assets and
  concessions for
  prospecting for oil and gas (b)   |  |                                | (12,924
| | Write-off of investment in
  affiliated
  company and on the basis of costs, net |  |                                | (5,266 
| | Management fees                                                                  |  |                                | 1,517  
| | Leasing                                                                          |  |                                | 673    
| | Dividends and shares
  received                                                  |  |                                | 145    
| | (Loss) gain from realizing
  investment in
  investee companies                  |  |                                | -      
| | Miscellaneous, net  (c)                                                          |  |                                | (10,832
| |                                                                                  |  |                                |        
| |                                                                                  |  |                                | (62,167
| |                                                                                  |  |                                |        

| | (a) | See also Note 2(q)                                                  
| | --- | --------------------------------------------------------------------
| | (b) | See also Note 31(a)                                                 
| | (c) | Including expenses and provisions for settling
  claims and demands.

Note 26   Taxes on income

|A. | The Company and most of its subsidiaries are
  assessed under the Income Tax Law (Adjustments for Inflation)  1985,
  hereinafter the Adjustments Law, in effect from the 1985 tax year  which
  introduced the measurement of results for tax purposes in real terms.  The various adjustments required by the
  above law should result in taxation based on real income.  Nevertheless, the adjustment of nominal
  income according to the tax Laws is not always identical to the inflationary
  adjustment pursuant to the Pronouncements of the Institute of Certified
  Public Accountants.  As a result,
  differences arise between the adjusted income according to the financial
  statements and the adjusted income for income tax purposes.
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   | In the financial statements for 2003 the Company
  implemented the law as written and took into account the negative rate of
  change of the index in calculating the tax provision.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

-40-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 26   Taxes on income (contd.)

|B. | Amendments to the Income Tax
  Ordinance and the Land Betterment Tax Law
|-- | ------------------------------------------------------------------------
|   |                                                                         
|1. |                                                                         
|   |                                                                         
|   |                                                                         
|2. |                                                                         
|   |                                                                         
|3. |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         
|   |                                                                         

-41-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 26   Taxes on income (contd.)

|B. | The amendments to the Income Tax
  Ordinance and the Land Betterment Tax Law (contd.)
|-- | -------------------------------------------------------------------------------------
|   |                                                                                      
|   |                                                                                      
|   |                                                                                      
|   |                                                                                      
|   |                                                                                      
|   |                                                                                      
|   |                                                                                      
|   |                                                                                      
|   |                                                                                      
|   |                                                                                      

-42-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 26   Taxes on income (contd.)

|C. | Deferred taxes          
|-- | ------------------------
|   |                         
|   | For the following items:

|                                                |  | Depreciable
  fixed assets |         | Deductions
  and losses
  transferable
  for tax
  purposes |  | Liabilities
  for
  severance
  pay, net |  | Other |        | Total | 
|----------------------------------------------- |  | -------------------------- | ------- | ----------------------------------------------------------- |  | ---------------------------------------- |  | ----- | ------ | ----- | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|                                                |  | NIS thousands              |        
|                                                |  |                            |        
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|Balance as at January 1,
  2002                 |  |                            | (69,362 | )                                                           |  | 295                                      |  |       | 24,709 |       | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|Changes
  in 2002:                              |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|Current                                         |  |                            | (438    | )                                                           |  | 3,060                                    |  |       | (7,322 | )     | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|Addition for company
  initially
  consolidated |  |                            | -       |                                                             |  | 462                                      |  |       | 36     |       | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|Balance as at December 31,
  2002               |  |                            | (69,800 | )                                                           |  | 3,817                                    |  |       | 17,423 |       | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|Changes
  in 2003:                              |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|Current                                         |  |                            | (1,013  | )                                                           |  | 17,092                                   |  |       | (2,807 | )     | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 
|Balance as at December 31,
  2003               |  |                            | (70,813 | )                                                           |  | 20,909                                   |  |       | 14,616 |       | 
|                                                |  |                            |         |                                                             |  |                                          |  |       |        |       | 

The
deferred taxes are presented in the balance sheets as follows:

|                                             |  | December
  31 |        
|-------------------------------------------- |  | ------------- | -------
|                                             |  |               |        
|                                             |  | 2003          |        
|                                             |  |               |        
|                                             |  | NIS thousands |        
|                                             |  |               |        
|                                             |  |               |        
|In current assets                            |  |               | 33,896 
|In current liabilities                       |  |               | (868   
|In other assets and
  deferred expenses, net |  |               | 51,212 
|In long-term liabilities                     |  |               | (68,585
|                                             |  |               |        
|                                             |  |               | 15,655 
|                                             |  |               |        

*   Reclassified

-43-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 26   Taxes on income (contd.)

|D. | The provision in the statement of
  income consists of:  expense (income):
|-- | ---------------------------------------------------------------------------

| |                                                                  |  | For the year ended December 31 |        
| | ---------------------------------------------------------------- |  | ------------------------------ | -------
| |                                                                  |  |                                |        
| |                                                                  |  | 2003                           |        
| |                                                                  |  |                                |        
| |                                                                  |  | NIS thousands                  |        
| |                                                                  |  |                                |        
| |                                                                  |  |                                |        
| | Current taxes including
  erosion of
       advance tax payments |  |                                | 20,889 
| | Deferred taxes, net                                              |  |                                | (31,396
| |                                                                  |  |                                |        
| |                                                                  |  |                                |        
| |                                                                  |  |                                | (10,507
| |                                                                  |  |                                |        
| | Taxes on account of
  previous years                             |  |                                | 879    
| |                                                                  |  |                                |        
| |                                                                  |  |                                |        
| |                                                                  |  |                                | (9,628 
| |                                                                  |  |                                |        
| |                                                                  |  |                                |        

|E. | Final assessments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The Company, Sonol and Supergas received final
  assessments through the 1999 tax year. 
  The assessments for these companies were completed in 2002 within the
  framework of a compromise with the Tax Authorities.  The net effect, part of which results from timing differences,
  was included in financial results for 2002. 
  Sprint Motors Ltd. received final tax assessments through 1998. All
  other companies in the Group, have final tax assessments within the framework
  of Section 145(a)(2)  Income Tax Ordinance (Statute of Limitations) through
  years 1997 and 1998.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|F. | Losses, deductions and additional
  tax for the purpose of tax to be carried forward to future years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | Losses for tax purposes of the Company and its
  subsidiaries to be carried forward to future years, as of the balance sheet
  date reached an adjusted amount of NIS 99,000 thousand.                                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   | The balances of losses and deductions carried
  forward to following years are index linked - in accordance with the
  Adjustments Law mentioned in (a) above.                                                                                                                                                                                                                                                                                                                                                                                                                                   

-44-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 26   Taxes on income (contd.)

|G. | Reconciliation between the
  theoretical tax on pre-tax adjusted income and the provision for tax included
  in the statements
|-- | ------------------------------------------------------------------------------------------------------------------------------

| |                                                                                                                |  | For the year ended December 31 |        
| | -------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | -------
| |                                                                                                                |  |                                |        
| |                                                                                                                |  | 2003                           |        
| |                                                                                                                |  |                                |        
| |                                                                                                                |  | NIS thousands                  |        
| |                                                                                                                |  |                                |        
| |                                                                                                                |  |                                |        
| | Statutory tax rates                                                                                            |  |                                | 36     
| |                                                                                                                |  |                                |        
| |                                                                                                                |  |                                |        
| | Theoretical tax per
  applicablet tax rates                                                                    |  |                                | (31,526
| |                                                                                                                |  |                                |        
| | Differences in definition
  of capital, assets
       and expenses for tax purposes and others,
       net (1) |  |                                | 21,108 
| |                                                                                                                |  |                                |        
| | Erosion of advance tax
  payments                                                                              |  |                                | (89    
| |                                                                                                                |  |                                |        
| | Taxes on account of
  previous years                                                                           |  |                                | 879    
| |                                                                                                                |  |                                |        
| |                                                                                                                |  |                                | (9,628 
| |                                                                                                                |  |                                |        

| | (1)            | Including NIS 9,770
  thousand for losses and deductions on which no deferred taxes were
  apportioned
| | -------------- | ------------------------------------------------------------------------------------------------------
| |                |                                                                                                       
| | * Reclassified

-45-

---

---

|                                                           
|-----------------------------------------------------------
|Granite
  Hacarmel Investments Limited and its Subsidiaries
|                                                           
|Notes to
  the Financial Statements as at December 31, 2003
|                                                           

Note 27   Segment reporting

Segment reporting by products and
services:

The accounting principles applied in the segment
reporting are in accordance with those adopted for the purpose of preparing and
presenting the Companys consolidated financial statements.

|                                                |  | For the
  year ended December 31, 2003 |          
|----------------------------------------------- |  | -------------------------------------- | ---------
|                                                |  |                                        |          
|                                                |  | Fueland gas                            |          
|                                                |  |                                        |          
|                                                |  | NIS thousands                          |          
|                                                |  |                                        |          
|                                                |  |                                        |          
|Profit
  and loss data:                         |  |                                        |          
|                                                |  |                                        |          
|Income                                          |  |                                        |          
|Net external sales                              |  |                                        | 2,400,768
|Sales within segments                           |  |                                        | -        
|                                                |  |                                        |          
|Total sales                                     |  |                                        | 2,400,768
|                                                |  |                                        |          
|                                                |  |                                        |          
|Results                                         |  |                                        |          
|                                                |  |                                        |          
|Segment results                                 |  |                                        | 83,040   
|Unallocated expenses                            |  |                                        |          
|                                                |  |                                        |          
|Income from operations                          |  |                                        |          
|Financing expenses                              |  |                                        |          
|Financing income                                |  |                                        |          
|Other expenses, net                             |  |                                        |          
|Taxes on income                                 |  |                                        |          
|Minority interest in
  results of subsidiaries  |  |                                        |          
|Share in results of
  affiliated companies, net |  |                                        | (717     
|                                                |  |                                        |          
|Net loss                                        |  |                                        |          
|                                                |  |                                        |          
|                                                |  |                                        |          
|Additional
  information                        |  |                                        |          
|                                                |  |                                        |          
|Segment assets                                  |  |                                        | 2,017,859
|Investments by the equity
  method              |  |                                        | 9,725    
|Unallocated assets                              |  |                                        |          
|                                                |  |                                        |          
|Total consolidated assets                       |  |                                        |          
|                                                |  |                                        |          
|                                                |  |                                        |          
|Segment liabilities                             |  |                                        | 256,994  
|Unallocated liabilities                         |  |                                        |          
|                                                |  |                                        |          
|Total consolidated
  liabilities                |  |                                        |          
|                                                |  |                                        |          
|                                                |  |                                        |          
|Capital investments                             |  |                                        | 127,521  
|Depreciation and
  amortization                 |  |                                        | 80,786   

-46-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

---

Note 27   Segment reporting (contd.)

|                                              |  | For the
  year ended December 31, 2002 |          
|--------------------------------------------- |  | -------------------------------------- | ---------
|                                              |  |                                        |          
|                                              |  | Fuel
  and Gas                         |          
|                                              |  |                                        |          
|                                              |  | NIS thousands                          |          
|                                              |  |                                        |          
|                                              |  |                                        |          
|Profit
  and loss data:                       |  |                                        |          
|                                              |  |                                        |          
|Income                                        |  |                                        |          
|                                              |  |                                        |          
|Net external sales                            |  |                                        | 2,390,410
|Sales within segments                         |  |                                        | -        
|                                              |  |                                        |          
|Total sales                                   |  |                                        | 2,390,410
|                                              |  |                                        |          
|                                              |  |                                        |          
|Results                                       |  |                                        |          
|                                              |  |                                        |          
|Segment results                               |  |                                        | 140,991  
|Unallocated expenses                          |  |                                        |          
|                                              |  |                                        |          
|Income from operations                        |  |                                        |          
|Financing expenses                            |  |                                        |          
|Financing income                              |  |                                        |          
|Other expenses, net                           |  |                                        |          
|Taxes on income                               |  |                                        |          
|Minority interest in results of subsidiaries  |  |                                        |          
|Share in results of affiliated companies, net |  |                                        | (318     
|                                              |  |                                        |          
|Net loss                                      |  |                                        |          
|                                              |  |                                        |          
|                                              |  |                                        |          
|Additional
  information                      |  |                                        |          
|                                              |  |                                        |          
|Segment assets                                |  |                                        | 2,071,957
|Investments by the equity method              |  |                                        | 8,982    
|Unallocated assets                            |  |                                        |          
|                                              |  |                                        |          
|Total consolidated assets                     |  |                                        |          
|                                              |  |                                        |          
|                                              |  |                                        |          
|Segment liabilities                           |  |                                        | 253,856  
|Unallocated liabilities                       |  |                                        |          
|                                              |  |                                        |          
|Total consolidated liabilities                |  |                                        |          
|                                              |  |                                        |          
|                                              |  |                                        |          
|Capital investments                           |  |                                        | 99,377   
|Depreciation and amortization                 |  |                                        | 88,688   

* Reclassified

-47-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 27   Segment reporting (contd.)

|                                              |  | For the
  year ended December 31, 2001 |          
|--------------------------------------------- |  | -------------------------------------- | ---------
|                                              |  |                                        |          
|                                              |  | Fuel
  and Gas                         |          
|                                              |  |                                        |          
|                                              |  | NIS thousands                          |          
|                                              |  |                                        |          
|                                              |  |                                        |          
|Profit
  and loss data:                       |  |                                        |          
|                                              |  |                                        |          
|Income                                        |  |                                        |          
|                                              |  |                                        |          
|Net external sales                            |  |                                        | 2,446,189
|Sales among segments                          |  |                                        | -        
|                                              |  |                                        |          
|Total sales                                   |  |                                        | 2,446,189
|                                              |  |                                        |          
|                                              |  |                                        |          
|Results                                       |  |                                        |          
|                                              |  |                                        |          
|Segment results                               |  |                                        | *138,563 
|Unallocated expenses                          |  |                                        |          
|                                              |  |                                        |          
|Income from operations                        |  |                                        |          
|Financing expenses                            |  |                                        |          
|Financing income                              |  |                                        |          
|Other expenses, net                           |  |                                        |          
|Taxes on income                               |  |                                        |          
|Minority interest in results of subsidiaries  |  |                                        |          
|Share in results of affiliated companies, net |  |                                        | (928     
|                                              |  |                                        |          
|                                              |  |                                        |          
|Net loss                                      |  |                                        |          
|                                              |  |                                        |          

* Reclassified

-48-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities

|A | Floating
  and fixed charges  
|- | ------------------------------
|  | In consolidated balance sheet:

| |                              |  | Dec. 31, 2003 |  |                                                                                                                                                                                                                                                                                                                                                           
| | ---------------------------- |  | ------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                              |  |               |  |                                                                                                                                                                                                                                                                                                                                                           
| |                              |  | NIS thousands |  | Secured
  by                                                                                                                                                                                                                                                                                                                                              
| |                              |  |               |  |                                                                                                                                                                                                                                                                                                                                                           
| | Bank overdrafts              |  | 1,345         |  | Floating charge on current assets of main investee
  companies and on non-current inventories of a subsidiary.                                                                                                                                                                                                                                            
| |                              |  |               |  |                                                                                                                                                                                                                                                                                                                                                           
| | Short-term loans from banks  |  | 1,102,213     |  | Charge on the shares of some of the investee
  companies and on current assets, non-current inventories and on other assets
  and on the land owned by some of the investee companies.                                                                                                                                                                    
| |                              |  |               |  |                                                                                                                                                                                                                                                                                                                                                           
| | Long-term loans from banks   |  | 933,663       |  | Charge on the shares of some of the investee
  companies.  Floating charge on current
  assets and on non-current inventories of some of the main investee companies,
  a charge on rights in land owned by 
  an investee company and a fixed charge on some of the fixed assets of
  some of the investee companies (see Note 15b, and paragraph C2(a)).
| |                              |  |               |  |                                                                                                                                                                                                                                                                                                                                                           
| | Investment grants            |  | 590           |  | Current and floating charge on a portion of of the
  fixed assets of subsidiaries.                                                                                                                                                                                                                                                                        
| |                              |  |               |  |                                                                                                                                                                                                                                                                                                                                                           
| | Rights of affiliated company |  | -             |  | A first mortgage on all the rights of an investee company
  in an affiliated company in order to secure 50% of the credit totaling NIS 75
  million provided to the affiliated company.                                                                                                                                                                   

-49-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|B. | Contingent
  liabilities and claims               
|-- | --------------------------------------------------
|   |                                                   
|1. | Indemnification
  and insurance of officers       
|   |                                                   
|   | A special general meeting of the Company approved:
|   | a.                                                
|   |                                                   
|   | b.                                                
|   |                                                   
|   | c.                                                
|   |                                                   
|2. | Pending
  litigation                              
|   |                                                   
|   | a.                                                
|   |                                                   
|   |                                                   

-50-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|B. | Contingent
  liabilities and claims (contd.)
|-- | --------------------------------------------
|   |                                             
|2. | Pending
  litigation (contd.)               
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             

-51-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|B. | Contingent
  liabilities and claims (contd.)
|-- | --------------------------------------------
|   |                                             
|2. | Pending
  litigation (contd.)               
|   |                                             
|   | b.                                          
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             

-52-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|B. | Contingent
  liabilities and claims (contd.)
|-- | --------------------------------------------
|   |                                             
|2. | Pending
  litigation (contd.)               
|   |                                             
|   | 3.                                          
|   |                                             
|   | 4.                                          
|   |                                             
|   | 5.                                          

-53-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28
  Collateral, commitments and contingent liabilities (contd.)

|B. | Contingent
  liabilities and claims (contd.)
|-- | --------------------------------------------
|   |                                             
|2. | Pending
  litigation (contd.)               
|   |                                             
|   |                                             
|   |                                             
|   | 6.                                          

-54-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28
  Collateral, commitments and contingent liabilities (contd.)

|B. | Contingent
  liabilities and claims (contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|2. | Pending
  litigation (contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | 7.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | 8.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|c. | In February 2000 a motion was filed against Sonol,
  together with Paz Oil Company Ltd. and Delek the Israel Fuel Corporation
  Ltd. to allow a class action relating to the alleged collusion in the price
  fixing of gasoil to consumers.  This
  claim, after being updated and, if allowed as a class action, will amount to
  approximately NIS. 244 million, of which Sonols share is approximately NIS.
  57 million. Sonol rejects the claim outright and, in the opinion of the
  companys management, based on the opinion of its legal counsel, chances are
  reasonable to good that it will not be allowed as a class action.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|d. | Additional claims filed against Sonol are:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|   | 1.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

-55-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28
  Collateral, commitments and contingent liabilities (contd.)

|B. | Contingent
  liabilities and claims (contd.)
|-- | --------------------------------------------
|   |                                             
|2. | Pending
  litigation (contd.)               
|   |                                             
|   | 2.                                          
|   |                                             
|   | 3.                                          
|   |                                             
|   | 4.                                          
|   |                                             
|   | 5.                                          
|   |                                             
|   | 6.                                          

-56-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|B. | Contingent
  liabilities and claims (contd.)                 
|-- | -------------------------------------------------------------
|   |                                                              
|2. | Pending
  litigation (contd.)                                
|   |                                                              
|   |                                                              
|   |                                                              
|   | 7.                                                           
|   |                                                              
|e. | Supergas is involved in class and other actions as
  follows:
|   |                                                              
|   | 1.                                                           

-57-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|B. | Contingent
  liabilities and claims (contd.)
|-- | --------------------------------------------
|   |                                             
|2. | Pending
  litigation (contd.)               
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             
|   |                                             

-58-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28
  Collateral, commitments and contingent liabilities (contd.)

|B. | Contingent
  liabilities and claims (contd.)                                                                                          
|-- | --------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                       
|2. | Pending
  litigation (contd.)                                                                                                         
|   |                                                                                                                                       
|   |                                                                                                                                       
|   |                                                                                                                                       
|   | f.                                                                                                                                    
|   |                                                                                                                                       
|   | g.                                                                                                                                    
|   |                                                                                                                                       
|   | In the opinion of the Companys management , the
  provisions made to cover the results of the claims detailed above are
  sufficient.
|   |                                                                                                                                       
|   | h.                                                                                                                                    

-59-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|C. | The
  subsidiaries have commitments and liabilities on the balance sheet date as
  follows:
|-- | -------------------------------------------------------------------------------------------
|   |                                                                                            
|1. | Commitments
  for investments:                                                             

|                                                                                                              |  | NIS thousands | 
|------------------------------------------------------------------------------------------------------------- |  | ------------- | 
|                                                                                                              |  |               | 
|Acquisition of fixed assets                                                                                   |  | 116,770       | 
|Supply of fuel, oil and equipment (delivery January
   December 2004)                                        |  | 572,701       | 
|Executing projects                                                                                            |  | 64,380        | 
|Rental and leasing of stations, installations and
  buildings from agents
    according to signed agreements* |  | 1,296,618     | 
|Leasing and rental of a computer and peripheral
  equipment for a period
  of up to a year                    |  | 4,183         | 
|Automobile operating lease agreements**                                                                       |  | 9,768         | 
|Amounts payable for management services (See Note
  30b).                                                     |  | 4,204         | 
|Amounts payable for consulting services (See Note
  30b).                                                     |  | 368           | 
|                                                                                                              |  |               | 
|* Following are dates of payment of the rental and
  leasing liabilities:                                     |  |               | 
|2004                                                                                                          |  | 104,670       | 
|2005                                                                                                          |  | 95,813        | 
|2006                                                                                                          |  | 90,908        | 
|2007                                                                                                          |  | 84,997        | 
|2008                                                                                                          |  | 81,085        | 
|2009 and thereafter                                                                                           |  | 839,145       | 
|                                                                                                              |  |               | 
|                                                                                                              |  | 1,296,618     | 
|                                                                                                              |  |               | 
|                                                                                                              |  |               | 
|** Following are the dates of payment of liabilities
  for operating lease
  agreements for vehicles:         |  |               | 
|2004                                                                                                          |  | 5,522         | 
|2005                                                                                                          |  | 3,277         | 
|2006                                                                                                          |  | 969           | 
|                                                                                                              |  |               | 
|                                                                                                              |  | 9,768         | 
|                                                                                                              |  |               | 

|2. | Commitments
  for investments:
|-- | ------------------------------
|   |                               
|   | a.                            
|   |                               
|   |                               

-60-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28
  Collateral, commitments and contingent liabilities (contd.)

|C. | The
  subsidiaries have commitments and liabilities on the balance sheet date as
  follows:  (contd.)
|-- | -----------------------------------------------------------------------------------------------------
|   |                                                                                                      
|2. | Commitments
  for investments: (contd.)                                                              
|   |                                                                                                      
|   | b.                                                                                                   
|   |                                                                                                      
|   | c.                                                                                                   
|   |                                                                                                      
|   | d.                                                                                                   
|   |                                                                                                      
|   | e.                                                                                                   
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      

-61-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|C. | The
  subsidiaries have commitments and liabilities on the balance sheet date as
  follows:  (contd.)
|-- | -----------------------------------------------------------------------------------------------------
|   |                                                                                                      
|2. | Commitments
  for investments: (contd.)                                                              
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      

-62-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|C. | The
  subsidiaries have commitments and liabilities on the balance sheet date as follows:  (contd.)
|-- | ---------------------------------------------------------------------------------------------------
|   |                                                                                                    
|2. | Commitments
  for investments: (contd.)                                                            
|   |                                                                                                    
|   |                                                                                                    
|   |                                                                                                    
|   |                                                                                                    
|   |                                                                                                    
|   |                                                                                                    
|   |                                                                                                    
|   |                                                                                                    
|   |                                                                                                    
|   |                                                                                                    

-63-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|C. | The
  subsidiaries have commitments and liabilities on the balance sheet date as
  follows:  (contd.)
|-- | -----------------------------------------------------------------------------------------------------
|   |                                                                                                      
|2. | Commitments
  for investments: (contd.)                                                              
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      

-64-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|C. | The
  subsidiaries have commitments and liabilities on the balance sheet date as
  follows:  (contd.)
|-- | -----------------------------------------------------------------------------------------------------
|   |                                                                                                      
|2. | Commitments
  for investments: (contd.)                                                              
|   |                                                                                                      
|   | f.                                                                                                   
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      
|   |                                                                                                      

-65-

---

---

Granite Hacarmel Investments Limited and its Subsidiaries

---

Note 28   Collateral, commitments and
contingent liabilities (contd.)

|D. | Subsidiaries
  have contingent liabilities on the balance sheet date as follows:
|-- | --------------------------------------------------------------------------------

|   |  |                                                                                                                                                                                                   |  | NIS thousands    | 
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | 
|   |  |                                                                                                                                                                                                   |  |                  | 
|1. |  | Acquisition of equipment  open letter of credit                                                                                                                                                  |  | 584              | 
|   |  |                                                                                                                                                                                                   |  |                  | 
|2. |  | Bank gurantees for customers and investee companies                                                                                                                                               |  | 65,340           | 
|   |  |                                                                                                                                                                                                   |  |                  | 
|3. |  | Performance guarantees to customers and others                                                                                                                                                    |  | 23,742           | 
|   |  |                                                                                                                                                                                                   |  |                  | 
|4. |  | Guarantees to the authorities                                                                                                                                                                     |  | 655              | 
|   |  |                                                                                                                                                                                                   |  |                  | 
|5. |  | Bank guarantees for credit and other liabilities of
  affiliated
  companies                                                                                                                      |  | 474              | 
|   |  |                                                                                                                                                                                                   |  |                  | 
|6. |  | Other guarantees*                                                                                                                                                                                 |  | 3,879            | 
|   |  |                                                                                                                                                                                                   |  |                  | 
|7. |  | A guarantee to a government agency on account of the
  liabilities of a subsidiary regarding its share in an oil and gas
  exploration drilling agreement                                         |  | Unlimited amount | 
|   |  |                                                                                                                                                                                                   |  |                  | 
|8. |  | A guarantee given on account of the liabilities of a
  subsidiary
  regarding participation in a tender                                                                                           |  | Unlimited amount | 
|   |  |                                                                                                                                                                                                   |  |                  | 
|9. |  | A guarantee to the State of Israel for grants that
  an affiliated
  company received from the Government of Israel in
  accordance with Law for the Encouragement of Capital
  Investments 1959 |  | Unlimited amount | 

|*  | On April 1, 2004 a guarantee, which on the balance
  sheet date stood at NIS 5 million will increase to NIS 13.2 million.  The guarantee was given in favor of the
  State of Israel regarding compliance with the provisions of Section 3a of the
  edict-Supervision of Goods and Services Prices (Prices at Filling Stations) 
  2002.                                                                       
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                  
|E. | Credit
  risks                                                                                                                                                                                                                                                                                                                                                                                                   
|   |                                                                                                                                                                                                                                                                                                                                                                                                                  
|1. | The maximium credit risk that the Company faces
  regarding its financial assets does not exceed the amount of their book value
  less existing collateral.                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                  
|2. | The concentration of  credit risks results from a subsidiary having a number of  customers and long-term receivables
  (long-term loans granted), which are of a similar nature (independent fuel
  agents).  The highest balance is that
  of an agent whose current debt (included in trade receivables) and  long-term debt (included in long-term
  loans granted) amounts to approximately NIS 25.3 million.
|   | A portion of amounts due from customers is
  collateralized as is customary in the industry.  In addition, the subsidiary has long-term service agreements
  which give it the right to offset amounts against the receivable payments.                                                                                                                                                                          
|   | The statements include a specific provision for
  debts whose collection in managements opinion is in doubt.                                                                                                                                                                                                                                                                                                    

-66-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

Note 28   Collateral, commitments and contingent liabilities
(contd.)

|F. | Forward currency transactions
|-- | -----------------------------

|                 |  | Currency
  receivable |  | Currency
  payable |  | Date of maturity /
  redemption /
  realization |  | Amounts
  receivable |       | Amounts
  payable |  | Fair
  value |      
|---------------- |  | --------------------- |  | ------------------ |  | ----------------------------------------------- |  | -------------------- | ----- | ----------------- |  | ------------ | -----
|                 |  |                       |  |                    |  |                                                 |  |                      |       |                   |  |              |      
|                 |  |                       |  |                    |  |                                                 |  | NIS
  thousands      |      
|                 |  |                       |  |                    |  |                                                 |  |                      |      
|                 |  | US dollars            |  | NIS                |  | (1)                                             |  |                      | 2,199 |                   |  |              | 2,204
|                 |  | Euro                  |  | NIS                |  | (1)                                             |  |                      | 2,765 |                   |  |              | 2,674
|                 |  |                       |  |                    |  |                                                 |  |                      |       |                   |  |              |      
|Total            |  |                       |  |                    |  |                                                 |  |                      | 4,964 |                   |  |              | 4,878
|                 |  |                       |  |                    |  |                                                 |  |                      |       |                   |  |              |      
|(1) January 2004 |  |                       |  |                    |  |                                                 |  |                      |       |                   |  |              |      

|G. | Fair value of financial instruments                                                                                                                                                                                                      
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                          
|   | The book amount of cash and cash equivalents,
  short-term investments, trade receivables, other receivables, credit from
  banks and others, liabilities for trade payables and other payables are equal
  or close to their fair value.
|   |                                                                                                                                                                                                                                          
|   | Fair value as at December 31, 2003 of long-term
  loans given, is higher by NIS 1.5 million than their book value.                                                                                                                       

Note 29   Events relating to the fuel sectorAccording to the Law for Arrangements in the State of Economy
 2001 and its regulations, changes have been enacted regarding the holding of
Emergency inventories of fuel products. According to the new regulations the
Security inventories are to be held in separate tanks at specified locations
and earmarked for use in times of emergency. 
In view of this, these inventories are presented as  Non-current inventories.  The State will continue to finance the holding
of the inventories and guarantee the value of the fuel defined as Security
inventories.  A regulation regarding
holding of Civilian inventories, stipulated in the same law, was cancelled in
2002.

Sonol is exposed to
changes in the value of its operating inventories used to meet its current
needs, as a result of fluctuations in fuel market prices.  Fluctuations in the fuel prices could
significantly affect Sonols periodic business results.  Sonol is exploring ways to minimize such
effects.  It is not possible to estimate
the effects of these changes on Sonols business results.

-67-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

Note 30   Transactions and balances with interested and
related parties

|a. | Income
  and expenses from interested and related parties
|-- | ---------------------------------------------------------
|   |                                                          
|1. | Consist of:                                              

|                                  |  | For the
  year December 31, | 
|--------------------------------- |  | --------------------------- | 
|                                  |  |                             | 
|                                  |  | 2003                        | 
|                                  |  |                             | 
|                                  |  | NIS
  thousands             | 
|                                  |  |                             | 
|                                  |  | Interested
  parties        | 
|                                  |  |                             | 
|Financing income                  |  | -                           | 
|Income from
  management services |  | -                           | 
|Purchase of fuel
  products       |  | 195,359                     | 
|Purchase of services              |  | 347                         | 

|2. | In purchases from an interested party the price of
  the transaction is determined by referring to the Oil Refineries Ltd. gate
  price at that time and to the prices which were offered by other competing
  suppliers.  The price of the
  transaction at all times was lower than any other alternative that Sonol had
  at that time.  The credit terms are
  not less than those which were given by the Oil Refineries Ltd. or by any
  other supplier.                                                      
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|3. | Other transactions with interested and related
  parties are also conducted in the normal course of business and at regular
  credit terms and do not exceed 10% of the Companys transactions.  The Company was granted an exemption
  pursuant to Section 64(3)d of the Securities Regulations [(Preparation of
  Annual Financial Statements (Amendment)]  1995 from the requirement to
  disclose transactions with interested parties and investee companies in the
  normal course of the Companys business.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|4. | Sonol purchases most of its fuel products from Oil
  Refineries Ltd. which is obligated to supply its products to the fuel
  companies  at refinery gate prices
  which are controlled by the government.                                                                                                                                                                                                                                                                                                           

-68-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

Note 30   Transactions and balances with interested and
related parties (contd.)

|b. | Benefits to interested parties
|-- | ------------------------------

|      |                                                  |  | For the
  year ended December 31, | 
|----- | ------------------------------------------------ |  | --------------------------------- | 
|      |                                                  |  |                                   | 
|Group |                                                  |  | Number of
  people                | 
|      |                                                  |  |                                   | 
|      |                                                  |  |                                   | 
|      |                                                  |  |                                   | 
|      |                                                  |  |                                   | 
|1.    | Interested party employed
  by the
  Corporation |  | 1-2                               | 
|      |                                                  |  |                                   | 
|2.    | Directors fees                                   |  | 12                                | 
|      |                                                  |  |                                   | 
|3.    | Management and consulting
  services**           |  |                                   | 

|4. | Regarding indemnity and
  insurance of directors and officers  see Note 28(b)(1)                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|5. | According to the employment agreement signed with
  the Companys Chief Executive Officer(CEO), the period of his employment will
  be until June 2006 (which be extended automatically unless terminated by one
  of the parties).  Should the Company
  terminate the agreement and/or should control in the Company be transferred
  within the meaning of the employment agreement, the CEO will be entitled to
  receive the balance of the salaries that he would have received up to June
  2006, but not less than for a period of 12 months.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|*  | Including payments to a former interested  party whose term ended  during 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|** | The Company has an agreement with an interested
  party to pay $40,000 per month for management services for a period of 36
  months beginning January 1, 2003.  The
  expenses for the management services were approved at the General Meeting of
  the Company.  In addition, the Company
  entered into an agreement with an interested party to pay $7,000 per month
  for consulting services.  Each of the
  parties may terminate the agreement with prior notice of two months to the
  other party.                                        

-69-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

Note 30   Transactions and balances with interested and
related parties (contd.)

|c. | Balances with interested and
  related parties
|-- | ----------------------------------------------

|                                                                 |  | December
  31, 2003  |  | December
  31, 2002 | 
|---------------------------------------------------------------- |  | -------------------- |  | ------------------- | 
|                                                                 |  |                      |  |                     | 
|                                                                 |  | NIS
  thousands      |  | NIS
  thousands     | 
|                                                                 |  |                      |  |                     | 
|                                                                 |  | Interested
  parties |  | Related
  parties   | 
|                                                                 |  |                      |  |                     | 
|Current
  assets                                                 |  |                      |  |                     | 
|                                                                 |  |                      |  |                     | 
|Trade receivables                                                |  | 1,144                |  | 1,141               | 
|Other receivables                                                |  | 54                   |  | -                   | 
|                                                                 |  |                      |  |                     | 
|                                                                 |  | 1,198                |  | 1,141               | 
|                                                                 |  |                      |  |                     | 
|Loans and capital notes to
  investee
  companies                |  |                      |  | 17,046              | 
|                                                                 |  |                      |  |                     | 
|Highest balance during the
  year with
  an interested party     |  | 2,006                |  |                     | 
|                                                                 |  |                      |  |                     | 
|Current
  liabilities                                            |  |                      |  |                     | 
|Trade liabilities                                                |  |                      |  | 2,932               | 
|Other liabilities                                                |  | -                    |  | 259                 | 
|                                                                 |  |                      |  |                     | 
|                                                                 |  | -                    |  | 3,191               | 
|                                                                 |  |                      |  |                     | 
|Highest balance during the
  year with
  interested party        |  | 32,489               |  |                     | 
|                                                                 |  |                      |  |                     | 
|Commitment for the
  acquisition of
  fuel from interested party |  | -                    |  |                     | 
|                                                                 |  |                      |  |                     | 

Note 31   Subsequent events

|a. | In February 2004, Isramco
  Inc, the operator of the Med-Ashdod holding, announced that the supply of
  gas from the well Nir-1, in which the Company is a partner, holding 35% of
  its rights, is not  economically feasibile.  The partners must inform the operator by
  not later than March 29, 2004 of their intentions. The balance of the
  Companys investment in the holdings concession rights is insignificant.                                                                                                                                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|b. | In February 2004 the
  Company submitted a proposal to Nitzba Hitnahalut for the purchase of Nitzba
  Hitnahaluts shares.  Concurrently,
  the Company announced negotiations taking place for the sale of its holdings.                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|c. | In February 2004, Tambour
  submitted a request to the Tel Aviv Jaffa District Court for the approval of
  a distribution pursuant to paragraph 303 of the Companies Law  1999 and for
  reduction in its capital deriving from the proposed distribution.  Tambours creditors may file an objection
  in court against  the proposed
  distribution within 30 days of the date of its filing the request or within a
  later period as determined by the court. 
  Tambour intends to pay a cash dividend to the Company of an amount not
  exceeding NIS 400,000 thousand, of which an amount not exceeding NIS 379,358
  thousand is a distribution not out of its profits.

-70-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

Note 31   Subsequent events (contd.)

|d. | Following a  claim filed by the fuel companies Paz,
  Delek and Sonol and Dor Energy against the Oil Refineries Ltd., Oil
  Infrastructures and Energy Ltd. and the State of Israel in November 2002
  totaling approximately NIS 25 million (Sonols share amounts to approximately
  NIS 4.6 million) on account of damages incurred  as a result of negligent maintenance of inventories  of crude oil, the State of Israel in March
  2004 submitted a claim against Sonol, Paz, Delek and Dor Energy and against
  the Oil Refineries and the Oil Infrastructures and Energy Ltd., contending
  that over the years they collected storage fees and insurance for the
  Emergency fuel inventories of the State of Israel.  According to the State it became clear retroactively that a
  considerable part of the inventories was not usable, having turned into
  sludge, due to the negligence of the Refineries, the Oil Infrastructure and
  Energy Ltd. and the other fuel companies noted above. Sonols share is
  approximately NIS 21 million.  The
  fuel companies reject the States contentions outright.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|e. | In March 2004 a financial claim was filed against
  Supergas by a supplier, in the amount of NIS 5 million.  The supplier contends that it carried out
  various projects for Supergas in the field of computerization, consulting and
  information systems, but Supergas did not pay all the amounts due for these
  projects.  Supergas management
  rejects the contentions in the claim outright.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

NOTE 32
  Financial statements translated into U.S. dollars

| | The financial records of the Company and its
  consolidated companies are maintained on a current basis in historical
  nominal New Israel Shekels and U.S. dollars.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | The translated consolidated financial statements,
  stated in U.S. dollars, have been prepared in accordance with generally
  accepted accounting principles for use in connection with the preparation of
  the financial statements of a U.S. shareholder.                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | The functional currency of the Company is the U.S.
  dollar. The consolidated financial statements in U.S. dollars are prepared in
  accordance with translation principles identical to those prescribed by
  Statement of Financial Accounting Standards No. 52 (F.A.S.B. 52), based on
  the historical nominal amounts.                                                                                                                                                                                                                                                                                                                                                                              
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | The financial statements of subsidiaries, whose
  functional currency is NIS., were translated into U.S. dollars according to
  the exchange rate in effect on the balance sheet date. Differences arising
  from the Companys investment in its subsidiaries based on the U.S. dollars,
  and the Companys share in the equity of these subsidiaries, translated to
  U.S. dollars at the current exchange rate, are included in Accumulated
  foreign currency translation adjustments in shareholders equity. Exchange
  rate differences arising from loans taken in NIS. for the financing of
  investments in subsidiaries, have also been included in that component of
  shareholders equity.

-71-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

NOTE 32
  Financial statements translated into U.S. dollars

| | CONSOLIDATED BALANCE SHEETS
  (In thousands)           | 
| | ------------------------------------------------------ | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| | Current
  assets                                       | 
| | Cash
  and cash equivalents                            | 
| | Marketable
  securities                                | 
| | Trade
  receivables                                    | 
| | Other
  receivables                                    | 
| | Receivables
  for work
      in progress               | 
| | Inventories                                            | 
| | Affiliated
  company designated for sale               | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| | Non-current inventories                                | 
| |                                                        | 
| |                                                        | 
| | Investments, long-term loans and
          receivables | 
| | Affiliated
  companies
       and other investments    | 
| | Long-term
  loans                                      | 
| | Deferred
  taxes, net                                  | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| | Fixed assets, net                                      | 
| |                                                        | 
| |                                                        | 
| | Other assets                                           | 
| |                                                        | 
| |                                                        | 
| |                                                        | 
| |                                                        | 

*Reclassified

-72-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

NOTE 32
  Financial statements translated into U.S. dollars (continued)

| | CONSOLIDATED
  BALANCE SHEETS
  (In thousands)                                | 
| | ----------------------------------------------------------------------------- | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| | Current liabilities                                                           | 
| | Credit from banks and others                                                  | 
| | Trade payables                                                                | 
| | Other payables                                                                | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| | Long-term liabilities                                                         | 
| | Long-term loans                                                               | 
| | Customers deposits                                                           | 
| | Liabilities for severance pay, net                                            | 
| | Deferred taxes                                                                | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| | Minority interest                                                             | 
| |                                                                               | 
| |                                                                               | 
| | Shareholders equity                                                          | 
| | Ordinary shares, NIS 1 par value                                              | 
| | Authorized 225,000,000 shares                                                 | 
| | Issued and outstanding 139,336,000 shares
  as of  December 31, 2003 and 2002 | 
| | Capital reserves                                                              | 
| | Companys shares held by a consolidated   Company                             | 
| | Retained earnings                                                             | 
| | Accumulated other comprehensive income                                        | 
| | Cumulative foreign currency translation   Adjustment                          | 
| |                                                                               | 
| | Total shareholders equity                                                    | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 
| |                                                                               | 

*Reclassified

-73-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

NOTE 32
  Financial statements translated into U.S. dollars (continued)

| | CONSOLIDATED
  STATEMENT OF INCOME
  (In thousands except per share data) | 
| | ------------------------------------------------------------------------- | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| | Sales                                                                     | 
| | Less: Government imposts                                                  | 
| |                                                                           | 
| |                                                                           | 
| | Net sales                                                                 | 
| | Cost of sales                                                             | 
| |                                                                           | 
| | Gross profit                                                              | 
| |                                                                           | 
| |                                                                           | 
| | Selling, general and
   administrative expenses                           | 
| | Depreciation and amortization                                             | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| | Income from operations                                                    | 
| |                                                                           | 
| |                                                                           | 
| | Financing expenses, net                                                   | 
| | Other (expenses) income, net                                              | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| |                                                                           | 
| | (Loss) income before taxes on
  income                                    | 
| | Taxes on income                                                           | 
| |                                                                           | 
| |                                                                           | 
| | (Loss) income after taxes on
  income                                     | 
| |                                                                           | 
| | Companys share in results of
  affiliated companies, net                 | 
| |                                                                           | 
| | Minority interest in the results of
    Subsidiaries                      | 
| |                                                                           | 
| |                                                                           | 
| | Net (loss) income for the year                                            | 
| |                                                                           | 
| |                                                                           | 
| | Net (loss) earnings per ordinary
  share (in U.S. dollars):               | 
| |                                                                           | 
| | Primary and diluted (loss) income                                         | 
| |                                                                           | 

*Reclassified

-74-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

NOTE 32
  Financial statements translated into U.S. dollars (continued)

CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
(In thousands)

|Translated to U.S. Dollars
|--------------------------
|                          

|                                                                     |  | Common
  Stock |  | Capital
  reserves |  | Companys
  Shares held
  by a
  consolidated
  company |        | Retained
  earnings |  | Accumulated
  other
  comprehensive
  income * |   | Cumulative
  foreign
  currency
  translation
  adjustment |        | Total | 
|-------------------------------------------------------------------- |  | -------------- |  | ------------------ |  | ------------------------------------------------------- | ------ | ------------------- |  | ---------------------------------------------- | - | ---------------------------------------------------------- | ------ | ----- | 
|                                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|                                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|Balance as at January 1,
  2001                                      |  | 59,696         |  | 65,042             |  |                                                         | (810   | )                   |  | 1,573                                          |   |                                                            | 865    |       | 
|Changes in 2001:                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|Net income for
  the year                                            |  | -              |  | -                  |  |                                                         | -      |                     |  | 24,331                                         |   |                                                            | -      |       | 
|Divided paid                                                         |  | -              |  | -                  |  |                                                         | -      |                     |  | (27,934                                        | ) |                                                            | -      |       | 
|Acquisition of
  the Companys
      shares by a subsidiary          |  | -              |  | -                  |  |                                                         | (62    | )                   |  | -                                              |   |                                                            | -      |       | 
|Reclassification
  adjustment for
      gains included in net income |  | -              |  | -                  |  |                                                         | -      |                     |  | -                                              |   |                                                            | (353   | )     | 
|                                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|                                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|Balance as at December 31,
  2001                                    |  | 59,696         |  | 65,042             |  |                                                         | (872   | )                   |  | (2,030                                         | ) |                                                            | 512    |       | 
|Changes in 2002:                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|Net loss for the
  year                                              |  | -              |  | -                  |  |                                                         | -      |                     |  | (1,159                                         | ) |                                                            | -      |       | 
|Acquisition of
  the Companys
      shares by a subsidiary          |  | -              |  | -                  |  |                                                         | (1,234 | )                   |  | -                                              |   |                                                            | -      |       | 
|Unrealized losses on
  securities                                    |  | -              |  | -                  |  |                                                         | -      |                     |  | -                                              |   |                                                            | (1,198 | )     | 
|Foreign currency
  translation
      adjustment                      |  | -              |  | -                  |  |                                                         | -      |                     |  | -                                              |   |                                                            | -      |       | 
|Reclassification
  adjustment for
      gains included in net income |  | -              |  | -                  |  |                                                         | -      |                     |  | -                                              |   |                                                            | (423   | )     | 
|                                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|                                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|Balance as December
  31, 2002                                       |  | 59,696         |  | 65,042             |  |                                                         | (2,106 | )                   |  | (3,189                                         | ) |                                                            | (1,109 | )     | 
|Changes in 2002:                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|Net loss for the
  year                                              |  | -              |  | -                  |  |                                                         | -      |                     |  | (22,079                                        | ) |                                                            | -      |       | 
|Dividend paid                                                        |  | -              |  | -                  |  |                                                         | -      |                     |  | (16,622                                        | ) |                                                            | -      |       | 
|Unrealized losses on
  securities                                    |  | -              |  | -                  |  |                                                         | -      |                     |  | -                                              |   |                                                            | 263    |       | 
|Foreign
  currency translation
      adjustment                      |  | -              |  | -                  |  |                                                         | -      |                     |  | -                                              |   |                                                            | -      |       | 
|Reclassification
  adjustment for
      gains included in net income |  | -              |  | -                  |  |                                                         | -      |                     |  | -                                              |   |                                                            | 80     |       | 
|                                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|                                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 
|Balance as December
  31, 2003                                       |  | 59,696         |  | 65,042             |  |                                                         | (2,106 | )                   |  | (41,890                                        | ) |                                                            | (766   | )     | 
|                                                                     |  |                |  |                    |  |                                                         |        |                     |  |                                                |   |                                                            |        |       | 

*     Deriving
from unrealized gains (losses) on marketable securities, net of tax effect.

-75-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

Note 32   Financial statements translated into U.S. dollars
(continued)

| | The material differences between Israeli GAAP and
  U.S. GAAP as applicable to the financial statements are:
| | ------------------------------------------------------------------------------------------------------------
| |                                                                                                             
| | a)                                                                                                          
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| | b)                                                                                                          
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             
| |                                                                                                             

-76-

---

---

Granite Hacarmel Investments Limited
and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

NOTE 32   Financial statements
translated Into U.S. dollars (continued)

| |    | (3)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         | Marketable securities, not  classified as either held-to-maturity securities or trading
  securities, are classified as available-for-sale securities and are
  reported at their fair value. Unrealized gains and losses are included in a
  separate item within the shareholders equity, and reported as other
  comprehensive income.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |                                                                                                                                                                                                                                                                                                                                                
| | c) | Amortization of goodwill                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In accordance with Israeli GAAP:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Under Israeli GAAP goodwill is amortized over the
  estimated benefit period, but usually no longer than 10 years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In accordance with U.S. GAAP:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Under US GAAP, commencing January 1, 2002, goodwill
  is no longer amortized but is reviewed annually (or more frequently if
  impairment indicators arise) for impairment.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Goodwill represents the
  excess of costs over fair value of assets of businesses acquired. The Company
  adopted the provisions of SFAS No. 142, Goodwill and Other Intangible
  Assets, as of January 1, 2002. Goodwill and intangible assets acquired
  in a purchase business combination and determined to have an indefinite
  useful life are not amortized, but instead tested for impairment at least
  annually in accordance with the provisions of SFAS No. 142.
  SFAS No. 142 also requires that intangible assets with estimable useful
  lives be amortized over their respective estimated useful lives to their
  estimated residual values, and reviewed for impairment in accordance with
  SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived
  Assets.
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In connection with SFAS
  No. 142s transitional goodwill impairment evaluation, the Statement
  required the Company to perform an assessment of whether there was an
  indication that goodwill is impaired as of the date of adoption. The implied
  fair value of this reporting unit exceeded its carrying amount and the
  Company was not required to recognize an impairment loss.                                                                                                                                                                                                                                                                                                                                                                                                 
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | Prior to the adoption of
  SFAS No. 142, goodwill was amortized on a straight-line basis over the
  expected periods to be benefited, generally 10 years, and assessed for
  recoverability by determining whether the amortization of the goodwill
  balance over its remaining life could be recovered through undiscounted
  future operating cash flows of the acquired operation.                                                                                                                                                                                                                                                                                                                                                                                                     
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| | d) | Impairment of Assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | In accordance with Israeli GAAP:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |    | The
  Company applied Standard No. 15 under which the Company needs to test the
  recoverable amount of the assets, which is the higher of the net sales price
  and usage value.  A loss from
  impairment will be reversed only if changes have occurred in the estimates
  used in determining the recoverable value of the asset, from the date of
  which the last impairment was recognized.                                                                                                                                                                                                                                                                                                                                                                                         

-77-

---

---

Granite Hacarmel Investments Limited
and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

NOTE 32   Financial statements
translated Into U.S. dollars (continued)

| |    |                                                                                                    | In accordance with US GAAP:                                                                                                                            
| | -- | -------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------------------------------
| |    |                                                                                                    |                                                                                                                                                        
| |    |                                                                                                    | The
  Company applied FAS 144 with respect to long-lived assets and APB 18 with
  respect to equity method investees.                                  
| |    |                                                                                                    | Under
  FAS 144 an impairment of long-lived asset is recorded only if the
  undiscounted cash flows of the related asset does not cover its book value.
| |    |                                                                                                    |                                                                                                                                                        
| |    |                                                                                                    | Under
  APB 18 a loss is recorded only when the impairment investees is other than
  temporary.                                                        
| |    |                                                                                                    | Both
  under FAS 144 and under APB 18 reversals of impairments are not allowed,
  unless the assets are held for sales.                                
| |    |                                                                                                    |                                                                                                                                                        
| | e) | Other disclosures                                                                                 
| |    | Government imposts
  consist of excise taxes imposed on fuel products mainly gasoline and gasoil.

-78-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

LIST OF
MAIN INVESTEE COMPANIES

|List
  of the main subsidiaries and affiliates |                                                          | Holdings and
  Control as of
  December 31,2003 |      
|---------------------------------------------- | -------------------------------------------------------- | ----------------------------------------------- | -----
|                                               |                                                          |                                                 |      
|                                               |                                                          | %                                               |      
|                                               |                                                          |                                                 |      
|                                               | Consolidated Subsidiaries:                               |                                                 |      
|                                               | Sonol Israel Ltd.                                        |                                                 | 100  
|                                               | Sprint Motors Ltd.                                       |                                                 | 100  
|                                               |                                                          |                                                 |      
|                                               | Milchen Sonol Agency Ltd.                                |                                                 | 66.67
|                                               | Sonol J-M Ltd.                                           |                                                 | 70   
|                                               | Sonol Dan (1992) Ltd.                                    |                                                 | 100  
|                                               | Sonol Darom Ltd.                                         |                                                 | 100  
|                                               | Sonol Cnaan Ltd                                          |                                                 | 51   
|                                               | Sonol Shani Agencies Ltd.                                |                                                 | 51   
|                                               | Sprint Motors Transport (1999) Ltd.                      |                                                 | 100  
|                                               | Kleesson Holdings (1999) Ltd.                            |                                                 | 100  
|                                               | Sonor Ltd.                                               |                                                 | 100  
|                                               | After Holdings Ltd.                                      |                                                 | 100  
|                                               | Granita Holdings Ltd.                                    |                                                 | 75   
|                                               | Granite-Sonol Oil and Gas Drilling-Limited
  Partnership |                                                 | 100  
|                                               | Tambour Ltd.                                             |                                                 | 100  
|                                               | Tambour Ecology Ltd.                                     |                                                 | 100  
|                                               | Tambourechev Paints1997 Ltd.                             |                                                 | 100  
|                                               | Safety Kleen (Israel) Ltd.                               |                                                 | 100  
|                                               | Tzach Serafon Ltd.                                       |                                                 | 100  
|                                               | Serafon Trading 1997 Ltd.                                |                                                 | 100  
|                                               | Tambour Distribution Ltd.                                |                                                 | 100  
|                                               | Texma Chemicals Ltd.                                     |                                                 | 100  
|                                               | Supergas Israel Gas Distribution Company Ltd.            |                                                 | 100  
|                                               | Supergas Hanegev Ltd.                                    |                                                 | 65   
|                                               | Supergas Rehovot (1989) Ltd.                             |                                                 | 100  
|                                               | M. Solomon & Co. Gas Agencies Ashkelon Ltd.              |                                                 | 51   
|                                               | Supergas Hagalil Ltd.                                    |                                                 | 100  
|                                               | Rav Gas Ltd.                                             |                                                 | 55   
|                                               | Allied Oils and Chemicals Ltd.                           |                                                 | 100  
|                                               | Sonefco Bank Street Corporation                          |                                                 | 100  
|                                               | Granite Hacarmel Holdings (1993) Ltd.                    |                                                 | 100  
|                                               | Granite Hacarmel Properties (1993) Ltd.                  |                                                 | 100  
|                                               | Granite Hacarmel Holdings and Development Ltd            |                                                 | 100  
|                                               | Granite Hacarmel Industries Ltd.                         |                                                 | 100  
|                                               | Granite Hacarmel Y.A. Holdings Ltd.                      |                                                 | 100  
|                                               | Granite Hacarmel NZV Holdings Ltd.                       |                                                 | 100  
|                                               | Granite Hacarmel Energy (1997) Ltd.                      |                                                 | 100  
|                                               | Granite Hacarmel Tourism Ltd.                            |                                                 | 100  
|                                               | Otzem Promotion and Investments (1991) Ltd.              |                                                 | 100  

-79-

---

---

Granite
Hacarmel Investments Limited and its Subsidiaries

|Notes to the Financial Statements
  as at December 31, 2003
|-----------------------------------------------------------
|                                                           

|List
  of the main subsidiaries and affiliates (cont.) |                                                                                              | Holdings and
  Control as of
  December 31, 2003 |      
|------------------------------------------------------ | -------------------------------------------------------------------------------------------- | ------------------------------------------------ | -----
|                                                       |                                                                                              |                                                  |      
|                                                       |                                                                                              | %                                                |      
|                                                       |                                                                                              |                                                  |      
|                                                       |                                                                                              |                                                  |      
|                                                       | Affiliated Companies                                                                         |                                                  |      
|                                                       |                                                                                              |                                                  |      
|                                                       | Aero Echo Ltd.                                                                               |                                                  | 33.33
|                                                       | International Ilios                                                                          |                                                  | 43   
|                                                       | Via Maris  Joint Venture                                                                    |                                                  | 24   
|                                                       | Via Maris Desalinization Ltd.                                                                |                                                  | 26.5 
|                                                       | Tambour  Hefer  
  Ecology  Partnership                                                    |                                                  | 50   
|                                                       | Yarok Az Ltd.                                                                                |                                                  | 22.9 
|                                                       | Nitzba Holdings 1995 Ltd.                                                                    |                                                  | 9.82 
|                                                       | Orpak Industries (1983)Ltd.                                                                  |                                                  | 10.1 
|                                                       | Park Mini Israel  Limited Partnership                                                       |                                                  | 35   
|                                                       | L.D.I.-Leasing Dynamics International Ltd.                                                   |                                                  | 25.1 
|                                                       | Green Anchors Ltd.                                                                           |                                                  | 50   
|                                                       |                                                                                              |                                                  |      
|                                                       | The above list does not include inactive and/or
  immaterial affiliated companies and others |                                                  |      

-80-

---

---



# REPORT OF INDEPENDENT
AUDITORS

# To the Shareholders of

# Nitsba Holdings 1995
Ltd.

We
have audited the balance sheet of Nitsba Holdings 1995 Ltd. (the Company) as
of December 31, 2003 and the consolidated balance sheet as of that date and the related
statements of operations, changes in shareholders equity, and cash flows  of
the Company and consolidated  for the year then ended (not presented separately
herein). These financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements
based on our audit.

We
did not audit the financial statements of certain subsidiaries and proportionately
consolidated entities, whose assets included in consolidation constitute approximately 32%
of total consolidated assets as of December 31, 2003 and whose revenues included in
consolidation constitute approximately 46% of total consolidated revenues for the year
then ended. The financial statements of those entities were audited by other auditors,
whose reports have been furnished to us, and our opinion, insofar as it relates to amounts
included for those entities, is based solely on the reports of the other auditors.

We
conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audit and the
reports of other auditors provide a reasonable basis for our opinion.

In
our opinion, based on our audit and the reports of other auditors, the financial
statements referred to above present fairly, in all material respects, the financial
position  of the Company and consolidated  as of December 31, 2003, and the
results of operations and cash flows  of the Company and consolidated  for the
year then ended in conformity with generally accepted accounting principles in Israel.

|                 |                                 
|---------------- | --------------------------------
|Tel-Aviv, Israel | KOST FORER GABBAY & KASIERER    
|March 24, 2004   | A Member of Ernst & Young Global



---

---

# Auditors Report to
the Shareholders ofProperties Enterprise & Development (N.Y.P.) Ltd.

We have audited the accompanying
balance sheet of Properties Enterprise & Development (N.Y.P.) Ltd. (hereinafter 
the Company) as of December 31, 2003 and the consolidated balance sheet as of
that date and the related statement of operations, changes in shareholders equity
and cash flows  of the Company and consolidated  for the year then ended.
These financial statements are the responsibility of the Companys Board of Directors
and of its Management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We did not audit the financial
statement of an affiliate, whose companys investments constitute NIS 52,940 thousand
as at December 31, 2003, and its equity in losses constitute NIS 10,418 thousand, The
financial statements of this affiliate were audited by other auditors whose reports
thereon were furnished to us. Our opinion, insofar as it relates to amounts emanating from
the financial statements of such investee company, is based solely on the said reports of
the other auditors.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Board of Directors and Management, as well as evaluating
the overall financial statement presentation. We believe that our audits, and reports of
the other auditors, provide a reasonable basis for our opinion.

In our opinion, based on our audits
and on the reports of the above-mentioned other auditors, the financial statements
referred to above present fairly, in all material respects, the financial position 
of the Company and consolidated  as of December 31, 2003 and the results of their
operations, the changes in shareholders equity and their cash flows  of the
Company and consolidated  for the year then ended in conformity with generally
accepted accounting principles in Israel ( Israeli GAAP).

As explained in Note 1c the
above-mentioned financial statements are presented in values adjusted for the changes in
the general purchasing power of the Israeli currency, in accordance with Opinions of the
Institute of Certified Public Accountants in Israel.

Without qualifying our opinion, we
draw attention to note 5d to the financial statements, regarding an affiliates cash
flow projection for the year subsequent to the balance sheet date, which indicates a need
to bridge gaps in cash flows, and regarding the payment of principal and interest on
debentures due on March 31, 2004 amounting to approximately NIS 7.1 million.

Somekh Chaikin Certified Public
Accountants (Isr.)

March 24, 2004



---

---

Auditors Report to the
Shareholders of N.T.M TRANSPORTATION PROPERTIES AND TRADE LTD.

We have audited the accompanying
balance sheet ofN.T.M TRANSPORTATION PROPERTIES AND TRADE LTD.
(hereinafter  the Company) as of December 31, 2003 and the consolidated
balance sheet as of that date and the related statement of operations, changes in
shareholders equity and cash flows  of the Company and consolidated  for
the year then ended. These financial statements are the responsibility of the
Companys Board of Directors and of its Management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We did not audit the financial
statements of certain joint venture which is consolidated by the proportionate
consolidation method, whose assets constitute 0.3% of the total consolidated assets as at
December 31, 2003, and whose revenues constitute 30.2% of the total consolidated revenues
for the year ended December 31, 2003. The financial statements of this joint venture
were audited by other auditors whose reports thereon were furnished to us. Our opinion,
insofar as it relates to amounts emanating from the financial statements of such joint
venture, is based solely on the said reports of the other auditors.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Board of Directors and Management, as well as evaluating
the overall financial statement presentation. We believe that our audits, and reports of
the other auditors, provide a reasonable basis for our opinion.

In our opinion, based on our audits
and on the reports of the above-mentioned other auditors, the financial statements
referred to above present fairly, in all material respects, the financial position 
of the Company and consolidated  as of December 31, 2003 and the results of their
operations, the changes in shareholders equity and their cash flows  of the
Company and consolidated  for the year then ended in conformity with generally
accepted accounting principles in Israel (Israeli GAAP).

As explained in Note 2a the
above-mentioned financial statements are presented in values adjusted for the changes in
the general purchasing power of the Israeli currency, in accordance with Opinions of the
Institute of Certified Public Accountants in Israel.

Somekh Chaikin Certified
Public Accountants (Isr.)

March 24, 2004



---

---



# REPORT OF INDEPENDENT
AUDITORS

# To the Shareholders of

# THE NEW TEL AVIV BUS
TERMINAL CO. LTD.

We have audited the balance sheets of
The New Tel Aviv Bus Terminal Co. Ltd. (the Company) as of December 31, 2003
and 2002 and the consolidated balance sheets as of those dates and the related statements
of operations, changes in shareholders equity and cash flows  of the Company
and consolidated  for each of the three years in the period ended December 31, 2003
(such financial statements not presented herein). These financial statements are the
responsibility of the Companys Board of Directors and management. Our responsibility
is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Companys Board of Directors and the management, as
well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the aforementioned
consolidated financial statements present fairly, in all material respects, the financial
position of the Company  of the Company and consolidated  as of December 31,
2003 and 2002 and the results of operations, changes in shareholders equity and cash
flows  of the Company and consolidated  for each of the three years in the
period ended December 31, 2003, in conformity with generally accepted accounting
principles in Israel.

As explained in Note 2.1 to the
financial statements, the aforementioned financial statements are presented in values
adjusted for the changes in the general purchasing power of the Israeli currency, in
conformity with Opinions of the Institute of Certified Public Accountants in Israel.

Without qualifying our opinion, we
draw attention to Note 1.3 to the financial statements, regarding the Companys cash
flow projection for the year subsequent to the balance sheet date which indicates a need
to bridge gaps in cash flows, and regarding the payment of principal and interest on
debentures due on march 31, 2004 and amounting to approximately NIS 7.1 million.

Brightman Almagor &
Co. Certified Public Accountants

March 24, 2004



---

---

To the shareholders of

Oganim Beyarok Ltd.

We have audited the balance sheets of
0ganim Beyarok Ltd. (the Company) as of December 31, 2003 and the related
statements of loss, changes in shareholders equity and cash flows for the year in
the period ended December 31, 2003. These financial statements are the responsibility of
the Companys Board of Directors and management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance
with auditing standards of the Public Company Accounting Oversight Board (United States),
Those Standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by the Companys Board of Directors and management, as
well as evaluating the overall annual accounts presentation. We believe that our audit
provides a reasonable basis for our opinion.

In our opinion, based upon our
audits, the financial statements present fairly, in all material respects, the financial
position of the Company as of December 31, 2003, and the results of its operations,
changes in its shareholders equity and its cash flows for the years in the period
ended December 31, 2003, in conformity with generally accepted accounting principles
(GAAP) in Israel.

Accounting principles generally
accepted in Israel vary in certain significant respects from accounting principles
generally accepted in the United States of America (U.S. GAAP). As applicable to these
financial statements, had U.S. GAAP been applied, no significant differences would have
been reflected as compared to these financial statements prepared in accordance with
Israeli GAAP.

As explained at Note 1b, the above
mentioned financial statements are presented in values adjusted for changes in the general
purchasing power of the Israeli currency  in accordance with Opinions of the
Institute of Certified Accountants in Israel.

Without qualifying our opinion, we
draw attention to the contents of note 1a(b) to the financial statements in which it is
explained that the Companys ability to continue its business operations is subject
to its ability to raise the funds necessary to enable it to continue its operations.

As of December 31, 2003, the Company
has a capital deficiency and a working capital deficit of NIS 6,189,250 and NIS 4,308,376,
respectively. The Companys ability to continue its business operations is subject to
its ability to raise the funds necessary to enable it to continue its operations.

|                   |                                    
|------------------ | -----------------------------------
|Beer Sheva, Israel | Kesselman & Kesselman              
|February 17, 2004  | Certified Public Accountants (Isr.)



---

---

# Independent
Auditors Report 
to the Shareholders of 
L.D.I (Licensing
Dynamics International) Ltd.

We have audited the accompanying
balance sheet ofL.D.I (the Company) as of December 31, 2003 and 2002 and the
related statements of income, shareholders equity and cash flows for each of the
years in the two-year period ended December 31, 2003. These financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We did not audit the financial
statements of certain subsidiaries, whose assets included in consolidation constitute
approximately 15% and 31% of total consolidated assets as of December 31, 2002 and 2003,
respectively, and whose revenues included in consolidation constitute approximately 31%
and 49% of total consolidated revenues for the years ended December 31, 2002 and 2003,
respectively. The financial statements of those subsidiaries were audited by other
auditors, whose reports have been furnished to us, and our opinion, insofar as it relates
to the amounts included for those subsidiaries is based solely on the reports of the other
auditors.

We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States) and in
accordance with auditing standards generally accepted in Israel, including those
prescribed by the Auditors Regulations Auditors Regulations (Auditors Mode of
Performance) 1973. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provides reasonable basis for our opinion.

In our opinion, the financial
statements referred to above present fairly, in all material respects, the financial
position of the Company as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for each of the years in the two-year period ended December
31, 2003 in conformity with accounting principles generally accepted in Israel.

As explained at Note 2, the above
mentioned financial statements are presented in values adjusted for changes in the general
purchasing power of the Israeli currency, in accordance with Opinions of the Institute of
Certified Accountants in Israel.

Tel-Aviv Israel 
March 17, 2004

| |  | Ziv Haft
Certified public accountant (Isr.)BDO member firm
| |  | ----------------------------------------------------------



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# SIGNATURES

Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report on Form 10-K/A to be signed on its
behalf by the undersigned, thereunto duly authorized, on the 30th day of June,
2004.

| |  | AMPAL-AMERICAN ISRAEL CORPORATIONBY: /S/ JACK BIGIO
Jack Bigio, Chief Executive Officer andPresident (Principal Executive Officer)
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------



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Exhibit 23.19

# Independent
Auditors Consent

The Board of Directors 
Granite Hacarmel
Investments Limited

We consent to the incorporation by
reference in the registration statements (No. 333-61895 and No. 333-55970) on Form S-8 of
Ampal American Israel Corporation of our report dated March 25, 2004, with respect to the
consolidated balance sheet of Granite Hacarmel Investments Limited as of December 31, 2003
and 2002, and the related consolidated statements of income, shareholders equity and
cash flows for each of the years in the three-year period ended December 31, 2003, which
report appears in the Form 10-K/A of Ampal American Israel Corporation.

Our report contains an explanatory
paragraph for claims against consolidated companies.

Somekh Chaikin
Certified Public Accountants (Isr.)

Haifa, June 30, 2004



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Exhibit 31.3

CERTIFICATION

I, Jack Bigio, certify
that:

|1. | I
have reviewed this Amendment No. 1 to the annual report on Form 10-K of Ampal
                American Israel Corporation on Form 10-K/A;
|-- | --------------------------------------------------------------------------------------------------------------------------------------------

|2. | Based
on my knowledge, this report does not contain any untrue statement of a
               material fact or omit to state a material fact necessary to make the
statements                made, in light of the circumstances under which such statements
were made, not                misleading with respect to the period covered by this
report;
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based
on my knowledge, the financial statements, and other financial information
               included in this report, fairly present in all material respects the
financial                condition, results of operations and cash flows of the
registrant as of, and                for, the periods presented in this report;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The
registrants other certifying officer(s) and I are responsible for
               establishing and maintaining disclosure controls and procedures (as
defined in                Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | Designed
such disclosure controls and procedures, or caused such disclosure           controls and
procedures to be designed under our supervision, to ensure that           material
information relating to the registrant, including its consolidated
          subsidiaries, is made known to us by others within those entities, particularly
          during the period in which this report is being prepared;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Evaluated
the effectiveness of the registrants disclosure controls and           procedures
and presented in this report our conclusions about the effectiveness           of the
disclosure controls and procedures, as of the end of the period covered           by this
report based on such evaluation; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Disclosed
in this report any change in the registrants internal control           over
financial reporting that occurred during the registrants most recent
          fiscal quarter (the registrants fourth fiscal quarter in the case of an
          annual report) that has materially affected, or is reasonably likely to
          materially affect, the registrants internal control over financial
          reporting; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The
registrants other certifying officer(s) and I have disclosed, based on
               our most recent evaluation of internal control over financial reporting,
to the                registrants auditors and the audit committee of the registrants
               board of directors (or persons performing the equivalent functions):
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | All
significant deficiencies and material weaknesses in the design or operation           of
internal control over financial reporting which are reasonably likely to
          adversely affect the registrants ability to record, process, summarize
and           report financial information; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal control over
          financial reporting.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date:    June 30, 2004 |  | BY: /S/ Jack Bigio
Jack BigioPresident and Chief Executive Officer
|---------------------- |  | --------------------------------------------------------------------------------



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Exhibit 31.4

CERTIFICATION

I, Irit Eluz, certify
that:

|1. | I
have reviewed this Amendment No. 1 to the annual report on Form 10-K of Ampal
                American Israel Corporation on Form 10-K/A;
|-- | --------------------------------------------------------------------------------------------------------------------------------------------

|2. | Based
on my knowledge, this report does not contain any untrue statement of a
               material fact or omit to state a material fact necessary to make the
statements                made, in light of the circumstances under which such statements
were made, not                misleading with respect to the period covered by this
report;
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|3. | Based
on my knowledge, the financial statements, and other financial information
               included in this report, fairly present in all material respects the
financial                condition, results of operations and cash flows of the
registrant as of, and                for, the periods presented in this report;
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|4. | The
registrants other certifying officer(s) and I are responsible for
               establishing and maintaining disclosure controls and procedures (as
defined in                Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant
and have:
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | Designed
such disclosure controls and procedures, or caused such disclosure           controls and
procedures to be designed under our supervision, to ensure that           material
information relating to the registrant, including its consolidated
          subsidiaries, is made known to us by others within those entities, particularly
          during the period in which this report is being prepared;
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Evaluated
the effectiveness of the registrants disclosure controls and           procedures
and presented in this report our conclusions about the effectiveness           of the
disclosure controls and procedures, as of the end of the period covered           by this
report based on such evaluation; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (c) | Disclosed
in this report any change in the registrants internal control           over
financial reporting that occurred during the registrants most recent
          fiscal quarter (the registrants fourth fiscal quarter in the case of an
          annual report) that has materially affected, or is reasonably likely to
          materially affect, the registrants internal control over financial
          reporting; and
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|5. | The
registrants other certifying officer(s) and I have disclosed, based on
               our most recent evaluation of internal control over financial reporting,
to the                registrants auditors and the audit committee of the registrants
               board of directors (or persons performing the equivalent functions):
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (a) | All
significant deficiencies and material weaknesses in the design or operation           of
internal control over financial reporting which are reasonably likely to
          adversely affect the registrants ability to record, process, summarize
and           report financial information; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | (b) | Any
fraud, whether or not material, that involves management or other employees           who
have a significant role in the registrants internal control over
          financial reporting.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date:    June 30, 2004 |  | BY: /S/ Irit Eluz
Irit EluzCFO and Vice President - Financeand Treasurer
|---------------------- |  | --------------------------------------------------------------------------------------



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Exhibit 32.1

CERTIFICATION PURSUANT TO 
18 U.S.C.
SECTION 1350, 
AS ADOPTED PURSUANT TO
                           SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In
connection with the annual report of Ampal-American Israel Corporation (the
Company) on Form 10-K for the period ending December 31, 2003 as filed with
the Securities and Exchange Commission on March 29, 2004, as amended by this Amendment No.
1 to the annual report on Form 10-K as filed with the Securities and Exchange Commission
on the date hereof (the Report), each of the undersigned executive officers of
the Company certifies, to the best of such executive officers knowledge, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, that:

| | (1) | The
Report fully complies with the requirements of Section 13(a) or 15(d) of           the
Securities Exchange Act of 1934; and
| | --- | -------------------------------------------------------------------------------------------------------------------------------

| | (2) | The
information contained in the Report fairly presents, in all material           respects,
the financial condition and results of operations of the Company.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

|BY: /S/ Jack Bigio
Jack BigioPresident and CEO
Ampal-American Israel Corporation
June 30, 2004 |  | BY: /S/ Irit Eluz
Irit EluzCFO and Vice President-Finance and Treasurer
Ampal-American Israel Corporation
June 30, 2004
|------------------------------------------------------------------------------------------------------------ |  | -------------------------------------------------------------------------------------------------------------------------------------

A signed original of this written
statement required by Section 906, or other document authenticating, acknowledging, or
otherwise adopting the signature that appears in typed form within the electronic version
of this written statement required by Section 906, has been provided to the Company and
will be retained by the Company and furnished to the Securities and Exchange Commission or
its staff upon request.



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