<PAGE>
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                   -----------

                                    FORM 10-K

       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, 2001

                                       OR

[ ]      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.)
 660 MADISON AVENUE, NEW YORK, NEW YORK                             10021
(Address of Principal Executive Offices)                         (Zip Code)

       Registrant's telephone number, including area code: (212) 593-9842.
        Securities registered pursuant to Section 12(b) of the Act: NONE


          Securities registered pursuant to Section 12(g) of the Act:
                                  Class A Stock
                    4% Cumulative Convertible Preferred Stock

                  6 1/2% Cumulative Convertible Preferred Stock
                               (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

         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 .

         The number of shares outstanding of the issuer's Class A Stock, its
only authorized common stock, is 19,287,860 (as of March 10, 2002).

         The aggregate market value of the voting stock held by non-affiliates
of the registrant is $39,474,373 (as of March 10, 2002).
<PAGE>
                           ANNUAL REPORT ON FORM 10-K
                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001
                      OF AMPAL-AMERICAN ISRAEL CORPORATION

                                     PART I

ITEM 1. BUSINESS

         As used in this report (the "Report"), the term "Ampal" only refers to
Ampal-American Israel Corporation, the parent company; the term "Company" refers
to Ampal and its consolidated subsidiaries. Ampal is a New York corporation
founded in 1942.

         For industry segment financial information and financial information
about foreign and domestic operations, see Note 14 to the Company's consolidated
financial statements included elsewhere herein. The companies described below
under "- High-Technology and Communication," "Energy Distribution and Industry"
and "Capital Markets and Other Holdings" are included in the Finance segment.
The companies described under "- Real Estate" are included in the Real Estate
Rental segment. The companies described under "- Leisure-Time" are included in
the Leisure-Time segment.

         The Company primarily acquires interests in businesses located in the
State of Israel or that are Israel-related. The Company seeks to invest in
companies which have long-term growth potential. The Company is currently
invested in a broad cross-section of Israeli companies engaged in various fields
including high technology and communications, leisure-time, real estate, capital
markets, energy distribution and industry. The Company generally participates in
the management of its investee companies through representation on boards of
directors or otherwise. As part of its investment activity, Ampal provides its
investee companies with ongoing support through its involvement in the
investees' strategic decisions and introduction to the financial community,
investment bankers and other potential investors. Sometimes, the Company
participates in the investee companies' daily activities by providing managerial
support.

         In order to identify investment opportunities in the Israeli market,
the Company is active in those sectors where it believes that the Israeli market
has a competitive advantage in the global market. Currently, the Company has
identified the Israeli high-technology and telecommunications sector as having
attained world-class stature. As a result, the Company has, for the past four
years, directed its strategic focus to investing in this sector. In 2001, the
Company invested a total of approximately $14 million in ten of its existing
high-technology portfolio companies, most of which were at the start-up stage.
The Company is also engaged in other investments that may have substantial
potential, such as facilities for senior citizens.

         Ampal's 42.5%-owned affiliate, Ophirtech Ltd., has also focused its new
investments in the technology sector, consistent with Ampal's current strategy.

         Unless specifically stated otherwise in this Report, the Company did
not receive dividends or other payments from its investee companies.


                                       1
<PAGE>
         Listed below by industry segment are the Company's most significant
investees, the principal business of each and the percentage of equity owned,
directly or indirectly, by Ampal. The table below also indicates whether the
investee is listed on the New York Stock Exchange ("NYSE"), Nasdaq National
Market ("Nasdaq"), American Stock Exchange ("AMEX"), Tel Aviv Stock Exchange
("TASE") or the Canadian Venture Exchange ("CDNX"). For further information with
respect to the more significant investee companies, see below. For additional
information concerning the investee companies, previous 10-K forms of Ampal are
herein incorporated by reference.

<TABLE>
<CAPTION>
                                                                                                       PERCENTAGE AS OF
                       INDUSTRY SEGMENT                                 PRINCIPAL BUSINESS           DECEMBER 31, 2001(1)
                       ----------------                                 ------------------           -----------------
<S>                                                           <C>                                    <C>
HIGH-TECHNOLOGY AND COMMUNICATIONS

   Alvarion (Nasdaq:ALVR)............................         Wireless Local Area Network                    1.5
   Arel Communications and Software Ltd.
     (Nasdaq:ARLC)...................................         Interactive Distance Learning Systems          3.1
   Babylon Ltd.......................................         Translation Software for the Internet          1.7
   BridgeWave Communications, Inc....................         Broadband Wireless Technology                  3.4
   Camelot Information Technologies Ltd..............         Systems-Safeguarding Software                 20.6(2)
   Clalcom Ltd.......................................         Communications                                 0.7
   Compugen Ltd. (Nasdaq:CGEN).......................         Bioinformatics                                 1.5
   CUTe Ltd..........................................         Designs Intellectual Property Rights          20.0
   ElephantX dot com LLC.............................         Software for E-Trading                         0.5
   Enbaya Ltd........................................         3D Browser/Publisher                          19.1
   MIRS Communications Ltd...........................         Wireless Communications Service Provider      25.0
   Modem Art Ltd.....................................         Fabless Semiconductor Company                  6.3
   mPrest Technologies Ltd...........................         Web-Based Applications for Cellular Phones     9.5
   MuTek Solutions Ltd...............................         Defect-Detecting Software                      6.6
    Netformx Ltd.....................................         Network Design Tools                          20.2(2)
   Oblicore Ltd......................................         Service Performance Tracking Software         14.4
   Ophir Holdings Ltd. ("Ophir").....................         Holding Company                               42.5
     Courses Investment in Technology Ltd............         Venture Capital Fund                           3.2(3)
     Dovrat Shrem-Skies Fund '92 Ltd.................         Venture Capital Fund                           1.2(3)
   Ophirtech Ltd. ("Ophirtech")......................         Holding Company                               42.5
     Carmel Bio-Sensors Ltd..........................         Glucose-measuring products                     5.8(2)
     Celvibe Ltd.....................................         Digital Video Technologies                     6.1(2)
     Cipheractive Ltd................................         Video Coding Technology                       13.7(2)
     Elpas Ltd.......................................         Products Using Infra-Red Based                 6.9(2)
                                                                Data Communication Technologies
     Expand Networks Ltd.............................         Internet Data Compression                      4.8(2)
     Indocs Online Ltd...............................         E-Commerce Software                            6.1(2)
     Interlink Computer Communications Ltd...........         Web-Based Application Integration Software     5.6(2)
     iRadius.com, Inc................................         Family-Friendly E-Commerce Platforms           4.0(2)
     Mainsoft Corporation ...........................         UNIX Tools                                     0.8(2)
     Pelican Security Ltd............................         Internet Data Protection Software              7.2(2)
     Praxell, Inc....................................         Prepaid Charge Card Software                   2.5(2)
     Realm Technologies Ltd                                   I.P. Multimedia                               19.2(2)
       Romidot Ltd...................................         Optical Checking Instruments                   4.5(2)
     StoreAge Networking Technologies Ltd............         Data Storage Software                          4.6(2)
     Techimage Ltd...................................         Computer Animation Software                    1.1(2)
     Viola Networks..................................         Computer Network Software                      6.6(2)
   Peptor Ltd........................................         Pharmaceutical Products                        0.5
   PowerDsine Ltd....................................         Telecommunications Components                  8.4
   Qronus Interactive Israel (1994) Ltd..............         Software Quality Products                      9.5
   ShellCase Ltd. (CDNX:SSD).........................         Packaging Process for Semiconductor Chips     13.2
   Shiron Satellite Communications (1996) Ltd........         Satellite Modems and Fast Internet Access     10.0
    Smart Link Ltd...................................         Software-Based Communications Products        14.8
   Star Management of Investments No. II (2000) L.P..         Venture Capital Fund                          10.0
</TABLE>


                                       2
<PAGE>
<TABLE>
<CAPTION>
                                                                                                       PERCENTAGE AS OF
                       INDUSTRY SEGMENT                                 PRINCIPAL BUSINESS           DECEMBER 31, 2001(1)
                       ----------------                                 ------------------           -----------------
<S>                                                           <C>                                    <C>
HIGH-TECHNOLOGY AND COMMUNICATIONS - CONTINUED

   Trinet Venture Capital Ltd..----------------------         Venture Capital Fund                          50.0
   VisionCare Ophthalmic Technologies Ltd.-----------         Advanced Optical Products                      8.9
   XACCT Technologies Ltd.---------------------------         TCP/IP Network Software                       16.9
   Xpert Integrated Systems Ltd.---------------------         Software and Systems Integrator               12.7
                                                               Specializing in Systems Security

REAL ESTATE------------------------------------------
   Am-Hal Ltd.---------------------------------------         Chain of Senior Citizen Facilities           100.0
   Ampal (Israel) Ltd.-------------------------------         Holding Company and Real Estate              100.0
   Ampal Realty Corporation--------------------------         Commercial Real Estate                       100.0
   Bay Heart Limited---------------------------------         Shopping Mall Owner/Lessor                    37.0
   Etz Vanir Ltd. and Yakhin Mataim Ltd.-------------         Citrus Groves                                    (4)
   Nir Ltd.------------------------------------------         Commercial Real Estate                        99.9
   Ophir Holdings Ltd. ("Ophir Holdings")------------         Holding Company                               42.5
    Industrial Buildings Corporation Ltd. (TASE)-----         Industrial Real Estate                         5.1(3)
    Lysh The Coastal High-way Ltd.-------------------         Commercial Real Estate                        10.6(3)
    Meimadim Investments Ltd.------------------------         Commercial Real Estate                         4.2(3)
    New Horizons (1993) Ltd.-------------------------         Commercial Real Estate                        34.0(3)
    Shmey-Bar Group----------------------------------         Commercial Real Estate                         9.4(3)

ENERGY DISTRIBUTION AND INDUSTRY---------------------
   Carmel Container Systems Limited

    (AMEX:KML)---------------------------------------         Packaging Materials and Carton Production     21.8
   Granite Hacarmel Investments Ltd. (TASE)----------         Distribution of Refined Petroleum Products    20.2

LEISURE-TIME-----------------------------------------
   Coral World International Limited-----------------         Underwater Observatories and Marine Parks     50.0
   Country Club Kfar Saba Limited--------------------         Country Club Facility                         51.0
   Hod Hasharon Sport Center (1992)
    Limited Partnership------------------------------         Country Club Facility                         50.0

CAPITAL MARKETS AND OTHER HOLDINGS-------------------
   Ampal Development (Israel) Ltd.-------------------         Holding Company                              100.0
   Ampal Industries (Israel) Ltd.--------------------         Holding Company                              100.0
   Bank Leumi le'Israel B.M.-------------------------         Israeli Commercial Bank                        0.2
   Blue Square-Israel Ltd. (NYSE:BSI and
    TASE)--------------------------------------------         Supermarket Chain                              3.9
   Epsilon Investment House Ltd. and-----------------
    Renaissance Investment Company Ltd.--------------         Portfolio Management and                      20.0
                                                               Underwriting Services
   Renaissance Israel--------------------------------         Investment Fund                               15.0
</TABLE>

-----------------------

<TABLE>
<S>                                                                             <C>
(1)      Based upon current ownership percentage. Does not give effect to any
         potential dilution.
(2)      As of December 31, 2001, Ophirtech Ltd. held the following percentage
         interests:
              Camelot Information Technologies Ltd.--------------------         13.1
              Carmel Bio-Sensors Ltd.----------------------------------         13.7
              Celvibe Ltd.---------------------------------------------         14.44
              Cipheractive Ltd.----------------------------------------         32.3
              Elpas Ltd.-----------------------------------------------         16.3
              Expand Networks Ltd.-------------------------------------         11.2
              Indocs Online Ltd.---------------------------------------         14.4
              Interlink Computer Communications Ltd.-------------------         13.1
              iRadius.com, Inc.----------------------------------------         9.46
              Mainsoft Corporation Ltd.--------------------------------          1.8
              Netformx Ltd.--------------------------------------------          5.9
              Pelican Security Ltd.------------------------------------         17.0
              Praxell, Inc.--------------------------------------------          5.9
              Realm Technologies Ltd-----------------------------------         14.5
</TABLE>


                                       3
<PAGE>
<TABLE>
<S>                                                                             <C>
              Romidot Ltd.---------------------------------------------         10.6
              StoreAge Networking Technologies Ltd.--------------------         10.9
              Techimage Ltd.-------------------------------------------          2.6
              Viola Networks-------------------------------------------         15.5

         The Company's percentage of the above companies reflects 42.5% of
Ophirtech's ownership plus any direct holdings.

(3)      As of December 31, 2001, Ophir Holdings Ltd. held the following
         percentage interests:
              Courses Investment in Technology Ltd.--------------------          3.5
              Dovrat Shrem-Skies Fund '92 Ltd.-------------------------          2.9
              Industrial Buildings Corporation Ltd.--------------------         12.1
              Lysh The Coastal High-way Ltd.---------------------------         25.0
              Meimadim Investments Ltd.--------------------------------         10.0
              New Horizons (1993) Ltd.---------------------------------         80.0
              Shmey-Bar (I.A.) 1993, Ltd., Shmey-Bar (T.H.)
              1993 Ltd. and Shmey-Bar Real Estate (1993) Ltd.----------         22.2

         The Company's percentage of the above companies reflects 42.5% of Ophir
Holdings' ownership plus any direct holdings.

(4)      Please refer to "Legal Proceedings."
</TABLE>


                                       4
<PAGE>
SIGNIFICANT DEVELOPMENTS SINCE THE END OF LAST FISCAL YEAR

         On February 26, 2002, the controlling shareholder of the Company, Rebar
Financial Corp. ("Rebar"), a company controlled by Daniel and Raz Steinmetz,
signed a definitive agreement (the "Rebar-Noy Agreement") to sell all of its
stock in the Company to Y.M. Noy Investments Ltd., a company organized by Yosef
Maiman ("Noy"), for an aggregate purchase price of approximately $82.9 million.
Closing is subject to the approval of the Israeli Ministry of Communication and
the Israeli Antitrust Commissioner.

         In connection with the closing of this proposed sale, all options
outstanding under the Company's stock options plans will become immediately
exercisable. However, shares issued upon exercise of approximately 300,000 of
these options may be sold to Noy at the same price per share as the shares to be
sold by Rebar.

         Noy has reported to the Securities and Exchange Commission that upon
consummation of the transactions contemplated by the Rebar-Noy Agreement, it
will review the Company's business and corporate structure and may cause changes
in the Company's business plan, which may include material changes in the
Company's business or corporate structure. See "Item 5. Market for Registrant's
Common Equity and Related Stockholder Matters-Dividend Policy" and "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations-Subsequent Events" for a discussion of restrictions on the activities
of the Company agreed to by Rebar pending closing of the transaction.

         On January 4, 2002, the Company made an additional investment of $0.5
million in Shellcase Ltd., a developer and manufacturer of chip size packaging.
The current equity interest of the Company in Shellcase is 13.2%.

         On January 28, 2002, the Company made an additional $0.5 million
investment in PowerDsine Ltd., a leading designer and developer of software
controlled power solutions. The Company now holds an approximately 8.4% equity
interest in PowerDsine.

         On January 2, 2002, the Company made a $0.5 million loan to Camelot
Information Technologies Ltd. In February 2002, the Company, together with other
Camelot shareholders, acted to put Camelot into liquidation proceedings.

HIGH TECHNOLOGY AND COMMUNICATIONS

         ALVARION LTD. ("ALVARION")

         Alvarion (Nasdaq: ALVR) (formerly BreezeCOM Ltd.), is a leading
provider of point-to-multipoint, broadband wireless access, or BWA, solutions
used by telecommunication carriers, service providers and enterprises worldwide.
Alvarion's products provide a wireless alternative to wired access solutions.
They are used to provide data and voice services for subscribers in the "last
mile" of connectivity, for feeding of cellular networks and connectivity within
the enterprise. The products provide a broad range of integrated BWA solutions
by market segment and frequency band, designed to address the various business
models of carriers and service providers. Other products enable indoor and
outdoor, and fixed and mobile wireless connectivity to a local computer network,
or LAN. On August 1, 2001, Alvarion completed a merger with Floware Wireless
Systems Ltd. (in which the Company had also invested). Upon the closing of the
merger, the surviving entity changed its name from BreezeCOM Ltd. to Alvarion
Ltd. The merger with Floware, who developed, manufactured and sold complementary
wireless access products, strengthens Alvarion's diversified customer base and
distribution channels and enables Alvarion to offer customers a comprehensive
range of integrated wireless access products and platforms.

         The Company has invested $4.9 million in Alvarion. The Company held, as
of December 31, 2001, 816,000 shares of Alvarion, which represented an 1.5%
interest in Alvarion.

         AREL COMMUNICATIONS AND SOFTWARE LTD. ("AREL")

         The Company purchased 396,000 shares of Arel (NASDAQ: ARLC) in February
2000 for approximately $6 million. Arel's core business targets the emerging
Interactive Distance Learning market, where it believes that it is positioned as
an innovative technology leader. Arel's subsidiary, ArelNet Ltd. ("ArelNet"), is
a provider of high quality Internet Protocol (IP) telephony solutions,
developing technology solutions for real-time voice and fax over IP networks and
enhanced services. Arel completed the spin-off of its holdings in ArelNet in
June 2000, and the Company received 119,674 shares of ArelNet.

         In 2001, the Company recorded a net unrealized loss of $0.5 million,
after taxes. At December 31, 2001, the Company owned 398,100 and 119,674 shares
of Arel and ArelNet, respectively, which had a


                                       5
<PAGE>
combined market valuation of $0.4 million. The Company's equity interest in Arel
and ArelNet at December 31, 2001 was 3.1%.

         AMETHYST VENTURES ("AMETHYST")

         Amethyst, a Korean venture capital fund (formerly Ampal Cavallo
Intervest Fund) was established in December 2000 with the objective of
identifying and making equity investments in high-technology companies in Korea.
Partners in Amethyst included Intervest Co. Ltd, Cavallo Korea Fund, Inc., Ampal
Industries Ltd., Ampal International Ventures Ltd. and the Korean government.
The Company invested $ 1.1 million in Amethyst.

          Amethyst did not make any investments in 2001 and in December 2001 the
Company and Cavallo sold their share in Amethyst for $0.9 million, recording a
pretax loss of $0.2 million.

         BABYLON LTD. ("BABYLON")

         Babylon-Pro, Babylon's single click translation, information and
conversion tool, enables users to instantly obtain translations in most spoken
languages, information from thousands of glossaries and conversions of
currencies, measurements and time zones. There are currently over 15 million
registered users of Babylon-Pro.

         In April 2001 Babylon changed its business model and started selling
its software to users. Since that time Babylon has sold tens of thousands of
licenses and its sales have grown from $356,000 in the second quarter of 2001,
to $650,000 in the fourth quarter of 2001.

         The Company had invested in Babylon, as of December 2001, a total of $
0.5 million . The Company wrote off $ 0.25 million of this investment during
2001 and at December 31, 2001, the Company held a 1.7% equity interest in
Babylon.

         BRIDGEWAVE COMMUNICATIONS, INC. ("BRIDGEWAVE")

         BridgeWave develops and markets wireless access systems that extend the
reach of broadband networks, allowing service providers to reach untapped
subscribers with high-margin, high-bandwidth services.

         The Company's most recent investment in BridgeWave was made in
September 2000 as part of a $26.5 million private placement, based on a $126.5
million post-money valuation. Other significant investors in the private
placement were Merrill Lynch and Scientific Atlanta Strategic Investment L.L.P.
The Company has invested an aggregate of $2.8 million in BridgeWave, for a 3.4%
equity interest.

         CAMELOT INFORMATION TECHNOLOGIES LTD. ("CAMELOT")

         In 1999 and 2000, the Company invested $1.25 million and $3.3 million,
respectively, for a 15.1% equity interest in Camelot, which develops and markets
security and management solutions for the networked business environment.

         Ophirtech Ltd., the Company's 42.5%-owned affiliate, has invested $3.5
million in Camelot for a 13.2% equity interest. In May 2001, Camelot signed a $6
million bridge loan agreement with the Company and other investors. The
Company's participation in the loan was $1 million. Camelot received $4.5
million of this loan prior to January 2002.


                                       6
<PAGE>
         In February 2002, some of Camelot's shareholders, including the
Company, acted to put Camelot into liquidation proceedings. Accordingly, the
Company wrote off its investment in Camelot as of December 31, 2001.

         COMPUGEN LTD. ("COMPUGEN")

         Compugen (NASDAQ: CGEN) is a leader in merging computational
technologies with biology and medicine to enhance drug discovery and
development. Compugen's innovative predictive biology technologies support two
complementary product development and commercialization divisions. Compugen's
BioApplications division offers high value products and services that enable and
enhance the discovery and functional analysis of genes, proteins and cell
processes. Compugen's Novel Genomics division is developing human therapeutic
and diagnostic products based on target genes, proteins and other intellectual
property discovered through Compugen's innovative research activities.
Compugen's revenues increased from $7.4 million in 2000 to $11.4 million in
2001.

         The Company invested $1 million and $1.1 million in Compugen in 1998
and 2000, respectively. During 2000, the Company sold 26,300 shares of Compugen
for a net gain of $0.1 million, after taxes. In 2001, net unrealized gain of
$0.4 million, after taxes, was recorded in accumulated other comprehensive loss.

         As of December 31, 2001, the Company held 384,000 shares of Compugen,
representing a 1.5% equity interest.

         CUTE LTD. ("CUTE")

         CUTe develops and markets advanced solutions for the delivery of
multimedia over wireless networks.

         In June 2000, the Company entered into a share purchase agreement
pursuant to which the Company undertook to invest in CUTe $1.75 million, in four
equal consecutive quarterly installments, bearing interest. All four
installments have been paid. The Company holds 20% of the issued share capital
of CUTe. As of December 31, 2001, the value of CUTe on the Company's books was 0
due to its equity losses.

         ENBAYA INC. ("ENBAYA")

         Enbaya (formerly Geometry-On-Line, Inc.) develops, licenses, and
supports proprietary software solutions that enable PC, video game console,
handheld and handset content developers to rapidly create more compelling
graphics content and applications.

         In mid-2001, Enbaya refined its strategy to focus on rapidly emerging
opportunities in the interactive game market.

         Enbaya's flagship product, ProGATE, is a fully scalable suite of
technology solutions for handling large, complex and dynamic scenes. Enbaya's
products can encode and decode all of the key game elements, including 3D
geometry, animation and textures, in real-time.

         In March 2000, the Company invested $0.5 million in Enbaya for a 12.9%
equity interest, and extended a bridge loan of $0.4 million in September 2000.
The Company made an additional investment of $1.5 million (including conversion
of $ 0.4 million of loans), in Enbaya in January 2001 as part of a $5 million
round of financing based on a $15 million post-money valuation. Other
significant investors included Poalim Capital Markets, DS Polaris and Partner
FutureComm. As of December 2001, the Company holds a 19.14% equity interest in
Enbaya. The Company wrote off $1.4 million of its investment in Enbaya as of
December 31, 2001.


                                       7
<PAGE>
         MIRS COMMUNICATIONS LTD. ("MIRS")

         MIRS is the largest investment in Ampal's history. On January 22, 1998,
the Company completed its purchase of a one-third interest in the assets of a
new wireless communications service provider, MIRS Communication Company Ltd.
("MIRS") for $110 million. In March 1998, the Company transferred its interest
in MIRS to a limited partnership. A wholly-owned Israeli subsidiary of Ampal is
the general partner of the partnership and owns 75.1% of the partnership. The
limited partners of the partnership reimbursed the Company for their pro-rata
share of expenses incurred by the Company in connection with the original
purchase from Motorola Israel. MIRS, which is one-third owned by the partnership
and two-thirds owned by Motorola Israel, operates a digital and analog
public-shared two-way radio as well. The digital wireless communication service
is based on Motorola's iDEN(TM) integrated wireless communication technology,
which is known as MIRS in Israel. The MIRS system employs a unique radio
technology, developed by Motorola, and provides an integrated service platform
of cellular, two-way radio and wireless data services. These services are
targeted primarily to commercial customers.

         MIRS has over 215,000 subscribers in the commercial, governmental,
municipal, security and military sector, 29,000 of which are Packet-Data users.
MIRS has strongly positioned itself in the commercial sector, announcing an
aggressive pricing strategy for the cellular services market, resulting in an
increase in its customer base. The Company recorded income of $7.1 million
resulting from the guaranteed payments from Motorola.

         On February 5, 2001, MIRS was granted a full general operator license
by the Israeli Ministry of Communications for portable radio and telephone
services through its cellular system. This license is similar to the three
existing cellular licenses previously granted to other Israeli operators. The
major advantages of this license are that MIRS can now charge for airtime usage
for incoming calls and an interconnect agreement with Bezek, Israel's local
telephone provider. As part of the license, MIRS will have to pay royalties to
the Government of Israel and be subject to certain quality of service
measurements to comply with industry standards. In connection with the issuance
of the license, MIRS is obligated to make a preliminary payment to the Ministry
of Communications in the amount of NIS 17,600,000 ($3.8 million) plus accrued
interest. In addition, during the ten year period beginning July 1, 2001, MIRS
will make quarterly payments to the Ministry of Communications in an amount
equal to 1.3% of its income which is subject to royalties.

         Subsequent to the receipt of its license, MIRS launched a new brand,
"AMIGO", which mainly targets the consumer market, in order to explore its
opportunities and advantages in this market as well.

         The main goal of MIRS is to provide cellular service to the commercial,
governmental, public and private sectors according to quality standards set by
Motorola, in order to give a full and satisfying solution to all wireless
communications needs.

         The communications infrastructures operated by MIRS are as follows:

         MIRS Network - the leading digital infrastructure of MIRS, based on the
IDEN technology developed by Motorola, which offers a wide variety of
communications services in national deployment, which include instant radio
communication, private and group communication, cellular telephone services,
short message services (SMS) and data communication packet and circuit data.

         Rav-Gal - provides the subscribers with analog trunking, enabling
regional group communication.

         Barak - Emergency detection system


                                       8
<PAGE>
         Hyunit/Bakarit Networks - control systems allowing the subscriber to
receive beeper indications of the system's regular or irregular condition, as
well as indications of alarms and security in unmanned systems or installations.

         At present, over 9 million subscribers are using the IDEN system
worldwide, primarily in the United States where service is provided by Nextel,
and in Argentina, Brazil, Canada, China, Korea, Mexico, Peru, Singapore and
Colombia. By the end of 2001, MIRS had more than 215,000 subscribers in Israel,
as compared to 168,000 subscribers at the end of 1999.

THE MAIN COMMUNICATIONS SERVICES OF THE MIRS SYSTEMS ARE:

         - High quality cellular calls with additional services, such as
voice-mail, call waiting, last number dialing, etc.

         -  Instant private communication two-way radio

         -  Instant group communication

         -  Two telephone numbers per subscriber - optional

         -  Smart voice-mail, including automatic indication on incoming
            messages and fax

         -  Hebrew/English SMS, sent from the user's PC or handset

         -  19.6 kbps net rate data transmission

         -  Video on MIRS - enables transmission of digital/video pictures via
            MIRS

         -  Business Networks - instant private calls between companies and
            organizations that belong to the same business network

         -  On-going information updates through the Internet regarding the
            current billing status of the customer's subscriber units

         -  96 kbps rate advanced Packet-Data communications, using TCP/IP
            protocols

         -  MIRS subscriber unit with integrated browser

         -  Easy access from the lap-top to the customer's office/home computer
            applications

         -  Fast access to information services and e-mail, directly from the
            MIRS subscriber unit

         -  Alphanumeric messages can be sent to the MIRS subscriber unit
            through a manned paging center or through the Internet

         -  Full roaming in the U.S. Roaming possibility to additional
            destinations is expected in 2002.

         -  WAP portal.

         A petition to certify a class action against MIRS in the amount of NIS
170 million ($38 million) was filed in the Tel Aviv District Court in September
2001. The claim is in connection with the change in


                                       9
<PAGE>
MIRS' tariffs resulting from the implementation of MIRS' own dialing prefix,
which replaced its previous dialing prefix, the Tel-Aviv area code. As a result,
persons in the Tel Aviv area code claimed that they are subject to higher
tariffs than those they had been subject to under MIRS's previous dialing
prefix. MIRS' Management estimates the maximum exposure to be substantially less
than the amount claimed.

         MODEM ART LTD. ("MODEM-ART")

         In 1999, 2000 and 2001, the Company invested $0.4 million, $1.55
million and $ 0.1 million, respectively, in Modem-Art. As of December 31, 2001
the Company held a 6.32% equity interest in Modem-Art. An Israeli fabless
semiconductor company, Modem-Art specializes in developing system-on-a-chip
solutions for wideband and broadband communication systems focusing on baseband
processors for 3G terminals.

         MPREST TECHNOLOGIES LTD. ("MPREST")

         mPrest, (formerly WapDWap Ltd.), is engaged in the development of
web-based applications for cellular phones. In August 2000, Ampal invested $0.75
million in mPrest for a 9.5% equity interest, as part of a $4 million private
placement. mPrest terminated all its employees and ceased activities at the end
of 2001. Accordingly, the Company has written off its investment in mPrest as of
December 31, 2001.

         MUTEK SOLUTIONS LTD. ("MUTEK")

         MuTek develops and markets AppSight, an integrated suite of Black Box
Flight Recorders for Software that proactively record, playback, analyze and
identify the root cause of failures in software applications. AppSight is used
throughout the application life cycle to improve application reliability,
minimize downtime and reduce application deployment and support costs. Over 2000
customers worldwide use Mutek's Black Box solutions. MuTek's customers include
major companies in the financial services, computers, telecom, high tech and
manufacturing industries.

         The Company has invested $3.7 million in MuTek, and its equity interest
at December 31, 2001 was 6.58%. In 1999 the Company wrote off $1.1 million of
its investment in MuTek.

         NETFORMX, LTD. ("NETFORMX")

         The Company has a 20.2% equity interest in Netformx, directly and
indirectly through Ophir. Netformx develops and markets the award winning
CANE(R) family of network design, analysis and simulation tools.

         Netformx's strategy is to help its customers design and maintain
sophisticated computer networks. Using CANE, network and system integrators and
network managers design, simulate and analyze efficient, reliable networks
quickly and easily. CANE is designed to resolve network chaos and manage the
accelerating pace of network change while reducing network equipment, consulting
and staff costs.

         During 2001, Netformx developed new line of web-based products, which
it has sold to Cisco Systems, Nortel Networks and SBC Communications. In
addition, due to slower than expected growth in its markets, Netformx reduced
its work force and expenses during 2001 to calibrate it to current market
conditions. The Company wrote off an increased portion of its investment in
Netformx in 2001. Currently, only $0.5 million in owner loans to Netformx are
carried on the Company's books from this investment.

         OBLICORE INC. ("OBLICORE")

         Oblicore provides an end-to-end solution for service level agreement
management for service providers and enterprise companies. Oblicore supports
service level agreement customization and management for each client's specific
needs. Interfaced with third-party operational and monitoring systems,


                                       10
<PAGE>
Oblicore's solution reports actual performance versus agreed targets and
delivers alerts and predictive analyses for making the best business decisions.

         As of December 31, 2001, the Company had invested $2.2 million for an
equity interest in Oblicore of 14.4%.

         OPHIR HOLDINGS LTD. ("OPHIR")

         Ophir, the Company's 42.5%-owned affiliate, holds interests in real
estate and high technology. In March 2000, Ophir sold most of its
high-technology interests to a related entity, Ophirtech Ltd. ("Ophirtech") for
$17.6 million. The Company has a 42.5% interest in Ophirtech.

         In addition to its investment in two mutual funds which focus on the
high-technology sector, Ophir previously held a 5.6% equity interest in
Nogatech, Inc. ("Nogatech"), which developed video communication compression
technology. In May 2000, Nogatech completed an initial public offering of
3,500,000 shares on the NASDAQ and received gross proceeds of $42 million.

         Nogatech was acquired by Zoran Corporation ("Zoran") in October 2000.
Zoran is a leading provider of digital solutions-on-a-chip for applications in
the growing multimedia and consumer electronics markets. In June and July 2001,
Ophir sold all its holdings in Zoran for $4.5 million and recorded a net gain of
$1.5 million after taxes.

         In April 2000, Terayon Communications Systems, Inc. ("Terayon")
acquired Combox Ltd. ("Combox"). Ophir exchanged its 19.7% equity interest in
Combox for 301,998 shares of Terayon. During 2000, Ophir sold 268,424 shares of
Terayon and recorded a net gain of $8.5 million, after taxes. In June 2001,
Ophir received $1.4 million for 22,311 Terayon shares that had been deposited
with a trustee.

         In the first quarter of 2002, Ophir invested $0.7 million in Cerel
(Ceramic Technologies) Ltd. ("Cerel"). Cerel develops ceramic layering
technologies for the passive electrical components market.

         OPHIRTECH LTD. ("OPHIRTECH")

         Ophirtech, the Company's 42.5%-owned affiliate, has invested in 20
companies in the high-technology sector. During 2001, Ophirtech invested $3.9
million in start-up companies. In addition, in 2001 Ophirtech made provisions
for impairment of the value of its start-up investments in the amount of $10
million. At December 31, 2001, the book value of Ophirtech's start-up
investments was $15.3 million.

         Included among Ophirtech's investments are the following companies:

                  CAMELOT INFORMATION TECHNOLOGIES LTD. ("CAMELOT")

                  Ophirtech has invested $3.5 million in Camelot for a 13.1%
         equity interest. The Company's net equity interest in Camelot at
         December 31, 2001, was 20.6% (see Camelot above). In February 2002,
         some of Camelot's shareholders, including the Company, acted to put
         Camelot into liquidation proceedings. Ophir wrote off its investment in
         Camelot as of December 31, 2001.

                  CELVIBE LTD. ("CELVIBE")

                  Celvibe develops digital video technologies for the Internet,
         broadband networks and mobile users. Ophirtech invested $2.8 million
         for a 14.4% equity interest. In March 2001, Celvibe raised $10.1
         million based on a pre-money company valuation of $24 million.

                  ELPAS LTD. ("ELPAS")


                                       11
<PAGE>
                  Elpas develops local positioning-system solutions for
         hospitals and buildings. Through its patented wireless infra-red
         technology, Elpas is positioned to deliver solutions that change the
         way personnel, patients, visitors and equipment are managed indoors.
         Ophirtech invested $1.6 million for a 16.3% equity interest in Elpas.

                  EXPAND NETWORKS LTD. ("EXPAND")

                  Expand developed caching technology designed to accelerate
         communications over diverse network infrastructures and improve
         broadband efficiency, thereby yielding savings in communications
         infrastructure costs. Expand extends the performance benefits of
         caching beyond Web traffic to all enterprise data. The result is a
         100%-400% network performance increase that supports the deployment of
         bandwidth-intensive applications.

                  In October 2000, Expand completed a private placement, raising
         a total of $25 million from America Online, Inc., Comcast Interactive
         Capital, the Kaufman Fund, investment banks and other venture capital
         funds.

                  At December 31, 2001, Ophirtech's investment of $2.9 million
         represented an 11.2% equity interest in Expand.

                  INTERLINK COMPUTER COMMUNICATIONS LTD. ("INTERLINK")

                  Interlink is developing an application that enables
         communication between various computing platforms. Ophirtech invested
         $1.2 million for a 13.1% equity interest.

                  PELICAN SECURITY LTD. ("PELICAN")

                  Pelican is a client-side Internet security vendor that
         provides solutions that proactively protect e-businesses from Internet
         threats. Pelican's flagship product line, Pelican SafeTnet(TM), defends
         organizations from threats such as destructive Internet viruses and
         hackers who attempt to exploit the security weaknesses of the Windows
         client to gain unauthorized access to vital corporate resources.

                  SafeTnet(TM) was the only technology to proactively block the
         malicious actions of the "Love Bug" worm when it first hit in early May
         2000.

                  Ophirtech has invested $ 1.6 million for a 17% equity interest
         in Pelican.

                  PRAXELL, INC. ("PRAXELL")

                  Praxell has developed a payment system (Praxicard), which
         provides safe, secured and anonymous online purchases. Praxicard also
         enables new segments like teenagers and travelers that lack credit
         cards, which have been largely excluded from online purchasing, to buy
         online. The system, completely based on Oracle systems, provides
         Internet users with comfortable, flexible and secured payment
         solutions.

                  Praxell offers a variety of other services like gift
         certificates, loyalty points programs and account managing for
         e-commerce sites.

                  In 2001 Praxell raised $2.5 million in equity at a pre-money
         company valuation of $13.5 million. Ophirtech has invested $0.75
         million in Praxell for an equity interest of 5.9%.


                                       12
<PAGE>
                  STOREAGE NETWORKING TECHNOLOGIES LTD. ("STOREAGE")

                  StoreAge provides cost effective storage solutions to the
         enterprise market with a focus on StoreAge Area Network (SAN)
         architecture. StoreAge makes a device that allows users to prioritize
         information contained on corporate storage networks and manage the data
         more efficiently, using virtualization technology to accomplish the
         gain in efficiency.

                  Ophirtech invested $3 million in StoreAge and had a 13.8%
         equity interest at December 31, 2000. In January 2001, Cisco Systems
         Inc. and several other investors participated in a $25 million round of
         financing which diluted Ophirtech's equity interest to 11%.

         PEPTOR LTD. ("PEPTOR")

         Peptor is a biopharmaceutical company that applies proprietary rational
drug design and combinatorial peptidomimetic technology to heat shock protein 60
("hsp60") to develop immunotherapeutic vaccines that can modulate the immune
system and thereby treat autoimmune diseases and certain cancers.

         Peptor's proprietary platform technology, developed in collaboration
with the Weizmann Institute, allows specific down-regulation of cells that are
accountable for causing an autoimmune disease and eliminates the undesired side
effect resulting from the non-specific shutdown of the immune system that
otherwise protects the body.

         Peptor has applied its technology in developing and synthesizing its
first therapeutic vaccine, DiaPep277(TM), for the treatment of autoimmune
diabetes. The FDA recently approved Peptor's initiation of a multi-center phase
II clinical trial for DiaPep277(TM) for the treatment of LADA patients. Peptor
expects to commence U.S. phase III clinical trials for DiaPep277(TM) for the
treatment of newly diagnosed adult type 1 diabetes towards the end of 2002.
Peptor has also received the Clinical Trial Exemption ("CTX") approval from the
Medicines Control Agency ("MCA") of the United Kingdom Department of Health to
conduct the UK part of the multinational European phase II clinical trial of
LADA patients.

         As of December 31, 2001, the Company's equity interest in Peptor was
0.5%, and the net investment was $ 0.2 million.

         POWERDSINE LTD. ("POWERDSINE")

         PowerDsine designs and develops software-controlled power management
solutions, which enable the delivery of operating power over telecom and
converged voice-data communications networks. PowerDsine is a leader in the
market for Power over LAN(TM) technology, which integrates data, voice and power
on standard Ethernet infrastructure.

         Power over LAN supplies reliable, uninterrupted power to Internet
Protocol (IP) telephones, wireless LAN access points, and other Ethernet devices
using existing Local Area Network (LAN) cable infrastructure. This technology,
when used in conjunction with a centralized uninterrupted power supply , ensures
continuous operation during power failures while eliminating the time and cost
of installing separate power cabling and of providing a dedicated, uninterrupted
power supply for individual terminals and devices.

         PowerDsine sells its products to over 100 customers in North America,
Europe, Israel and the Asia Pacific region. PowerDsine has established business
relationships with over nine major communications giants, including: Nortel
Networks, Siemens, Lucent Technologies, Ericsson, Fujitsu, NEC, Proxim, 3Com and
Avaya.


                                       13
<PAGE>
         During 2001, PowerDsine's sales increased to $20 million, from $12
million in 2000.

           As part of a $30 million private placement during November 2001, the
Company invested $1.25 million by exercising its pre-emptive rights in 3
tranches ($547,000 in November 2001, $469,000 in February 2002 and $234,000 in
July 2002). Accordingly, as of February 2002, the Company holds an 8.41% equity
interest in PowerDsine. PowerDsine's last round of financing was completed at a
post-money valuation of $95 million.

         The Company's total investment in PowerDsine at December 31, 2001, was
$5.3 million, and its equity interest was 9.5%.

         REALM TECHNOLOGIES LTD. ("REALM")

         In June 2000, the Company invested $1.25 million in RealM for a 13%
equity interest. Ophirtech, the Company's 42.5% affiliate, has invested $0.75
million in RealM for a 14.5% equity interest.

         RealM is currently in liquidation proceedings. The Company and
Ophirtech have written-off their investments in RealM.

         SHELLCASE LTD. ("SHELLCASE")

         ShellCase has developed a proprietary, patented wafer level chip size
packaging (CSP) technology for silicon devices using a wafer-level process.
Hand-held electronics, wireless communication products, ID technologies, digital
imaging and light detection applications in consumer goods, smart cards and
medical disposables are just part of the growing list of applications that
benefit from the unique properties of ShellCase's technology.

         In January 2002, the Sanyo Corporation invested $1 million in
ShellCase. In 2001, the Company and two other investors exercised warrants they
held for ShellCase shares, for a total exercise price of $ 1.5 million.

         ShellCase is publicly traded on the Canadian Venture Exchange (CDNX).
The Company's investment of $4.2 million in ShellCase represented a 13.2% equity
interest at December 31, 2001.

         SHIRON SATELLITE COMMUNICATIONS (1996) LTD. ("SHIRON")

         Shiron is engaged in the development, manufacturing and marketing of
InterSKY(TM), Shiron's satellite communications product. Shiron is the leader in
providing easily deployable two-way, "always-on" broadband satellite
communications to corporate businesses, Internet Service Providers (ISP) and
Small Office/Home Office (SOHO) in places where broadband infrastructure is
insufficient or does not currently exist. Unlike traditional satellite
solutions, which provide only a one-way connection, InterSKY(TM) provides a
broadband connection for both inbound and outbound signals. Shiron's systems are
intended to meet the communication needs of developing countries, as well as the
demands of technologically developed countries, for advanced high-speed two-way
transmission.

         The Company has invested $1.8 million in Shiron. As of December 31,
2001, the Company's percentage ownership in Shiron was 10%. During 2001 the
Company wrote down $1.4 million of its investment in Shiron.

         SMART LINK LTD. ("SMART LINK")


                                       14
<PAGE>
         Smart Link is a developer and supplier of software-based communications
products that provide Internet access and broadband voice/data communications to
the residential and small office/home office markets. Its proprietary technology
enables customers to replace traditional hardware-based communications products
with high-quality, user-friendly software-based solutions that are smaller and
less costly. Products include software and chips that are easily integrated into
personal computers and information appliances. Its products take advantage of
the excess computer power of advanced microprocessors to perform required
communications tasks.

         Smart Link increased its sales from $17 million in 2000 to $18.7
million in 2001.

         The Company's net equity interest in Smart Link as of December 31, 2001
was 14.84%.

         STAR MANAGEMENT OF INVESTMENTS NO. II (2000) L.P. ("STAR")

         The Company has invested $1.875 million in Star, a venture capital fund
which focuses on investments in communications, Internet, software and medical
devices, for a 10% equity interest. The Company is committed to investing an
additional $3.125 million in Star.

         TRINET VENTURE CAPITAL LTD. ("TRINET")

         The Company and Poalim Investments established Trinet, a venture
capital fund for investments in high-technology ventures in Israel, including
start-up entities. Trinet invested in several high-technology companies,
including Netformx, Smart Link, and Peptor. On December 31, 2001, Trinet's
holdings in Netformx, Smart Link and Peptor were sold to Trinet's shareholders,
including the Company.

         VIOLA NETWORKS LTD. ("VIOLA")

         Viola, (formerly Omegon Networks Ltd.), is developing a software system
permitting quick and continuous identification of difficulties and interruptions
in various communications networks.

         Ophirtech has invested $3.0 million for a 15.5% equity interest in
Viola. In December 2001, Viola raised $5.1 million in bridge financing, which
has been converted into equity at a pre-money company valuation of $9 million.

         VISIONCARE OPHTHALMIC TECHNOLOGIES LTD. ("VISIONCARE")

         VisionCare develops and markets proprietary ophthalmic implantable
products that give patients better and more natural visual function with
improved quality of life. VisionCare's products meet the growing demand for
innovative devices to treat age-related eye disorders, affecting tens of
millions of people. VisionCare's first product is the patented Implantable
Miniaturized Telescope ("IMT"), a solution for macular degeneration, a disease
that affects 5 million Americans, destroying their central vision. IMT restores
central vision without the need for special glasses. VisionCare is also
developing new implantable devices for the treatment of tunnel vision and other
ophthalmic diseases. Initial clinical trials have been successful and
VisionCare's production facility has received ISO-9001 certification. The
Company has invested $0.7 million in VisionCare and its equity interest at
December 31, 2001 was 8.89%.

         XACCT TECHNOLOGIES LTD. ("XACCT")


                                       15
<PAGE>
         XACCT provides a network data management platform for global
communications service providers such as network backbone providers, mobile
operators, cable operators, and managed services providers. XACCT's
carrier-class Network-to-Business (N2B(TM)) platform helps make service
providers profitable by harnessing network information to create new value-based
services and lower operational costs. XACCT offers the industry's first and only
platform that enables real-time data capture and enhancement; seamless
integration with any business or operations application; and instantaneous,
flow-through service provisioning.

         As of December 31, 2001, XACCT had licensed its business software to
over 70 network service providers. XACCT's customers include include Bell Canada
(NYSE:BCE), Boeing (NYSE: BA), British Telecom (NYSE:BT), Broadwing (NYSE:BRW),
Cable & Wireless (NYSE:CWP), COLT (NASDAQ:COLT), Global One, Genuity
(NASDAQ:GENU), Motorola (NYSE: MOT), Omnitel Vodafone, Siemens (NYSE:SIE),
Teleglobe, (NYSE:BCE), TELUS (NYSE: TU), TV Cabo, and Verio (NYSE:NTT). In
addition, XACCT has developed strategic alliances or collaborative relationships
with a group of over 100 system integrators, value-added resellers, networking
infrastructure vendors and software applications vendors.

         As of December 31, 2000, the Company had invested $7.6 million in
XACCT. In February 2001, the Company made an additional investment of $5 million
in XACCT as part of a $36.6 million round of financing based on a post-money
valuation in excess of $300 million.

         On March 28, 2000, XACCT filed a registration statement on Form S-1
with the Securities and Exchange Commission. On January 29, 2001, XACCT withdrew
its S-1 filing due to adverse market conditions for initial public offerings.

         XACCT's revenues increased from $1.2 million in 1999 to $10 million in
2000 and more than $19 million in 2001.

         As of December 31, 2001, the Company's total investment in XACCT was $
12.5 million and its equity interest was 16.9%.

         XPERT INTEGRATED SYSTEMS LTD. ("XPERT")

         Xpert is a leader in systems and architectural design and
implementation for IP-based service providers. Xpert completed a $14.5 million
private placement in December 2000, as well as an additional private placement
of $8.5 million in September 2001. Xpert operates primarily in Israel and
through its wholly owned subsidiary in Southern Europe.

         The Company has invested $2.75 million in Xpert, and its equity
interest as of December 31, 2001 was 12.7%.

REAL ESTATE

         In Israel, most land is owned by the Israeli government. In this
Report, reference to ownership of land means either direct ownership of land or
a long-term lease from the Israeli Government, which is in most respects is
regarded in Israel as the functional equivalent of ownership. It is the Israeli
government's policy to renew its long-term leases (which usually have a term of
49 years) upon their expiration.


                                       16
<PAGE>
         AMPAL DEVELOPMENT (ISRAEL) LTD. ("AMPAL DEVELOPMENT"), NIR LTD. ("NIR")
AND AMPAL FINANCIAL SERVICES LTD. ("AMPAL FINANCIAL") (TOGETHER, THE "HOLDING
COMPANIES").

         Ampal Development, Nir and Ampal Financial, each of which is
wholly-owned by the Company, are engaged in the business of financing
acquisitions by the Company and, until July 1999, holding and leasing commercial
real estate in Israel. Prior to 1989, these companies had acted primarily as
lenders, and their financing activities were the principal activities of the
Company. In 1990, the Holding Companies sold substantially all their loan
portfolios to Bank Hapoalim B.M. ("Hapoalim"), and they relinquished their
banking licenses.

         On December 2, 1997, Kaniel, the Israeli Company for Tin Containers
Ltd. ("Kaniel") filed a suit against the Company in the Tel Aviv District Court,
in the amount of NIS 3,623,058 ($0.8 million). The suit relates to eight loans
given to Kaniel by the Company in 1984. Kaniel claimed that the Company's
actions in connection with the loans were forbidden under the Israeli Interest
Law. On November 19, 1998, the Tel Aviv District Court ruled that the statute of
limitations applies to the majority of the plaintiff's claim, and thereby
rejected such claims. The plaintiff filed an appeal with the Israeli Supreme
Court, and withdrew the remainder of its claim until the Supreme Court's ruling.
At this stage, the Company can not estimate the impact this claim will have on
it.

         At December 31, 2001, Ampal Development owned a 2,000 square foot
property in Tel Aviv and received rental income of approximately $0.1 million.
Nir owns four commercial properties located in Israel aggregating approximately
18,000 square feet for which it received approximately $0.3 million in rental
income in 2001. On May 2001 Nir sold its interest in an office building in Bnei
Brak for $ 3.1 million and recorded a pre tax gain of $ 2.1 million

         Ampal Development issued debentures which are publicly traded on the
TASE. An aggregate of approximately $7.3 million of these debentures were
outstanding as of December 31, 2001. Ampal Development has deposited with
Hapoalim funds sufficient to pay all principal and interest on these debentures.

         AM-HAL LTD. ("AM-HAL")

         Am-Hal is a wholly-owned subsidiary of the Company. On December 31,
1999, the Company invested $6 million to purchase a 50% equity interest in
Am-Hal from the Israel Corporation and currently owns 100% of Am-Hal.

         Am-Hal develops and operates luxury retirement centers for senior
citizens.

         In March 1992, the first center was opened in Rishon LeZion, a city
located approximately 10 miles south of Tel-Aviv. This center, of about 120,000
square feet, includes 149 self-contained apartments (of which 124 were occupied
on December 31, 2001), an 80-bed nursing care ward, a 24-bed assisted-living
ward (which had 85% occupancy on December 31, 2001), a swimming pool, a health
care center and other recreational facilities. The nursing care ward is leased
to a non-affiliated health care provider until 2006. Rental payments are based
upon the profits of the nursing care ward, with a minimum rent of $350,000 per
year.

         The aggregate cost of the center in Rishon LeZion was approximately $21
million and was financed principally by loans made or guaranteed by the
shareholders and refundable tenants' deposits. All of the loans have been
repaid.


                                       17
<PAGE>
         Due to the success of this project and the increased demand for such
services, Am-Hal has entered into a joint venture agreement with, amongst
others, the owner of a property consisting of 2.5 acres of land in Hod Hasharon,
a city located approximately 7 miles north of Tel Aviv, for its second
retirement center. This center, which is approximately 250,000 square feet, was
opened in June 2000, and includes 238 self-contained apartments, a 33-bed
nursing care ward and a 22-bed assisted-living ward. As of December 31, 2001,
180 of the apartments had been sold and the nursing care ward had a 65%
occupancy. The assisted-living ward was opened at the end of the first quarter
of 2002. The total cost of the project was approximately $42 million financed
principally by bank loans and refundable deposits from tenants. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" for additional information
regarding those loans.

         AMPAL (ISRAEL) LTD. ("AMPAL (ISRAEL)")

         Ampal (Israel), a wholly-owned subsidiary of Ampal, owns an
approximately 40,000 square foot commercial property located in Tel Aviv which
houses its principal offices. Total rental income was $0.4 million. Ampal
(Israel) also acts as a holding company for other investments discussed
elsewhere in this report.

         AMPAL REALTY CORPORATION ("AMPAL REALTY")

         On March 28, 2001, the Company sold its interest in a building located
at 800 Second Avenue, New York, New York for $33 million and recorded a pretax
gain of approximately $8 million. The Company repaid a $15 million note to
Hapoalim from the proceeds of the sale.

         BAY HEART LIMITED ("BAY HEART")

         Bay Heart was established in 1987 to develop and lease a shopping mall
(the "Mall") in the Haifa Bay area. Haifa is the third largest city in Israel.
The Mall, which opened in May 1991, is a modern three-story facility with
approximately 280,000 square feet of rentable space. The Mall is located at the
intersection of two major roads and provides a large mix of retail and
entertainment facilities including seven movie theaters. Approximately 37,500
square feet of the Mall are occupied by Supersol Ltd., one of the two largest
Israeli supermarket chains, and the parent of a co-investor in Bay Heart. Shekem
Department Stores, a major Israeli department store, is the other anchor tenant
under a net lease for approximately 29,000 square feet of retail and
approximately 9,000 square feet of storage and other space expiring in 2011. As
of December 31, 2001, approximately 82% of the Mall was occupied. The total cost
of the Mall was approximately $53 million, which was financed principally with
debt. See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" for additional
information regarding the debt financing of Bay Heart. A train station on the
west side of the Mall was completed on September 2001. A transportation complex,
in conjunction with a subsidiary of Egged Bus Company, was opened in January
2002. The Company owns 37% of Bay Heart.

         ETZ VANIR LTD. ("ETZ VANIR") AND YAKHIN MATAIM LTD. ("YAKHIN MATAIM")

         Both Etz Vanir and Yakhin Mataim cultivate orange, grapefruit,
clementine, lemon and avocado groves in Israel, both for export and domestic
use, pursuant to various long-term land leases which, including renewal options,
do not expire until the mid-21st century. These properties are located near the
city of Netanya between an existing and a proposed highway. Approximately 1,200
acres are presently under cultivation by these two companies.


                                       18
<PAGE>
         Ampal historically believed that it owned 50% of the equity of Etz
Vanir and Yakhin Mataim and that the remaining 50% was owned by an unrelated
company, Yakhin Hakal Ltd. ("Yakhin Hakal"), which manages their operations. In
February 1995, Yakhin Hakal and its affiliates commenced a legal proceeding
seeking to cause Etz Vanir and Yakhin Mataim to redeem perpetual debentures
owned by Ampal and to require Ampal to surrender all of its preferred shares of
Etz Vanir and Yakhin Mataim for their par value, which is nominal.

         On July 27, 1998, a Tel Aviv District Court ruled in favor of Yakhin
Hakal, the manager and co-owner of the Company's 50%-owned affiliates Etz Vanir
and Yakhin Mataim. The judge's decision allows Etz Vanir and Yakhin Mataim to
redeem debentures owned by the Company for approximately $0.8 million and to
require the Company to surrender all of its preferred shares of Etz Vanir and
Yakhin Mataim for their par value. See "Item 3. Legal Proceedings" for a
description of this litigation and various appeals filed by the Company in this
regard.

         Due to the uncertainty regarding the ownership of the Company's 50%
interest in Etz Vanir and Yakhin Mataim, the Company has not included Etz
Vanir's and Yakhin Mataim's financial results in the Company's financial
statements.

         INDUSTRIAL BUILDINGS CORPORATION LTD. ("INDUSTRIAL BUILDINGS")

         Industrial Buildings, Israel's largest owner/lessor of industrial
property is engaged principally in the development and construction of buildings
in Israel for industrial and commercial use and in project management.
Industrial Buildings carries out infrastructure development projects for
industrial and residential purposes, principally for a number of government
agencies and authorities. Industrial Buildings hires and coordinates the work of
contractors, planners and suppliers of various engineering services.

         Industrial Buildings owns approximately 13.7 million square feet of
space in industrial buildings throughout Israel. It owns both multi-purpose
buildings and built-to-suit buildings which are constructed in accordance with
the specific requirements of tenants. In certain cases, there is an option in
the tenant's favor to purchase the leased property, and, in the case of most
built-to-suit properties, a commitment on the part of the tenant to purchase the
property.

         The buildings which are owned by Industrial Buildings are leased to
approximately 2,393 lessees under net leases having terms of up to ten years.
The occupancy rate in buildings owned or leased by Industrial Buildings was
approximately 87% as of December 31, 2001.

         Industrial Buildings is engaged in the construction of "Tel Aviv
Towers", a project in the Tel Aviv area comprising approximately 448 apartments,
a commercial center of approximately 43,000 square feet, an office building of
approximately 156,000 square feet and underground parking facilities of
approximately 883,000 square feet. During 2000, the Company started to record
profits from the sale of apartments in one of the towers.

         Approximately 6.2% of Industrial Buildings' space is located in the
administered territories. Industrial Buildings cannot predict whether the
current dispute between the State of Israel and the Palestinians will have any
effect on these properties.

         Since 1993, Industrial Buildings' policy has been to distribute as a
dividend not less than 60% of each year's earnings. In December 2001, Industrial
Buildings distributed a dividend of approximately $9 million to all of its
shareholders.


                                       19
<PAGE>
         Ophir's interest in Industrial Buildings is subject to foreclosure in
the event of a default by any of the investors under the bank credit agreements
entered into in connection with the original acquisition of Industrial Buildings
from the Government of Israel in 1993. Any amounts distributed as a dividend by
Industrial Buildings are required to be applied first to pay then-due
borrowings.

         Industrial Buildings had a staff of 57 permanent employees as of
December 31, 2001.

         Ophir's interest in Industrial Buildings, as of December 31, 2001, was
12.08%. In January and February 2002, Ophir sold 1,027,653 shares of Industrial
Buildings for aggregate consideration of NIS 6.4 million ($1.5 million), which
represented a pretax gain of $0.2 million. Also in February 2002, Industrial
Buildings issued a prospectus for the issuance of debentures on the Tel Aviv
Stock Exchange. Approximately NIS 600 million ($130 million) in aggregate amount
of the debentures proposed to be sold are convertible into shares of Industrial
Buildings. Assuming the purchase and conversion of all such securities, Ophir's
holdings in Industrial Buildings would fall to approximately 8.82%, assuming
exercise of all currently outstanding options and warrants to purchase
Industrial Buildings shares.

         OPHIR HOLDINGS LTD. ("OPHIR")

         Ophir is a holding company that owns interests in high-technology (as
described in the high-technology segment) and real estate companies. Ophir is
42.5%-owned by the Company. The Company and Polar Investments, which also owns
42.5% of Ophir, are parties to a shareholders' agreement regarding joint voting,
directorships and rights of first refusal with respect to Ophir.

         Ophir owns six real estate properties located in Israel, aggregating
approximately 85,000 square feet.

         Ophir owns two acres of land in an industrial park in Netanya, Israel
together with an unrelated party. These parties entered into a joint venture
agreement regarding this site on which they developed a 326,000 square foot
building (including parking) for both industrial and commercial use. The cost of
development of this project was $21 million. Ophir's share of the property and
joint venture is 70%. Through December 31, 2001, Ophir invested $14.6 million in
the development of the building. Almost all of the building (97.5% of main area)
is leased. Ophir's revenues from the lease of the building were $3.2 million in
both 2001 and 2000.

         Ophir owns a 22.2% interest in the Shmey-Bar group of companies
("Shmey-Bar"). Shmey-Bar acquired 2.3 million square feet of real estate
properties from Hamashbir Hamerkazi, Ltd. ("Hamashbir Hamerkazi") for $27.7
million. In the same transaction, Shmey-Bar received an option to acquire, for
$26.3 million, an additional 700,000 square feet of real estate properties from
Hamashbir Hamerkazi. These properties are situated in various locations in
Israel. Ophir's interest in Shmey-Bar was acquired with a nominal investment
accompanied by a $2.6 million shareholder's loan. In August 1999, Ophir acquired
an additional 5.5% interest in Shmey-Bar group, by exercising its right to buy
its proportional share per the Shmey-Bar group shareholder proposal, for total
consideration of $2.6 million, which consists of an investment and a
shareholder's loan.

         In June 1999, Ophir entered into an agreement with Lysh The Coastal
High-way Ltd. ("Lysh"). Lysh has a 50% holding in Beit Herut-Lysh Development
Company Ltd. ("BHL"), which is building a 180,000 square foot commercial project
for rental near Moshav Beit Herut on land owned by the Israeli Land Authority.
Through December 2001, phase A of this project, consisting of approximately
100,000 square feet, had been constructed at a construction cost of $18 million,
including the cost of the land. Ophir's share in Lysh is approximately 25% (its
share in the project being approximately 12.5%). As of December 31, 2001, Ophir
had invested approximately $1.2 million in Lysh.


                                       20
<PAGE>
         Ophir has also undertaken to provide guarantees in an amount equivalent
to 25% of the construction costs. As of December 31, 2001, BHL had taken bank
loans of approximately $14.9 million, by drawing on a credit line extended by
the bank in connection with the project.

         In September 1995, Ophir acquired a 10% interest in a joint venture
which has agreed to purchase 4.4 million square feet of land near Haifa for
approximately $15 million, on which the parties intend to develop a commercial
real estate project for rent. Ophir has obligated itself to invest up to $1.5
million in the first stage of this project and its share of development costs is
estimated to be as much as $17 million.

         In 2001, Ophir paid $45 million in dividends to all of its
shareholders.

ENERGY DISTRIBUTION AND INDUSTRY

         CARMEL CONTAINER SYSTEMS LIMITED ("CARMEL")

         Carmel is one of the leading Israeli designers and manufacturers of
paper-based packaging and related products. Carmel manufactures a varied line of
products, including corrugated shipping containers, moisture-resistant
packaging, consumer packaging, triple-wall packaging and wooden pallets and
boxes.

         Carmel estimates that it manufactures approximately 12% of the folding
board, approximately 70% of the corrugated triple wall, and approximately 30% of
the corrugated board packaging in Israel. Carmel's products are marketed to a
wide variety of customers for diverse uses, but its principal market is
packaging for agricultural products and for the food and beverage industry.
During the last few years, sales of packaging products to exporters of
agricultural products have declined slightly, but have been partially offset by
an increase in domestic sales. The political situation also had a negative
effect on Carmel's business as well as increasing competition from low-cost
importers of packaging products.

         From 1996 through 1999, Carmel invested approximately $39 million for
machinery and infrastructure in its new plant, a leased property, in Caesarea, a
modern state-of-the-art manufacturing plant. By the end of 1997, two of Carmel's
plants were relocated to the new leased property in Caesarea. As of December 31,
2001, Carmel employed 605 persons.

         As of December 31, 2001, the Company owned 21.8% of the shares of
Carmel. Shares of Carmel are listed for trading on the AMEX under the symbol
"KML." The Company, American Israel Paper Mills Ltd., the largest paper producer
in Israel, and Robert Kraft, a United States investor, are parties to a
shareholders' agreement with respect to their shareholdings (which aggregate
approximately 83.5% of the shares) in Carmel. The agreement includes provisions
governing board representation, required votes for specified corporate actions,
matters on which the shareholders agree to cooperate and rights of first refusal
with respect to the sale or transfer of the shares owned by the parties. Carmel
has granted to International Forest Products Corporation, an affiliate of Mr.
Kraft, a right to supply up to 80% of Carmel's requirements for imported paper
and forest products in the ordinary course of Carmel's business, on a
competitive basis.

         GRANITE HACARMEL INVESTMENTS LTD. ("GRANITE")

         Granite owns the Sonol group of companies, one of the three largest
Israeli distributors of refined petroleum products. Supergas, a wholly-owned
subsidiary of Granite, is the third largest marketer and


                                       21
<PAGE>
distributor in Israel of liquefied petroleum gas. Through its subsidiaries,
Granite also manufactures and markets lubricating oils.

         During 2001, Sonol had a net increase of 8 public gas stations to its
network. As of December 31, 2001, Sonol supplied petroleum products to 199
public gas stations in Israel, of which 140 are owned by or leased to Sonol.
Sonol sold approximately 1.9 million metric tons of refined petroleum products
and lubricating oils in 2001.

         During 2001, the Company received dividends from Granite of
approximately $5.5 million

         The Company's ownership of Granite, as of December 31, 2001, was 20.2%.
Two of the Company's representatives are members of the board of directors of
Granite and one representative is a member of the executive committee of the
board of Granite.

         On December 27, 1999, Granite announced a reorganization as follows:
Granite's subsidiary Sonol will be split into two companies, Sonol Israel, which
will function as the company's petroleum products distribution unit, and Sonol
Trading, which will focus on business and real estate development. Both Sonol
Israel and Sonol Trading are 100%-owned subsidiaries of Granite. As part of the
reorganization, Sonol Israel will transfer to Sonol Trading, assets and rights,
as well as a portion of Sonol Israel's liabilities, to reflect the book value of
the transferred assets. Additionally, Sonol Israel's share in Supergas (50%)
will be transferred to the parent company, and non-operating real estate assets
will be transferred to Granite HaCarmel Holdings (1993) Ltd., a 100%-owned
subsidiary, at book value. The aforementioned transactions are subject to the
approval of the Israeli regulatory authorities. As of the date hereof, the
proposed reorganization has not been carried out.

         The recently-enacted Law of Arrangements in the Israeli Economy 5761 -
2001 contains new laws and regulations regarding the arrangements of maintaining
emergency fuel reserves. Under the new regulations, two new categories were
created: security reserves and civilian reserves. These regulations, which went
into effect in August 2001, stipulate that the security reserves are to be
stored in separate tanks in specified sites and are to be used in emergency
situations. Pursuant to the enactment of these laws, the State of Israel will
continue to finance the holding of the reserves and maintain the value of only
the fuels defined as security reserves.

         With regard to reserves falling into the civil reserves category, fuel
companies selling diesel fuel to the civilian market are required to hold
reserves of diesel fuel in the volumes stated in the law. The State fixes the
value of the civilian diesel fuel reserves so that there is no loss or profit
stemming from fluctuations in the price for diesel fuel, but the State does not
pay for maintaining the reserves. As a result, the amount of reserves that Sonol
is required to finance will increase. In light of these changes, the price of
gasoline, which is controlled by the State, was adjusted to compensate for the
extra cost to fuel companies in financing civilian reserves. The prices of the
other products are not controlled.

         As a result of these changes, the operational reserves of Sonol
increased, as did Sonol's exposure to changes in the value of the reserves
stemming from fluctuations in the market price of diesel fuel. Fluctuations in
the market prices of fuel may materially affect the periodic business results of
Sonol. Sonol is looking for ways to minimize these effects. There can be no
guarantee that these changes will not materially impact the financial condition
or results of operations of Sonol. See "Item 3. Legal Proceedings".

LEISURE-TIME


                                       22
<PAGE>
         CORAL WORLD INTERNATIONAL LIMITED ("CORAL WORLD")

         Coral World, which is 50%-owned by the Company, owns and controls three
marine parks: in Eilat (Israel), Perth (Australia) and Maui (Hawaii).

         Coral World's marine park, located in Eilat, is next to the coral reefs
and visitors at this park view marine life in its natural coral habitat through
a unique underwater observatory. Coral World's marine parks in Perth and Maui
allow visitors to walk through a transparent acrylic tube on the bottom of a
man-made aquarium surrounded by marine life. In addition to admission charges,
Coral World's food and beverage facilities and retail outlets are a significant
revenue source.

         Coral World's parks hosted approximately 1 million visitors during
2001. Coral World employed approximately 260 persons as of December 31, 2001.

         Coral World has entered into a joint development project for a new
marine park in Palma de Majorca. Coral World has also entered into a joint
venture called `Vista Historica', which participates in a tender for the
development of a multimedia attraction near the ancient city of Pompeii.

         During 2001, Coral World was awarded approximately $1.3 million in its
litigation with respect to insurance coverage of hurricane damages in St.
Thomas.

         COUNTRY CLUB KFAR SABA LIMITED ("KFAR SABA")

         Kfar Saba operates a country club facility (the "Club") in Kfar Saba, a
town north of Tel Aviv. Kfar Saba holds a long-term lease to the real property
on which the Club is situated. The Club's facilities include swimming pools,
tennis courts and a clubhouse. The Club currently is seeking to obtain building
permits for an additional 30,000 square feet of commercial development on the
Club grounds.

         The Club, which has a capacity of 2,000 member families, had
approximately 1800 member families for the 2001 season. The construction cost of
the Club was $5.2 million, which was financed principally with debt. Kfar Saba's
revenues are principally attributable to annual memberships. The Company owns
51% of Kfar Saba.

         HOD HASHARON SPORT CENTER (1992) LIMITED PARTNERSHIP ("HOD HASHARON")

         On December 31, 1995, the Company purchased from Kfar Saba its 50%
interest in Hod Hasharon for $1.4 million. Hod Hasharon operates a similar
country club facility (the "H.H. Club") in Hod Hasharon, a town adjacent to Kfar
Saba. The H.H. Club, which has a capacity of 1,600 member families, has operated
at capacity for the past three years. In 2001 the H.H Club operated above
capacity with 1850 members families . The H.H. Club, which opened in July 1994,
was constructed at a cost of $4.8 million, of which $2.1 million was borrowed
from banks.

         In 2001, the H.H. Club repaid owner's loans of $0.1 million to each of
the partners. The H.H. Club is expected to continue repaying owner's loans in
2002. in the amount of $0.3 million to each of the partners.


CAPITAL MARKETS AND OTHER HOLDINGS

         AMPAL INDUSTRIES (ISRAEL) LTD. ("AMPAL INDUSTRIES")


                                       23
<PAGE>
         Ampal Industries, a wholly-owned subsidiary of Ampal, holds interests
in various investee companies described in the high-technology section in this
report. Ampal Industries also has a portfolio of marketable securities which was
valued at approximately $39.5 million at December 31, 2001, which includes
investments valued at approximately $25.8 million in Blue Square and $5.8
million in Leumi.

         In addition, Ampal Industries owns 50% of a commercial building located
in Migdal Ha'emek. In 2001, it received approximately $0.1 million in rental
income for this property.

         BANK LEUMI LE'ISRAEL B.M. ("LEUMI")

         In 2001, the Company sold 1,777,132 shares of Leumi for a net gain of
$0.1 million, after taxes, and also recorded a net unrealized loss of $0.9
million, after taxes. The Company owned 2,979,294 shares of Leumi at December
31, 2001 with a market value of $5.8 million.

         BLUE SQUARE ISRAEL LTD. ("BLUE SQUARE")

         In June 1999, the Company invested $24 million to purchase 1,500,000
shares of Blue Square, representing 3.9% of Blue Square, at $16 per share. Blue
Square, a publicly traded company on the Tel Aviv and New York Stock Exchanges,
is the second largest supermarket chain in Israel, owning more than 180
supermarkets as of December 31, 2001. Blue Square owns 80% of Blue Square
Properties, a publicly traded company on the Tel Aviv Stock Exchange, with which
Blue Square expects to merge. In November 2001, a claim was filed against Blue
Square and other supermarket chains in connection with the Law for Deposits on
Beverage Containers, 1999 (which became effective on October 1, 2001). The
plaintiffs requested certification of the claim as a class action in the amount
of NIS 240 million, or approximately $55 million. Blue Square's management,
based on legal advice, is of the opinion that the claim has very minimal
chances. As of December 31, 2001, Blue Square has entered into agreements for
the purchase of real estate and equipment in the aggregate amount of
approximately NIS 200 million, or $45 million.

         At December 31, 2001, the investment in Blue Square had a market value
of $25.8 million, and net unrealized gain of $4.4 million, after taxes, was
recorded in accumulated other comprehensive loss on the balance sheet.

         EPSILON INVESTMENT HOUSE LTD. ("EPSILON") AND RENAISSANCE INVESTMENT
COMPANY LTD. ("RENAISSANCE")

         The Company has invested $1.5 million for 20% of Epsilon and its
affiliate, Renaissance. Epsilon is an investment bank which provides portfolio
management services and Renaissance provides underwriting services in Israel
through its subsidiaries. During 2001, the Company received a dividend of $0.1
million from Epsilon.

         RENAISSANCE ISRAEL

         In July 1994, the Company agreed to invest $3 million for 15% of
Renaissance Israel, a fund that invests in Israel-related companies generally on
the same terms and conditions as the Renaissance Fund LDC (the "Renaissance
Fund"). The Renaissance Fund was formed in 1994 to invest primarily in emerging
markets, basic industry and government privatizations in Israel and elsewhere in
the Middle East. The Company had invested an aggregate of $2.9 million in
Renaissance Israel, as of December 31, 2001.


                                       24
<PAGE>
     The only active investment made by the Company through the Renaissance
fund which is still on the Company's books is a $0.4 million investment in
Clalcom.

                                    EMPLOYEES

      As of December 31, 2001, Ampal had one employee and Ampal Industries
(Israel) Ltd. had 15 employees. Relations between the Company and its employees
are satisfactory.


                              CONDITIONS IN ISRAEL

      Most of the companies in which Ampal directly or indirectly invests
conduct their principal operations in Israel and are directly affected by the
economic, political, military, social and demographic conditions there. A state
of hostility has existed, varying as to degree and intensity, between Israel and
the Arab countries and the Palestine Liberation Organization (the "PLO"). Israel
signed a peace agreement with Egypt in 1979 and with Jordan in 1994. Since 1993,
several agreements have been signed between Israel and Palestinian
representatives regarding conditions in the West Bank and Gaza. While
negotiations have taken place between Israel, its Arab neighbors and the PLO to
end the state of hostility in the region, it is not possible to predict the
outcome of these negotiations and their eventual effect on Ampal and its
investee companies. In September 2000, there was an outbreak of hostilities with
Palestinian groups. During the last several months the state of hostility has
increased in intensity. It is possible that the situation may deteriorate
further and may impact the value of Ampal and its investee companies. See
"-Economic and Financial Developments" below and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further discussion of the possible impact of this situation on the Company.

      All male adult citizens and permanent residents of Israel under the age of
48 are obligated, unless exempt, to perform military reserve duty annually.
Additionally, all these individuals are subject to being called to active duty
at any time under emergency circumstances. Many of the officers and employees of
Ampal's investee companies are currently obligated to perform annual reserve
duty. While these companies have operated effectively under these requirements
since they began operations, Ampal cannot assess the full impact of these
requirements on their workforce or business if conditions should change. In
addition, Ampal cannot predict the effect on its business in a state of
emergency in which large numbers of individuals are called up for active duty.

ECONOMIC AND FINANCIAL DEVELOPMENTS

      Israel's economy entered recession in 2001. This recession resulted from,
among other things, the worldwide crisis in the hi-tech industry, and on Nasdaq
in particular, as well as to continuing hostilities between Israel and the
Palestinians. The terrorist attacks on the United States on September 11, 2001,
further intensified the global economic crisis, and this also impacted
negatively upon Israel's economy.

      According to the Israeli Central Bureau of Statistics' end-of-year
publication, Israel's gross domestic product declined 0.5% in 2001. This is as
opposed to the trend of rapid growth in the Israeli economy evidenced from the
second quarter of 1999 to the third quarter of 2000.

      The global slowdown, especially in the U.S. economy, significantly
influenced Israeli exports. Export of goods and services from Israel, which had
increased at a rate of 24% in 2000 and was a central factor in the rapid growth
during that year of the gross domestic product, suffered a real decline to a
rate of approximately 13% in 2001, contributing thereby to the decreased gross
domestic product. Exports from technology-related industries, which constituted
53% of exported goods (excluding diamonds) in


                                       25
<PAGE>
2000, decreased by 10% in 2001, although, as a percentage of all exports, they
were still 52%. Exports declined more moderately in other industrial sectors.
Overall, industrial exports decreased at a rate of approximately 7%. However,
even after the sharp decrease in 2001, industrial exports (excluding diamonds)
remained approximately 19% higher in dollar terms compared to 1999.

      Export of services decreased at a real rate of 23% in 2001, mainly as a
result of a sharp decrease in the sale of start-up companies to foreign entities
which sales are recorded as the export of services under the Central Bureau of
Statistics' method of measurement. In addition, the crisis in the tourist
industry, which was significantly impacted by the political/security crisis in
Israel, suffered a drop of approximately 50% in income.

      Unemployment increased, mainly in the last half of 2001, to 11.02% in the
fourth quarter of 2001. The rate of unemployment in 2001 averaged 9.3%, as
compared to 8.8% in 2000. A significant increase of approximately 35% was
recorded during the year among academics looking for work. This increase
resulted mainly from the hi-tech crisis which brought about a wave of layoffs in
this industry.

      The decline in the worldwide technology market and the continuing
political/security crisis in Israel also resulted in direct investment in Israel
dropping from $4.4 billion in 2000 to $2.7 billion in 2001. There was a 7.1%
decrease in investment in real estate in 2001. In addition, there were decreases
of 15.8% and 12.6% in residential construction and non-residential construction,
respectively, and a slight increase of 0.9% in other (infrastructure)
construction.

      In 2001, the consumer price index rose by 1.4%, compared to the targeted
inflation level of 2.5-3.5%, as determined by the government. This is the third
consecutive year that actual inflation has been substantially lower than the
target set by the government: in 1999 actual inflation was 1.3%, compared to a
target of 4%; and in 2000 actual inflation was 0%, compared to a target of 3-4%.
Average inflation during 2001 was 0.9%, compared with a target of 3.5%.

      The low inflation rate, combined with the continuing political/security
crisis and the general worldwide and local Israeli recession, put considerable
pressure on the Bank of Israel to reduce interest rates sharply. On December 21,
2001, interest rates were reduced by two (2) percentage points to 3.8%, the
lowest interest rate since the establishment of the State of Israel.

      The dollar - NIS exchange rate responded to the sharp reduction in the
interest rate by a devaluation that materialized a number of days before the
formal publication of the Bank of Israel's interest rate reduction decision on
December 21, 2001, and intensified afterwards. The exchange rate of the NIS to
the dollar decreased from December 15, 2001 until the end of the year by 4.2%,
and in the first two months of 2002 the shekel devaluated by approximately an
additional 6%.

      The following table sets forth, for the periods indicated, certain
information with respect to the rate of inflation in Israel, the NIS/$ exchange
rate and the rate of devaluation of the NIS against the dollar.

<TABLE>
<CAPTION>
                          ISRAEL                                          U.S.
                          ANNUAL         CLOSING                         ANNUAL
                         INFLATION      EXCHANGE         ANNUAL         INFLATION
YEAR ENDED DEC. 31        RATE(1)        RATE(2)      DEVALUATION(3)     RATE(4)
------------------        -------        -------      -------------     ---------

<S>                      <C>            <C>           <C>               <C>
1993..................     11.2          2.986            8.0             3.0
1994..................     14.5          3.018            1.1             2.6
1995..................      8.1          3.135            3.9             2.8
1996..................     10.6          3.251            3.7             3.3
1997..................      7.0          3.536            8.8             1.7
1998..................      8.6          4.160           17.6             1.6
1999..................      1.3          4.153           (0.2)            2.7
2000 .................        0          4.041           (2.7)            3.4
2001 .................      1.4          4.416            9.3             1.6
</TABLE>


                                       26
<PAGE>
-----------

(1)  "Israel Annual Inflation Rate" is the percentage increase in the Israeli
     CPI between December of the year indicated and December of the preceding
     year.

(2)  "Closing Exchange Rate" is the rate of exchange of one United States dollar
     for the NIS at December 31 of the year indicated as reported by the Bank of
     Israel.

(3)  "Annual Devaluation" is the percentage increase in the value of the United
     States dollar in relation to the NIS during the calendar year.

(4)  "U.S. Annual Inflation Rate" is obtained by calculating the percentage
     change in the United States Consumer Price Index for All Urban Consumers,
     as published by the Bureau of Labor Statistics of the United States
     Department of Labor.

ISRAELI INVESTMENT

      Since the establishment of the State of Israel in 1948, the Government of
Israel has promoted the development of industrial and agricultural projects
through a variety of methods including tax abatements and tax incentives.

      Industrial research and development projects in Israel may qualify for
government aid if they deal with the development of commercial products to be
made in Israel for sale abroad. Direct incentives usually are provided in the
forms of grants, regulated in accordance with the Law for Encouragement of
Industrial Research and Development 1984. Some of the Company's investee
companies have taken advantage of such incentives.


              CERTAIN UNITED STATES AND ISRAELI REGULATORY MATTERS

SEC EXEMPTIVE ORDER

      In 1947, the SEC granted Ampal an exemption from the Investment Company
Act of 1940, as amended (the "1940 Act"), pursuant to an Exemptive Order. The
Exemptive Order was granted based upon the nature of Ampal's operations, the
purposes for which it was organized, which have not changed, and the interest of
purchasers of Ampal's securities in the economic development of Israel. There
can be no assurance that the SEC will not reexamine the Exemptive Order and
revoke, suspend or modify it. A revocation, suspension or material modification
of the Exemptive Order could materially and adversely affect the Company unless
Ampal were able to obtain other appropriate exemptive relief. In the event that
Ampal becomes subject to the provisions of the 1940 Act, it could be required,
among other matters, to make changes, which might be material, to its
management, capital structure and methods of operation, including its dealings
with principal shareholders and their related companies.


                                 TAX INFORMATION

ISRAELI TAXATION OF AMPAL

      Ampal (to the extent that it has income derived in Israel) and Ampal's
Israeli subsidiaries are subject to taxes imposed under the Israeli Income Tax
Ordinance. For 2001, Israeli companies were taxed on their income at a rate of
36%.

      A tax treaty between Israel and the United States became effective on
January 1, 1995. This treaty has not substantially changed the tax position of
the Company in the United States or in Israel.


                                       27
<PAGE>
      Ampal had income from interest, rent and dividends resulting from its
investments in Israel. Under Israeli law, Ampal has been required to file
reports with the Israeli tax authorities with respect to such income. In
addition, as noted below, Ampal is subject to a withholding tax on dividends
received from Israeli companies at a rate of either 25%, 15% or 12.5%, depending
on the percentage ownership of the investment and the type of income generated
by that company (as opposed to dividends payable to Israeli companies which are
exempt from tax, except for the dividends paid by an approved enterprise to
either residents or non-residents, the tax on which is withheld at a rate of
15%). Under an arrangement with the Israeli tax authorities, such income has
been taxed based on principles generally applied in Israel to income of
non-residents. Ampal has filed reports with the Israeli tax authorities through
2000 and has received "final assessments" with respect to such reports filed
through 1995 (which final assessments are, under Israeli law, subject to
reconsideration by the tax authorities only in certain limited circumstances,
including fraud). Based on the tax returns filed by Ampal through 1995, it has
not been required to make any additional tax payments in excess of the
withholding on its dividends. In addition, under Ampal's arrangement with the
Israeli tax authorities, the aggregate taxes paid by Ampal in Israel and the
United States on interest, rent and dividend income derived from Israeli sources
has not exceeded the taxation which would have been payable by Ampal in the
United States had such interest, rent and dividend income been derived by Ampal
from United States sources. There can be no assurance that this arrangement will
continue in the future. This arrangement does not apply to taxation of Ampal's
Israeli subsidiaries.

      Generally, under the provisions of the Income Tax Ordinance, taxable
income paid to non-residents of Israel by residents of Israel is generally
subject to withholding tax at the rate of 25%. However, withholding rates on
income paid to United States residents by residents of Israel are subject to the
United States-Israel tax treaty. No withholding has been made on interest and
rent payable to Ampal under an exemption which Ampal has received from the
income tax authorities on an annual basis. There can be no assurance that this
exemption will continue in the future. The continued tax treatment of Ampal by
the Israeli tax authorities in the manner described above is based on Ampal
continuing to be treated, for tax purposes, as a non-resident of Israel that is
not doing business in Israel.

      Under Israeli law, a tax is payable on capital gains of residents and
non-residents of Israel. With regard to non-residents, this tax applies to gains
on sales of assets either located in Israel or which represent a right to assets
located in Israel (including gains arising from the sale of shares of stock in
companies resident in Israel). Since January 1, 1994, the portion of the gain
attributable to inflation prior to that date is taxable at a rate of 10%, while
the portion since that date is exempt from tax, while the remainder of the
profit, if any, was taxable to corporations at 36% from 1996. Non-residents of
Israel are exempt from the 10% tax on the inflationary gain derived from the
sale of shares in companies that are considered Israeli residents if they choose
to compute the inflationary portion of the gain based on the change in the rate
of exchange between Israeli currency and the foreign currency in which the
shares were purchased from the date the shares were purchased until the date the
shares were sold.

      The Income Tax Law (Adjustment for Inflation), 1985, which applies to
companies which have business income in Israel or which claim a deduction in
Israel for financing costs, has been in force since the 1985 tax year. The law
provides for the preservation of equity, whereby certain corporate assets are
classified broadly into Fixed (inflation resistant) and Non-Fixed (non-inflation
resistant) Assets. Where shareholders' equity, as defined therein, exceeds the
depreciated cost of Fixed Assets, a tax deduction which takes into account the
effect of the annual inflationary change on such excess is allowed, subject to
certain limitations. If the depreciated cost of Fixed Assets exceeds
shareholders' equity, then such excess, multiplied by the annual inflation
change, is added to taxable income.


                                       28
<PAGE>
      Individuals and companies in Israel pay VAT at a rate of 17% of the price
of assets sold and services rendered. They can deduct VAT paid on goods and
services acquired by them for the purpose of their business. Until November
1999, the Company's subsidiaries Nir, Ampal Development , Ampal Israel and Ampal
Financial Services , were considered Financial Institutes and as such were not
subject to the VAT law. As of November 1999 their status has changed leaving Nir
as the only subsidiary not subject to the VAT law.

UNITED STATES TAXATION OF AMPAL

      Ampal and its United States subsidiaries (in the following tax discussion,
generally "Ampal") are subject to United States taxation on their consolidated
taxable income from foreign and domestic sources. The gross income of Ampal for
tax purposes includes or may include (i) income earned directly by Ampal, (ii)
Ampal's share of "subpart F income" earned by certain foreign corporations
controlled by Ampal and (iii) Ampal's share of income earned by certain electing
"passive foreign investment companies" of which Ampal is a stockholder. Subpart
F income includes dividends, interest and certain rents and capital gains. Since
1993, the maximum rate applicable to domestic corporations is 35%.

      Ampal is entitled to claim as a credit against its United States income
tax liability all or a portion of income taxes, or of taxes imposed in lieu of
income taxes, paid to foreign countries. If Ampal receives dividends from a
foreign corporation in which it owns 10% or more of the voting stock, in
determining total foreign income taxes paid by Ampal for purposes of the foreign
tax credit, Ampal is treated as having paid the same proportion of the foreign
corporation's post-1986 foreign income taxes as the amount of such dividends
bears to the foreign corporation's post-1986 undistributed earnings.

      In general, the total foreign tax credit that Ampal may claim is limited
to the proportion of Ampal's United States income taxes that its foreign source
taxable income bears to its taxable income from all sources, foreign and
domestic. The Internal Revenue Code of 1986, as amended (the "Code"), also
limits the ability of Ampal to offset its United States tax liability with
foreign tax credits by subjecting various types of income to separate
limitations. Source of income and deduction rules may further limit the use of
foreign taxes as an offset against United States tax liability. As a result of
the operation of these rules, Ampal may choose to take a deduction for foreign
taxes in lieu of the foreign tax credit.

      Ampal may be subject to the alternative minimum tax ("AMT") on
corporations. Generally, the tax base for the AMT on corporations is the
taxpayer's taxable income increased or decreased by certain adjustments and tax
preferences for the year. The resulting amount, called alternative minimum
taxable income, is then reduced by an exemption amount and subject to tax at a
20% rate. As with the regular tax computation, AMT can be offset by foreign tax
credits (separately calculated under AMT rules and generally limited to 90% of
AMT liability as specially computed for this purpose).

                            FORWARD-LOOKING STATEMENT

      Certain statements in this Report are forward-looking statements regarding
future events or future financial performance of the Company. These statements
are subject to a number of risks and other factors which could cause actual
results to differ materially from those anticipated by the forward-looking
statements. Among such factors are the economic, political and military
conditions in Israel, including the state of hostilities with the Palestinians,
global business and economic conditions, including the current worldwide slump
in the high-technology markets, competition (in the sectors where the Company's
portfolio companies operate, including, without limitation, the Israeli wireless
communication service providers market), Israeli and other government
regulation, including regulation of the Israeli petroleum distribution market
and other industry developments. Forward-looking statements are necessarily
dependent upon assumptions, estimates and data that are uncertain. No assurance
can be given that the anticipated results will be achieved, and future results
may in fact differ materially from those anticipated.


                                       29
<PAGE>
ITEM 2. PROPERTY

      On November 30, 2001, the sublease contract under which Ampal subleased
4,960 rentable square feet of office space leased from Hapoalim at 1177 Avenue
of the Americas, New York City, was terminated. As a result of that termination
the Company received $300,000. In 2001, Ampal's total payment to Hapoalim in
connection with this sublease was $146,000.

      Ampal currently subleases an office at 660 Madison Avenue in New York City
from Cavallo Capital Inc. The sublease is terminable at will. Under the
sublease, Ampal is entitled to full office services. The annual rent for this
sublease is $50,000. Avi Vigder, a member of Ampal's board of directors, is the
chief executive officer of Cavallo.

      Kfar Saba, which operates a country club in Kfar Saba, occupies a 7-1/4
acre lot which will be leased for five consecutive ten-year periods, at the end
of which the land returns to the lessor. The lease expires on July 14, 2038, and
lease payments in 2001 totaled $201,000.

      The Company leases space in various locations in Israel for office,
commercial and retail use to various parties and received $8,781,000 in rent for
such space in 2001.

      Other properties of the Company are discussed elsewhere in this Report.
See "Business."


ITEM 3. LEGAL PROCEEDINGS

Yakhin Hakal

      In February 1995, Yakhin Hakal and its affiliates commenced a legal
proceeding in Tel Aviv District Court seeking to cause Etz Vanir and Yakhin
Mataim to redeem the perpetual debentures owned by the Company for approximately
$700,000 and to require the Company to surrender all of its preferred shares of
Etz Vanir and Yakhin Mataim for their par value (which is a nominal amount), on
the alleged grounds that the perpetual debentures are debt and not equity
investments. It is the Company's view that its investments in these companies,
which were made in the 1950's, are equity investments and are not subject to
redemption by these companies, other than upon liquidation.

      On July 27, 1998, a Tel Aviv District Court ruled in favor of Yakhin
Hakal, the manager and co-owner of the Company's 50%-owned affiliates Etz Vanir
and Yakhin Mataim. The judge's decision allows Etz Vanir and Yakhin Mataim to
redeem debentures owned by the Company for approximately $800,000 and to require
the Company to surrender all of its preferred shares of Etz Vanir and Yakhin
Mataim for their par value. After the redemption and surrender, the Company will
no longer have any interest in Etz Vanir or Yakhin Mataim.

      On October 15, 1998, the Company filed an appeal with the Israeli Supreme
Court in Jerusalem. On September 30, 2001, the Supreme Court dismissed the
appeal filed by the Company, on the grounds that the Company failed to timely
produce a guarantee to cover Yakhin Hakal's expenses in the appeal.

      On October 12, 2001, the Company filed a request with the Tel-Aviv
District Court for a preliminary injunction and other remedies in relation to
the validity and enforceability of Etz Vanir's and Yakhin Mataim's decisions to
redeem the debentures owned by the Company and to require the Company to
surrender all of its preferred shares in Etz Vanir and Yakhin Mataim. On January
28, 2002, the Tel


                                       30
<PAGE>
Aviv District Court dismissed the appeal. On March 12, 2002, the Company filed
an appeal with regard to this decision with the Israeli Supreme Court.

      On November 1, 2001, the Company filed a petition to the Israeli Supreme
Court, contending that the dismissal of an appeal due to a delay in producing
guarantees as part of the appeal is unreasonable and that the law allowing this
should be changed. On December 30, 2001, the Company filed a motion to allow it
to file a new appeal in this case.

      As of the date hereof, the Company cannot predict the outcome of these
proceedings.

Granite

      In February 2000, a petition was filed against Sonol, a wholly-owned
subsidiary of Granite, Paz Oil Company Ltd. and Delek, the Israeli Fuel Company
Ltd., in the Jerusalem District Court to allow a class action suit regarding
fixing the retail price of diesel fuel. The lawsuit, if certified as a class
action, will be in the amount of NIS 234.4 million ($53 million). Sonol's share
is NIS 55 million ($12 million). Sonol denies the claim and based on legal
advice is of the opinion that there is a reasonable chance that the suit will
not be certified as a class action.

      In May 2001, a claim was filed in the Jerusalem District Court against
Sonol, its subsidiary company, Sprint Motors Ltd., and four unrelated companies
by customers who purchased fuel products in filling stations, contending that
the defendants charged an illegal "service charge" over a period of many years.
The plaintiffs have requested the court to recognize their claim as a class
action. The amount of the claim is NIS. 5.30, however, should the court certify
the class action, it will total approximately NIS 379 million ($86 million).
From the claim, it is not clear as to what is Sonol's and its subsidiary's share
of this amount. Granite's management believes that there is only a weak chance
that the claim will be certified as a class action.

      In June 2001, a claim was filed by customers against Supergas (Granite's
wholly-owned consolidated subsidiary), alleging that the defendant made illegal
periodic charges to its customers. The plaintiff applied to the Tel Aviv
District Court to have the claim recognized as a class action in a total amount
of NIS 125 million ($28 million). Supergas's management, based on legal advice,
is of the opinion that it is more likely than not that Supergas will prevail in
this case.

      Three claims were lodged against Granite's formerly affiliated company and
its past and present shareholders, which included Sonol in the Haifa District
Court. The total amount of the claims is approximately NIS 61 million ($14
million). The plaintiff's allegations concern the sale of fuel products pursuant
to restrictive trade practices among the fuel companies and their affiliates. In
the opinion of the legal counsels of Sonol and the formerly affiliated company,
the companies have a sound defense against the claims.

      In 1999, Sonol filed a claim against one of its agencies for approximately
NIS 38 million (approximately $9 million) in the Tel Aviv District Court, on
account of an unpaid debt and damages caused to Sonol, alleging that the agency
violated the terms of the agency agreement by dealing with one of Sonol's
competitors. The agency, in turn, filed a counterclaim in the amount of
approximately NIS 58 million (approximately $14 million), stating various
causes, including a claim that the contractual agreement between it and Sonol is
a restrictive agreement. In the opinion of Sonol's management, based on opinion
of Sonol's legal counsel, the prospects of Sonol's claim against the agency
relating to amounts owed to Sonol are good and, regarding the amount claimed for
damages on account of the violation of the agency agreement, such amount is
subject to deliberation by the court. Regarding the prospects of the agency's
counterclaim, Sonol's legal counsel are unable, at this time, to estimate its
prospects, insofar as it relates to the claim of a restrictive agreement. Should
the claim of a restrictive agreement be rejected by


                                       31
<PAGE>
the court, the prospects of the counterclaim will not be favorable. Currently,
the dispute has been referred to mediation.

      In an arbitration between the Israeli Fuel Authority and the organization
of the owners of fuel stations, the arbitrator ordered the Fuel Authority to pay
the fuel-stations owners depreciation payments. The Fuel Authority demanded that
the fuel companies pay such payments. In the opinion of the legal counsel of
Sonol, there is no basis for such demand. As a result of the arbitration, twenty
five third-party claims were filed against Sonol, in the total amount of NIS 40
million ($9 million).

      A class action was allowed by the Tel-Aviv District Court against Supergas
and four other gas companies for a declaratory judgment regarding the
responsibility of the gas companies to refund to their customers payments which
were paid for periodic examinations which were not performed. Supergas filed for
permission to appeal this decision to the Israeli Supreme Court.

      Additional information regarding the above described legal proceedings and
other legal proceedings involving Granite may be found in Note 25 to the Granite
financial statements for the year ended December 31, 2001, a copy of which has
been filed with the Securities and Exchange Commission in connection with this
Report.

Kaniel

      On December 2, 1997, Kaniel, the Israeli Company for Tin Containers Ltd.
("Kaniel") filed a suit against the Company in the Tel Aviv District Court, in
the amount of NIS 3,623,058 ($0.8 million). The suit relates to eight loans
given to Kaniel by the Company in 1984. Kaniel claimed that the Company's
actions in connection with the loans were forbidden under the Israeli Interest
Law. On November 19, 1998, the Tel Aviv District Court ruled that the statute of
limitations applies to the majority of the plaintiff's claim, and thereby
rejected such claims. The plaintiff filed an appeal with the Israeli Supreme
Court, and withdrew the remainder of its claim until the Supreme Court's ruling.
At this stage, the Company cannot estimate the impact this claim will have on
it.

Galha

      On January 1, 2002, Galha (1960) Ltd. ("Galha") filed a suit against the
Company and other parties, including directors of Paradise Industries Ltd.
("Paradise") appointed by the Company, in the Tel Aviv District Court, in the
amount of NIS 8,121,456 ($1.8 million). Galha claimed that the Company, which
was a shareholder of Paradise, and another shareholder of Paradise, misused
funds that were received by Paradise from an insurance company for the purpose
of reconstructing an industrial building owned by Galha and used by Paradise
which burnt down. Paradise is currently under liquidations proceedings. At this
stage, the Company cannot estimate the impact this claim will have on it.

MIRS

      A petition to certify a class action against MIRS in the amount of NIS 170
million ($38 million) was filed in the Tel Aviv District Court in September
2001. The claim is in connection with the change in MIRS' tariffs resulting from
the implementation of MIRS' own dialing prefix, which replaced its previous
dialing prefix, the Tel-Aviv area code. As a result, persons in the Tel Aviv
area code claimed that they are subject to higher tariffs than those they had
been subject to under MIRS's previous dialing prefix. MIRS' management estimates
the maximum exposure to be substantially less than the amount claimed.


ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

      None.


                                       32
<PAGE>
                                     PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

                          PRICE RANGE OF CLASS A STOCK

      Ampal's Class A Stock is listed on Nasdaq under the symbol "AMPL". The
following table sets forth the high and low bid prices for the Class A Stock for
May and June of 2000, and the third and fourth Quarters of 2000, as reported by
Nasdaq and representing inter-dealer quotations which do not include retail
markups, markdowns or commissions for each period, and each calendar quarter
during the periods indicated. Such prices do not necessarily represent actual
transactions.

<TABLE>
<CAPTION>
                                                           HIGH        LOW
                                                           ----        ---
<S>                                                       <C>         <C>
2001:
Fourth Quarter.................................           $   6.42    $   3.51
Third Quarter..................................               6.19        3.82
Second Quarter.................................               6.90        4.12
First Quarter..................................               8.62        4.75
</TABLE>


<TABLE>
<CAPTION>
                                                            HIGH         LOW
                                                            ----         ---
<S>                                                        <C>          <C>
2000:
Fourth Quarter.................................            $ 13.375     $  5.5938
Third Quarter..................................              19.5         13
May and June 2000..............................              17            8.625
</TABLE>

      During 2000, Ampal changed the listing of its Class A Stock from the
American Stock Exchange under the symbol "AIS" to the NASDAQ Stock Market under
the symbol "AMPL". The following table sets forth the high and low sales prices
for the Class A Stock, as reported on the consolidated transaction reporting
system for April 2000 and for each calendar quarter indicated.

<TABLE>
<CAPTION>
                                                           HIGH        LOW
                                                           ----        ---
<S>                                                       <C>         <C>
2000:
April 2000.....................................           $  18       $  10
First Quarter..................................              33 1/4       9 1/8
</TABLE>


      As of March 10, 2002, there were approximately 915 record holders of Class
A Stock.


                                  VOTING RIGHTS

      Unless dividends on any outstanding preferred stock are in arrears for
three successive years, as discussed below, the holders of Class A Stock are
entitled to one vote per share on all matters voted upon. Notwithstanding the
above, if dividends on any outstanding series of preferred stock are in arrears
for three successive years, the holders of all outstanding series of preferred
stock as to which dividends are in arrears shall have the exclusive right to
vote for the election of directors until all cumulative dividend arrearages are
paid. The shares of Class A Stock do not have cumulative voting rights in
relation to the election of the Company's directors, which means that any holder
of at least 50% of the Class A Stock can elect all of the members of Ampal's
Board of Directors.


                                       33
<PAGE>
                                 DIVIDEND POLICY

      Ampal has not paid a dividend on its Class A Stock other than in 1995.
Past decisions not to pay cash dividends on Class A Stock reflected the policy
of Ampal to apply retained earnings, including funds realized from the
disposition of holdings, to finance its business activities and to redeem
debentures. The payment of cash dividends in the future will depend upon the
Company's operating results, cash flow, working capital requirements and other
factors deemed pertinent by the Board.

      Dividends on all classes of Ampal's shares of Preferred Stock are payable
as a percentage of par value. The holders of Ampal's presently authorized and
issued 4% Preferred Stock and 6 1/2% Preferred Stock (each having a $5.00 par
value) are entitled to receive cumulative dividends at the rates of 4% and 6
1/2% per annum, respectively, payable out of surplus or net earnings of Ampal
before any dividends are paid on the Class A Stock. If Ampal fails to pay such
dividend on the preferred stock in any calendar year, such deficiency must be
paid in full, without interest, before any dividends may be paid on the Class A
Stock. If, after the payment of all cumulative dividends on the preferred stock
and a non-cumulative 4% dividend on the Class A Stock, there remains any
surplus, any dividends declared are to be participated in by the holders of 4%
Preferred Stock and Class A Stock, pro rata. On December 20, 2001, Ampal
announced that its Board of Directors had declared cash dividends on its
Preferred Stock ($0.325 per share on its 6 1/2% Preferred Stock and $0.20 per
share on its 4% Preferred Stock).

     Pursuant to the Rebar - Noy Agreement, Rebar has agreed to use its
reasonable best efforts to cause the Company to not take, and Rebar also agreed
to not vote for, consent to or approve the taking by the Company of, certain
actions in relation to the payment of dividends, in each case without the prior
written consent of Noy. These actions include declaring or paying any dividend
or making any other distribution to the Company's shareholders whether or not
upon or in respect of any shares of its capital stock, except that (a) dividends
and distributions may continue to be paid by the subsidiaries of Ampal to Ampal
or other subsidiaries of Ampal and (b) regular dividends may be declared and
paid on any shares of preferred stock outstanding on the date hereof in the
ordinary course of business consistent with past practices.


                     RECENT SALES OF UNREGISTERED SECURITIES

      Pursuant to a Letter Agreement, dated as of January, 31, 2001, between
Ampal (Israel) Ltd., a wholly-owned subsidiary of Ampal, and Zionism 2000, a
charitable organization, Ampal (Israel) Ltd. gifted 6,000 shares of Class A
Stock to Zionism 2000 on February 9, 2001.

      Pursuant to a Letter Agreement, dated as of January 31, 2001, between
Ampal (Israel) Ltd., a wholly-owned subsidiary of Ampal, and Coaching Ltd.,
Ampal (Israel) Ltd. transferred 1,500 shares of Class A Stock to Coaching Ltd.
on March 1, 2001, as compensation for services rendered.

      The issuance to each of Zionism 2000 and Coaching Ltd. of the
aforementioned shares was exempted from registration under the Securities Act of
1933, as amended, pursuant to Rule 902 of Regulation S of such Act.


                                       34
<PAGE>
ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                   2001             2000              1999              1998                1997
                                          ----             ----              ----              ----                ----
                                                        (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<S>                                    <C>               <C>              <C>                 <C>                 <C>
Revenues                               $  27,340         $  39,697        $  69,613           $  23,160           $  43,142
Net income (loss)                         (6,974)              813           28,031(1)            2,175(1)           14,183(1)
Earnings (loss) per Class A share:
   Basic EPS                           $   (0.38)(2)     $    0.03(2)     $    1.32(1)(2)     $    0.08(1)(2)     $    0.58(1)(2)
   Diluted EPS                         $   (0.38)        $    0.03        $    1.15(1)        $    0.07(1)(3)     $    0.50(1)(3)
Total assets                             383,833           446,628          396,780             324,916             256,069
Notes and loans and debentures
   Payable                               145,901           201,576          174,519             129,025              64,068
Dividends declared per Class A
   share                               $      --         $      --        $      --           $      --           $      --
</TABLE>


-----------------------------

(1)  Includes (loss) from discontinued operations, as follows:

<TABLE>
<CAPTION>
    Year Ended December 31,                                        200           19             19             199
                                                    --------     --------     ---------      ---------      ---------
                                                                    (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                                 <C>          <C>          <C>            <C>            <C>
    (Loss) from discontinued operations             $     --     $     --     $  (2,156)     $  (1,715)     $    (257)
    (Loss) per Class A  share from discontinued
    operations:
       Basic EPS                                    $     --     $     --     $   (0.10)     $   (0.07)     $   (0.01)
       Diluted EPS                                  $     --     $     --     $   (0.09)     $   (0.06)     $   (0.01)
</TABLE>

(2)  Computation is based on net income (loss) after deduction of preferred
     stock dividends of $227, $234, $284, $335 and $351, respectively.

(3)  Computation is based on net income after deduction due to dilution in
     equity in earnings of affiliate of $334 and $258, respectively.


                                       35
<PAGE>
ITEMS 7 & 8.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

      The Company acquires interests in businesses located in the State of
Israel or that are Israel-related. The Company's primary investment focus is the
high-technology and communications sector. The Company is involved in a broad
cross-section of Israeli companies engaged in various fields including
high-technology and communications, real estate, capital markets, leisure-time,
energy distribution and industry. The Company sometimes participates in the
management of its investee companies through representation on boards of
directors or otherwise.

      The Company's results of operations are directly affected by the results
of operations of its investees. The results of companies which are greater than
50%-owned are included in the consolidated financial statements of the Company.
The Company accounts for its holdings in investees over which the Company
exercises significant influence, generally 20%- to 50%-owned companies
("affiliates"), under the equity method. Under the equity method, the Company
recognizes its proportionate share of such companies' income or loss based on
its percentage of direct and indirect equity interests in earnings or losses of
those companies. If the Company's interest in a subsidiary were to be reduced to
20%-50%, the investment generally would be recorded under the equity method. The
Company's results of operations are affected by capital transactions of the
affiliates. Thus, the issuance of shares by an affiliate at a price per share
above the Company's carrying value per share for such affiliate results in the
Company recognizing income for the period in which such issuance is made, while
the issuance of shares by such affiliate at a price per share that is below the
Company's carrying value per share for such affiliate results in the Company
recognizing a loss for the period in which such issuance is made. The Company
accounts for its holdings in investees, other than those described above, on the
cost method or in accordance with Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities". In addition, the Company reviews investments accounted for under
the cost method periodically in order to determine whether to maintain the
current carrying value or to write off some or all of the investment. For more
information as to how the Company makes these determination, see "-Critical
Accounting Policies."

      A comparison of the Company's financial statements from year to year must
be considered in light of the Company's acquisitions and divestitures during
each period.

      For those subsidiaries and affiliates whose functional currency is
considered to be the New Israeli Shekel ("NIS"), assets and liabilities are
translated at the rate of exchange at the end of the reporting period and
revenues and expenses are translated at the average rates of exchange during the
reporting period. Translation differences of those foreign companies' financial
statements are included in the cumulative translation adjustment account
(reflected in accumulated other comprehensive loss) of shareholders' equity.
Should the NIS be devalued against the dollar, cumulative translation
adjustments are likely to result in a reduction in shareholders' equity. As of
December 31, 2001, the effect on shareholders' equity was a decrease of
approximately $20.2 million. Upon disposition of an investment, the related
cumulative translation adjustment balance will be recognized in determining
gains or losses.


                                       36
<PAGE>
INTRODUCTION OF THE EURO

      On January 1, 2002, eleven of the fifteen member countries of the European
Union adopted the Euro as their common legal currency. The Euro trades on
currency exchanges and is available for non-cash transactions.

      The Company does not conduct operations in Europe. However, there can be
no assurance that the implementation of the Euro will not have an adverse
material affect on the Company's financial condition or results of operations.


RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

      In July 2001, the Financial Accounting Standards Board issued Statements
of Financial Accounting Standards No. 141, Business Combinations ("SFAS 141")
and No. 142, Goodwill and Other Intangible Assets ("SFAS 142"). SFAS 141
requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method. Under SFAS 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are reviewed annually
(or more frequently if impairment indicators arise) for impairment. All other
intangible assets will continue to be amortized over their estimated useful
lives. The amortization provisions of SFAS 142 apply to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, the company is required to adopt SFAS 142
effective January 1, 2002. The Company is currently evaluating the effect that
adoption of the provisions of SFAS 142 that are effective January 1, 2002, will
have on its results of operations and financial position. Had the Company
adopted SFAS 142 at January 1, 2001, it would not have a material effect on it's
financial results for December 31, 2001.

      In August 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets ("SFAS 144"). Although SFAS 144 supersedes FSAS
Statement No. 121, it retains the requirements of SFAS 121 regarding recognition
of impairment loss for long-lived assets to be held and used (based on
undiscounted cash flows) and resolves certain implementation issues. Also, the
accounting model used in SFAS 121 for long-lived assets to be disposed of by
sale (lower of carrying amount or fair value less cost to sell) is broadened by
SFAS 144 to include discontinued operations and supersedes APB Opinion No. 30.
Therefore, discontinued operations will no longer be measured on a net
realizable value basis and future operating losses will no longer be recognized
before they occur. SFAS 144 also broadens the presentation of discontinued
operations to include a component of an entity (rather than a segment of a
business). The provisions of SFAS 144 are effective for financial statements
issued for fiscal years beginning after December 15, 2001, and interim periods
within those years. The Company believes that the adoption of SFAS 144 will not
have a material impact on the Company's financial statements.


DISCONTINUED OPERATIONS

      On November 2, 1999, the Company completed the sale of its 85%-owned
mattress manufacturing subsidiary, Paradise Industries Ltd., ("Paradise") to
Beit Hafuton, AA Ltd. ("Beit Hafuton"). Accordingly, the results of Paradise,
whose financial statements were previously consolidated with the Company's
financial statements, have been presented as discontinued operations for all
periods presented. In connection with the sale, the Company agreed to the
following: (a) to forgive a capital note in the amount of $0.5 million from
Goodnight Center Ltd. ("Goodnight Center"), a subsidiary of Beit Hafuton, (b) to
forgive a loan to Paradise in the amount of approximately $0.5 million and (c)
to pay an additional $1.8 million with respect to bank guarantees issued on
behalf of Paradise and Goodnight


                                       37
<PAGE>
Center. As a result of this sale, the Company recorded a loss on disposition of
approximately $3.6 million ($1.1 million net of taxes) in the consolidated
financial statements for the year ended December 31, 1999.


RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000:

      The Company recorded a consolidated loss from continuing operations of $7
million for the year ended December 31, 2001, as compared to income of $0.8
million for the same period in 2000. The decrease in income is primarily
attributable to the decrease in equity in earnings of affiliates, lower gains on
sale of investments, higher loss from impairment of investments and a decrease
in real estate income. These decreases in income were partially offset by the
gain on sale of real estate rental property, higher other income, a lower
effective income tax rate, lower unrealized losses on investments, lower
interest expense and a translation gain in 2001, as compared to a translation
loss in 2000.

      Equity in earnings of affiliates decreased to a loss of $2.2 million for
the year ended December 31, 2001, from income of $11.9 million for the same
period in 2000. The decrease is primarily attributable to the decreased earnings
of the Company's 50%-owned affiliate, Trinet Venture Capital Ltd. ("Trinet") and
Ophir Holdings Ltd. ("Ophir Holdings"), the Company's 42.5%-owned affiliate.
Trinet recorded unrealized gains on its investments in Smart Link Ltd. in 2000,
as compared to unrealized losses in 2001. Ophir Holdings, recorded an
unrealized gain on a trading security in 2000. There was no similar gain in
2001. In addition, two of the Company's other affiliates, 42.5%-owned Ophirtech
Ltd. ("Ophirtech") and 37%-owned Bay Heart Limited ("Bay Heart") recorded higher
losses in 2001. Ophirtech, which invests in companies in the high technology
sector, recorded losses from impairment of investments in 2001. Bay Heart, which
operates a shopping mall in the Haifa Bay area, recorded losses as a result of
decreased rental revenues, increased financing expenses and a higher provision
for income taxes. Bay Heart's decreased rental revenues were due to lower
average rental rates on its properties caused, in part, by the general recession
in Israel in 2001 which affected the real estate sector and by the surplus of
mall properties in the Haifa area.

      Both Bay Heart and the Company's other real estate rental properties in
Israel may be adversely affected to the extent that a continuation of the
current political/security crisis adversely affects the general Israeli economy.
That crisis has also adversely impacted Israel's tourism industry. Coral World,
which is 50%-owned by the Company, owns and controls three marine parks: in
Eilat (Israel), Perth (Australia) and Maui (Hawaii). To the extent that the
political/security crisis in Israel continues to affect the Israeli tourism
industry, Coral World's marine park in Eilat may experience a decrease in
visitors and revenues.

      In the year ended December 31, 2001, the Company recorded $1.6 million of
gains on the sale of investments, which were primarily attributable to its
investment in Floware Wireless Systems Ltd. ("Floware"). In the year ended
December 31, 2000, the Company recorded $13.7 million of gains on the sale of
investments, which were primarily attributable to its investment in BreezeCOM
Ltd. ("BreezeCOM"). In August 2001, BreezeCOM acquired Floware and changed the
name of the combined entity to Alvarion Ltd.

      The Company recorded $3.3 million of unrealized losses on investments
which are classified as trading securities in the year ended December 31, 2001,
as compared to $5.9 million of unrealized losses in the same period in 2000. The
unrealized losses recorded in 2001 are primarily attributable to the Company's
investment in shares of Bank Leumi Le'Israel B.M. ("Leumi") and Arel
Communications and Software Ltd. ("Arel"), while the unrealized losses in 2000
are primarily attributable to the Company's


                                       38
<PAGE>
investment in shares of Arel. At December 31, 2001 and December 31, 2000, the
aggregate fair value of trading securities held by the Company amounted to
approximately $9.9 million and $23.8 million, respectively.

      On March 28, 2001, the Company concluded the sale of its interest in a
building located at 800 Second Avenue ("800 Second Avenue") in New York City for
$33 million and recorded a pre-tax gain of approximately $8 million ($4.3
million net of taxes).

      On May 2, 2001, the Company sold its real estate rental property located
in Bnei Brak, ("Bnei Brak") Israel and recorded a pre-tax gain of approximately
$2.1 million ($1.6 million net of taxes).

      The decrease in real estate income of approximately $1.2 million in 2001,
as compared to 2000, is attributable to the sale of 800 Second Avenue and Bnei
Brak.

      The increase in other income of $2.3 million in the year ended December
31, 2001 as compared to the same period in 2000, is primarily attributable to
the higher guaranteed income received from Motorola (Israel) Ltd. ($7.1 million
in 2001, as compared to $3.8 million in 2000) with respect to the level of
dividends from MIRS Communications Ltd. ("MIRS"). This increase was partially
offset by the $1.6 million dividend received from MIRS in 2000, which was not
distributed by MIRS in 2001. To the extent MIRS continues to seek to penetrate
the Israeli cellular market, its results of operations will be affected by the
intense competition in the market.

      The decrease in interest expense of approximately $1.4 million in the year
ended December 31, 2001, as compared to the same period in 2000 is attributable
to the repayments of notes and loans payable.

      In the year ended December 31, 2001, the Company recorded a $13 million
loss from impairment of its investments in the following companies, all of which
are in the high-technology sector: Camelot Information Technologies Ltd. ($5
million), Netformx Ltd. ($2.6 million), Enbaya Inc. ($1.4 million), Shiron
Satellite Communications (1996) Ltd. ($1.4 million), RealM Technologies Ltd.,($
1.3 million) mPrest Technologies Ltd. ($0.8 million) Babylon Ltd. ($.3 million),
and Elephanx DotCom L.L.C. ($0.2 million). In the year ended December 31, 2000,
the Company recorded an $11.1 million loss from impairment of investments
attributable to the $3.5 million bank guarantees paid on behalf of M.D.F.
Industries Ltd. and to the impairment in values of the Company's investments in
Smartlight Ltd. ($3 million), Netformx Ltd. ($2.5 million), Qronus Interactive
Israel (1994) Ltd. ($1.1 million), Zactus, Inc. ($0.5 million) and ContactNOW,
Inc. ($.5 million). A substantial portion of these losses resulted from the
worldwide slump in technology markets which affected both sales and the ability
of companies to raise additional capital. Companies at the start-up stage, as
are a number of the Company's portfolio companies, were particularly affected by
the weakness in the private capital markets as these companies depend on
additional rounds of investment for operating funds. See "-Critical Accounting
Policies" for a discussion of the factors affecting the Company's decision to
write-off its investments accounted for under the cost method.

      New laws and regulations regarding maintaining emergency fuel reserves
went into effect in August 2001. With regard to reserves falling into the civil
reserves category, fuel companies selling diesel fuel to the civilian market are
required to hold reserves of diesel fuel in the volumes stated in the law. The
State of Israel fixes the value of the civilian diesel fuel reserves so that
there is no loss or profit stemming from fluctuations in the price for diesel
fuel, but the State does not pay for maintaining the reserves. As a result, the
amount of reserves that Sonol is required to finance will increase. In light of
these changes, the price of gasoline, which is controlled by the State, was
adjusted to compensate for the


                                       39
<PAGE>
extra cost to fuel companies in financing civilian reserves. The prices of the
other products are not controlled.

      As a result of these changes, the operational reserves of Sonol increased,
as did Sonol's exposure to changes in the value of the reserves stemming from
fluctuations in the market price of diesel fuel. Fluctuations in the market
prices of fuel may materially affect the periodic business results of Sonol.
Sonol is looking for ways to minimize these effects. There can be no guarantee
that these changes will not materially impact the financial condition or results
of operation of Sonol. See "Item 3. Legal Proceedings" for more information
regarding these new laws and regulations.

      The Company recorded a translation gain of $2.1 million in the year ended
December 31, 2001, as compared to a translation loss of $1.3 million in the same
period in 2000. The translation gain in 2001 is attributable to the devaluation
of the new Israeli shekel against the U.S. dollar in the year ended December 31,
2001, while the translation loss in 2000 was primarily attributable to foreign
exchange forward contracts executed by the Company, which were outstanding
during 2000.

      The decrease in the effective income tax rate in 2001, as compared to
2000, is attributable to state and local income taxes with respect to the gain
on sale of 800 Second Avenue, losses of certain Israeli subsidiaries for which
no tax benefits are currently available and certain expenses which are not
deductible for income tax purposes.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999:

      Consolidated income from continuing operations decreased to $0.8 million
for the year ended December 31, 2000, from $30.2 million for the same period in
1999. The decrease in income is primarily attributable to lower realized and
unrealized gains on investments, the gain on sale of real estate rental property
in 1999 which was absent in 2000, greater loss from impairment of investments,
decreased equity in earnings of affiliates, and higher interest expense in 2000.
These decreases were partially offset by the increase in other income.

      The Company recorded $5.9 million of unrealized losses on investments
which are classified as trading securities in the year ended December 31, 2000,
as compared to $12.1 million of gains in the same period in 1999. The unrealized
losses in 2000 are primarily attributable to the Company's investment in shares
of Arel, while in 1999, the unrealized gains were primarily attributable to the
investments in the shares of Leumi and Fundtech Ltd.. At December 31, 2000 and
December 31, 1999, the aggregate fair value of trading securities amounted to
approximately $23.8 million and $40.4 million, respectively.

      In the year ended December 31, 2000, the Company recorded $13.7 million of
gains on the sale of marketable securities, $11.2 million of which are
attributable to the Company's investment in BreezeCOM. In the year ended
December 31, 1999, the Company recorded $18.4 million of gains on the sale of
investments, $13.5 million of which were attributable to the sale of its 46%
equity interest in Moriah Hotels Ltd. to Koor Tourism Enterprises Ltd. and
Sheraton International Ltd.

      On July 6, 1999, the Company sold real estate rental properties to a
subsidiary of Bank Hapoalim B.M., and recorded a gain on the sale of $9.2
million ($6 million net of taxes) in its December 31, 1999, consolidated
financial statements.

      Equity in earning of affiliates decreased to $11.9 million for the year
ended December 31, 2000, from $16 million for the same period in 1999. The
decrease is primarily attributable to the decreased earnings of Ophir Holdings,
the Company's 42.5%-owned affiliate, which is a holding company with interests
in real estate and high-technology companies. Ophir Holdings reported
significantly higher


                                       40
<PAGE>
earnings in 1999 primarily due to the gain on the sale of its holdings in
Platinum Technology International Inc. This decrease was partially offset by the
increased earnings of the Company's 50%-owned affiliate, Trinet, which recorded
an unrealized gain on its investment in Smart Link Ltd. Granite Hacarmel
Investments Ltd., the Company's 20.2%-owned affiliate, which is one of the
largest distributors of refined petroleum products in Israel, also recorded
higher earnings in 2000 primarily as a result of a gain on sale of holdings in
investees.

      The increase in real estate income of $3.1 million and expenses of $5.7
million in 2000 as compared to 1999 is attributable to the operations of Am-Hal
Ltd., the Company's wholly-owned subsidiary, which owns and operates a chain of
senior citizens facilities in Israel. The Company acquired an additional 50%
interest in Am-Hal on December 31, 1999. As a result, Am-Hal's statement of
income was consolidated with the Company's consolidated statement of income in
2000, while in 1999, Am-Hal's results were recorded in equity in earnings of
affiliates.

      The Company recorded interest expense of $13.3 million in the year ended
December 31, 2000, as compared to $10 million in the same period in 1999.
Interest expense was higher in 2000 as a result of increased borrowings in
connection with new investments made, interest expense attributable to Am-Hal's
operations and the acquisition of the Company's shares from Bank Hapoalim B.M.
in July, 1999.

      The increase in other income of $4.2 million in the year ended December
31, 2000, as compared to the same period in 1999, is attributable to the
guaranteed income of $3.8 million from Motorola (Israel) Ltd. with respect to
the dividend from MIRS, as well as a larger dividend received from MIRS.

      In the year ended December 31, 2000, the Company recorded an $11.1 million
loss from impairment of investments attributable to the $3.5 million bank
guarantees paid on behalf of M.D.F. Industries Ltd. and to the impairment in
values of the Company's investments in Smartlight Ltd. ($3 million), Netformx
Ltd. ($2.5 million), Qronus Interactive Israel (1994) Ltd. ($1.1. million),
Zactus, Inc. ($0.5 million) and ContactNOW, Inc. ($0.5 million). In 1999, the
Company recorded $3 million of losses from impairment of investments which were
primarily attributable to its investments in M.D.F. ($1.5 million), Unic View
Ltd. ($1 million) and MuTek Solutions Ltd. ($0.4 million).

      The change in the effective income tax rate in 2000 as compared to 1999 is
mainly attributable to the additional tax benefits with respect to the loss from
impairment of investment in an affiliate which was recorded in previous years.


LIQUIDITY AND CAPITAL RESOURCES

      At December 31, 2001, cash and cash equivalents were $8 million, as
compared with $5.8 million at December 31, 2000. The increase in cash and cash
equivalents is primarily attributable to the dividends received from affiliates
and to the proceeds received from the sale of real estate properties. These cash
increases were partially offset by the repayments of notes and loans payable,
new investments made during 2001 and income tax payments made in connection with
the sale of 800 Second Avenue. The decrease in notes and loans payable is
primarily attributable to the repayment of facilities associated with the
Company's ownership of 800 Second Avenue. The increase in accumulated other
comprehensive loss is primarily attributable to the unrealized currency
translation losses and sale of available-for-sale securities.

      At March 17, 2002, the aggregate fair value of trading and
available-for-sale securities was approximately $33.9 million ($40.6 million at
December 31, 2001).


                                       41
<PAGE>
      The Company invested approximately $14 million in its existing portfolio
companies in 2001, as summarized below. The Company did not make investments in
companies in which it did not previously hold an interest.

      On January 22, 2001, the Company made an additional investment of $1.5
million in Enbaya Inc., and increased its equity interest in Enbaya from 12.9%
to 19.1%.

      On January 1, 2001, and March 26, 2001, the Company made additional
investments of an aggregate of $0.9 million in CUTe Ltd.

      On February 23, 2001, the Company made an additional investment of $5
million in XACCT Technologies Ltd. The Company currently holds an approximately
16% equity interest in XACCT.

      On April 16, 2001, the Company made an additional investment of $1.7
million (including the conversion of a $0.5 million loan) in ShellCase Ltd.. The
Company currently holds an approximately 13.3% equity interest in ShellCase.

      On November 6, 2001, the Company made an additional investment of $0.5 in
PowerDsine Ltd.. The Company currently holds an approximately 8.4% equity
interest in PowerDsine.

      On November 14, 2001, the Company made an additional investment of $0.6
million in Star Management of Investment No. II (2000) L.P., a venture capital
fund which focuses on investment in communications, Internet, software and
medical devices. The Company holds an approximate 10% equity interest in Star
and has invested an aggregate of $1.875 million in Star. The Company's total
commitment to invest in Star is $5 million.

      In 2001, the Company made owners loans to its investees in an aggregate
amount of $2.6 million. In addition, the Company repaid a loan in the amount of
$5.2 million to a 42.5% owned affiliate. The source of the funds was a dividend
received from that affiliate.

      The Company's sources of cash include cash and cash equivalents,
marketable securities, cash from operations, cash from investing activities and
amounts available under credit facilities, as described below. The Company
believes that these sources are sufficient to fund the current requirements of
operations, capital expenditures, investing activities, dividends, and other
financial commitments. However, to the extent that contingencies and payment
obligations described below and in other parts of this Report require the
Company to make unanticipated payments, the Company would need to further
utilize these sources of cash. To the extent that the Company intends to rely on
the sale of marketable securities in order to satisfy its cash needs, it is
subject to the risk of a shortfall in the amount of proceeds from any such sale
as compared with the anticipated sale proceeds due to a decline in the market
price of those securities. In the event of a decline in the market price of its
marketable securities, the Company may need to draw upon its other sources of
cash, including by increasing its borrowings or by refinancing its indebtedness
or liquidating other assets, the value of which may also decline. In addition,
some of the Company's assets have already been pledged as security for specific
loans or guarantees and would therefore be unavailable if the Company wished to
sell or pledge them in order to provide an additional source of cash.

      The Company had in place an unused committed line of credit of $6 million
at December 31, 2001.

      In connection with its investment in MIRS, the Company has two long-term
loans from Hapoalim and Leumi in the amount outstanding of $38.7 million and
$36.4 million, respectively, as of December


                                       42
<PAGE>
31, 2001. Both loans are due on March 31, 2008 and bear interest at a rate of
LIBOR plus 0.8%. Other than as described in this paragraph, the loans are
non-recourse to the Company and are secured by the Company's shares in MIRS. The
principal payments are due as follows: 10% on March 31, 2004, 15% on March 31,
2005 and 25% on each of the following dates - March 31, 2006, 2007 and 2008.
Interest will be paid annually on March 31 of each year from March 31, 2001
until and including March 31, 2008. These loans are subject to the compliance by
MIRS with covenants regarding its operations and financial results. In March
2002, some of the covenants in the Leumi loan were amended to reflect changes in
MIRS' business. In connection with these amendments, the Company agreed that
Leumi will have recourse to the Company for an amount of up to $3.5 million if
Motorola Israel does not make a guaranteed payment to the Company in March 2003
as is required by the terms of the agreement under which the Company purchased
its interest in MIRS from Motorola Israel. In addition, Leumi will have recourse
to the Company for another $0.5 million beginning in 2006 in relation to the
Company's repayment obligations under the loan. The Company anticipates that
similar amendments will be required in the Hapoalim loan. In the event that any
such amendments are made to the Hapoalim loan, the terms of the security
provided by the Company under that loan may also be changed. Any such changes
may result in the Company directly guaranteeing part of this loan too.

      As of December 31, 2001, the Company had outstanding $7.3 million in
debentures with interest rates ranging from 6.2% to 7.5%. These debentures,
which mature between 2001 and 2005, are secured by $7.5 million in cash held in
a secured account. In addition, the Company also had outstanding as of December
31, 2001, $18 million in 11% discount debentures. These debentures mature in
2003. However, they also allow for early redemption in 2002, provided that in
the event of early redemption the Company would not be required to pay $2
million in unamortized discounts. In the event that these debentures are
redeemed early, the Company may need to draw upon various sources of cash,
including by increasing its borrowings or by refinancing its indebtedness or
liquidating assets in order to pay the $15 million owed.

      The Company financed a portion of the development of its Am-Hal facilities
through bank loans from Hapoalim. At December 31, 2001 and 2000, the amounts
outstanding under these loans were $14.3 million and $23.9 million,
respectively. The loans are dollar linked, mature through 2002 and have interest
rates of zero to LIBOR plus 1%. The loans are secured by a lien on Am-Hal's
properties.

      The Company also finances its general operations and other financial
commitments through short-term borrowings, mainly from Hapoalim. The term of
these borrowings is up to one year. The weighted average interest rates and the
balances of these short-term borrowings at year-end were 3.23% on $31.1 million
and 5.84% on $86.7 million in 2001 and 2000, respectively.

      As of December 31, 2001, the Company had issued guarantees on certain
outstanding loans to its investees and subsidiaries in the aggregate principal
amount of $11.7 million. This includes a guarantee of $6 million of indebtedness
incurred by Bay Heart in connection with the development of its property. Bay
Heart recorded increased losses in 2001 as a result of decreased rental
revenues, increased financing expenses and a higher provision for income taxes.
Bay Heart's decreased rental revenues were due to lower average rental rates on
its properties caused, in part, by the general recession in Israel in 2001 which
affected the real estate sector and by the surplus of mall properties in the
Haifa area. There can be no guarantee that Bay Heart will become profitable or
that it will generate sufficient cash to repay its outstanding indebtedness
without relying on the Company's guarantee.

      In each of 2001 and 2000, Ampal paid dividends in the amount of $0.20 and
$.325 per share on its 4% and 6-1/2% Cumulative Convertible Preferred Stocks,
respectively. Total dividends paid in each year amounted to approximately $0.2
million.

      The Company's derivative financial instruments consist of foreign currency
forward exchange contracts. These contracts are utilized by the Company, from
time to time, to manage risk exposure to movements in foreign exchange rates.
None of these contracts have been designated as hedging


                                       43
<PAGE>
instruments. These contracts are recognized as assets or liabilities on the
balance sheet at their fair value, which is the estimated amount at which they
could be settled based on market prices or dealer quotes, where available, or
based on pricing models. Changes in fair value are recognized currently in
earnings.

     See "Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters - Dividend Policy" and "- Subsequent Events" below for a discussion of
restrictions on the activities of the Company agreed to by its controlling
shareholder pending closing of the sale of that shareholder's entire interest in
the Company. To the extent that contingencies and payment obligations described
above and in other parts of this Report require the Company to make
unanticipated payments, some of these restrictions may prevent the Company from
utilizing sources of cash it could have otherwise used by selling assets or
taking loans or otherwise.

CRITICAL ACCOUNTING POLICIES

      The Company accounts for a number of its investments, including many of
its investments in the high-technology and communications industries, on the
basis of the cost method. Application of this method requires the Company to
periodically review these investments in order to determine whether to maintain
the current carrying value or to write off some or all of the investment. While
the Company uses some objective measurements in its review, such as the
portfolio company's liquidity, burn rate, termination of a substantial number of
employees, achievement of milestones set forth in its business plan or
projections and seeks to obtain relevant information from the company under
review, the review process involves a number of judgments on the part of the
Company's management. These judgments include assessments of the likelihood of
the company under review to obtain additional financing, to achieve future
milestones, make sales and to compete effectively in its markets. In making
these judgements the Company must also attempt to anticipate trends in the
particular company's industry as well as in the general economy. There can be no
guarantee that the Company will be accurate in its assessments and judgments. To
the extent that the Company is not correct in its conclusion it may decide to
write down all or part of the particular investment.

ITEM 7A

MARKET RISKS AND SENSITIVITY ANALYSIS

      The Company is exposed to various market risks, including changes in
interest rates, foreign currency rates and equity price changes. The following
analysis presents the hypothetical loss in earnings, cash flows and fair values
of the financial instruments which were held by the Company at December 31,
2001, and are sensitive to the above market risks.

INTEREST RATE RISKS

      At December 31, 2001, the Company had financial assets totaling $21.2
million and financial liabilities totaling $145.9 million. For fixed rate
financial instruments, interest rate changes affect the fair market value but do
not impact earnings or cash flows. Conversely, for variable rate financial
instruments, interest rate changes generally do not affect the fair market value
but do impact future earnings and cash flows, assuming other factors are held
constant.

      At December 31, 2001, the Company had fixed rate financial assets of $15.9
million and variable rate financial assets of $5.3 million. Holding other
variables constant, a ten percent increase in interest rates would decrease the
unrealized fair value of the fixed financial assets by approximately $0.1
million.

      At December 31, 2001, the Company had fixed rate debt of $32.8 million and
variable rate debt of $113.1 million. A ten percent decrease in interest rates
would increase the unrealized fair value of the fixed rate debt by approximately
$0.4 million.

      The net decrease in earnings for the next year resulting from a ten
percent interest rate increase would be approximately $0.5 million, holding
other variables constant.

EXCHANGE RATE SENSITIVITY ANALYSIS


                                       44
<PAGE>
      The Company's exchange rate exposure on its financial instruments results
from its investments and ongoing operations in Israel. During 2001, the Company
entered into various foreign exchange forward purchase contracts to partially
hedge this exposure. At December 31, 2001, the Company had open foreign exchange
forward purchase contracts in the amount of $7 million. Holding other variables
constant, if there were a ten percent devaluation of the foreign currency, the
Company's cumulative translation (loss) reflected in the Company's accumulated
other comprehensive (loss) would increase by $1.7 million. Conversely, if there
were a ten percent revaluation of the foreign currency, the net decrease in
earnings would be $0.1 million.

EQUITY PRICE RISK

      The Company's investments at December 31, 2001, included marketable
securities (trading and available-for-sale) which are recorded at fair value of
$40.6 million, including a net unrealized loss of $8.4 million. Those securities
have exposure to price risk. The estimated potential loss in fair value
resulting from a hypothetical ten percent decrease in prices quoted on stock
exchanges is approximately $4.1 million.


SUBSEQUENT EVENTS

      On February 26, 2002, the controlling shareholder of the Company, Rebar
Financial Corp. ("Rebar"), a company controlled by Daniel and Raz Steinmetz,
signed a definitive agreement (the "Rebar-Noy Agreement") to sell all of its
stock in the Company to Y.M. Noy Investments Ltd. ("Noy"), a company organized
by Yosef Maiman, for an aggregate purchase price of approximately $82.9 million.
Closing is subject to the approval of the Israeli Ministry of Communication and
the Israeli Antitrust Commissioner.

      In connection with the closing of this proposed sale, all options
outstanding under the Company's stock option plans will become immediately
exercisable. However, shares issued upon exercise of approximately 300,000 of
these options may be sold to Noy at the same price per share as the shares to be
sold by Rebar.

     Pursuant to the Rebar-Noy Agreement, Rebar has agreed to use its reasonable
best efforts to cause the Company to not take, and Rebar also agreed to not vote
for, consent to or approve the taking by the Company of, certain actions, in
each case without the prior written consent of Noy. These include actions to:
(a) acquire in any manner any business or any corporation, partnership,
association or other business organization or division thereof or a substantial
portion of the assets thereof or otherwise acquire any assets (other than
inventory) that are material, individually or in the aggregate, to the Company,
except for any such transaction in which the investment by the Company does not
exceed $1 million and (b) except as expressly permitted by the agreement, sell,
lease, license or otherwise dispose of any of its assets that are material,
individually or in the aggregate, to the Company.

      On January 4, 2002, the Company made an additional investment of $0.5
million in Shellcase Ltd., a developer and manufacturer of chip size packaging.
The current equity interest of the company in Shellcase is 13.2%.

      On January 28, 2002, the Company made an additional $0.5 million
investment in PowerDsine Ltd., a leading designer and developer of software
controlled power solutions. The Company now holds an approximately 8.1% equity
interest in PowerDsine.

      On January 2, 2002, the Company made a $0.5 million loan to Camelot
Information Technologies Ltd. In February 2002, the Company, together with other
Camelot shareholders, acted to put Camelot into liquidation proceedings.


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                                       46
<PAGE>
ITEM 8


                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Ampal-American Israel Corporation:

We have audited the accompanying consolidated balance sheets of Ampal-American
Israel Corporation and subsidiaries (the "Company") as of December 31, 2001 and
2000, and the related consolidated statements of (loss) income, cash flows,
changes in shareholders' equity, and comprehensive (loss) income for each of the
three years in the period ended December 31, 2001. 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 consolidated subsidiaries, which
statements reflect total assets and total revenues of 16% and 18%, respectively,
in 2001, 15% and 15%, respectively, in 2000, total revenues of 25%,
in 1999, of the related consolidated totals. Also, we did not audit the
financial statements of certain affiliated companies, the investments in which
are reflected in the accompanying financial statements using the equity method
of accounting. The Company's equity in net (losses) earnings of theseaffiliated
companies represents ($ 2,083,000), $10,730,000 and $15,727,000, ofconsolidated
net (loss) income for the years ended December 31, 2001, 2000 and1999,
respectively. The statements of these subsidiaries and affiliated companies
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 entities, is
based solely on the reports of other auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the 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 audits and the reports of other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Ampal-American Israel Corporation and subsidiaries as
of December 31, 2001 and 2000, and the results of their operations and their
cash flows for each of the three years in the period ended December 31, 2001, in
conformity with accounting principles generally accepted in the United States.



New York, New York                                          Arthur  Andersen LLP
March 27, 2002


                                       47
<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of
Ampal-American Israel Corporation:

We have audited the accompanying consolidated balance sheet of Ampal-American
Israel Corporation and subsidiaries (the "Company") as of December 31, 2001, and
the related consolidated statements of (loss) income, cash flows, changes in
shareholders' equity, and comprehensive (loss) income for the year ended
December 31, 2001. 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 consolidated subsidiaries, which statements reflect total
assets and total revenues of 16% and 18%, respectively, in 2001, of the related
consolidated totals. Also, we did not audit the financial statements of certain
affiliated companies, the investments in which are reflected in the accompanying
financial statements using the equity method of accounting. The Company's equity
in net losses of these affiliated companies represents $ 2,083,000, of
consolidated net loss for the year ended December 31, 2001. The statements of
these subsidiaries and affiliated companies 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 entities, is based solely on the reports of other
auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the 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 audits and the reports of other auditors
provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Ampal-American Israel Corporation and subsidiaries as
of December 31, 2001, and the results of their operations and their cash flows
for the year ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States.



Tel Aviv                                                      Luboshitz Kasierer
March 27, 2002                                                Arthur  Andersen


                                       48
<PAGE>
               AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
                    CONSOLIDATED STATEMENTS OF INCOME (LOSS)

<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                              2001          2000          1999
                                                            --------      --------      --------
                                                        (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES:
<S>                                                         <C>           <C>           <C>
Equity in (losses) earnings of affiliates (Note 13) ...     $ (2,174)     $ 11,876      $ 16,003
Interest:
   Related parties ....................................           22            11           655
   Others .............................................        1,220         1,195         1,381
Real estate income ....................................        8,781         9,981         6,900
Realized and unrealized (losses) gains  on
   investments (Notes 4 and 6) ........................       (1,722)        7,795        30,501
Gain on sale of real estate rental
   property (Notes 3 and 4) ...........................       10,038            --         9,523

Other .................................................       11,175         8,839         4,650
                                                            --------      --------      --------
         Total revenues ...............................       27,340        39,697        69,613
                                                            --------      --------      --------

EXPENSES:
Interest:
   Related parties ....................................          203           300         2,225
   Others .............................................       11,740        13,017         7,778
Real estate expenses ..................................        9,144         9,191         3,528
Loss from impairment of investments (Note 4(c)) .......       12,988        11,095         3,025
Minority interests ....................................         (226)       (1,127)         (762)
Translation (gain) loss ...............................       (2,127)        1,257         1,185
Other .................................................        7,129         7,344         6,885
                                                            --------      --------      --------
         Total expenses ...............................       38,851        41,077        23,864
                                                            --------      --------      --------
(Loss) income from continuing operations before
 income taxes .........................................      (11,511)       (1,380)       45,749
(Benefit) provision for income taxes (Note 12) ........       (4,537)       (2,193)       15,562
                                                            --------      --------      --------
(Loss) Income from continuing operations ..............       (6,974)          813        30,187
                                                            --------      --------      --------
Discontinued operations (Note 2):
   Loss from operations ...............................           --            --        (1,083)
   Loss on disposition of $3,593, net of applicable tax
    benefit of $2,520 .................................           --            --        (1,073)
                                                            --------      --------      --------
Loss from discontinued operations .....................           --            --        (2,156)
                                                            --------      --------      --------

         NET (LOSS) INCOME ............................     $ (6,974)     $    813      $ 28,031
                                                            ========      ========      ========

Basic EPS: (Note 11)
   (Loss) Earnings from continuing operations .........     $  (0.38)     $   0.03      $   1.42
   Loss from discontinued operations ..................           --            --         (0.10)
                                                            --------      --------      --------
   (Loss) Earnings per Class A share ..................     $  (0.38)     $   0.03      $   1.32
                                                            ========      ========      ========

 Shares used in calculation (in thousands) ............       19,184        18,916        20,966

Diluted EPS: (Note 11)
   (Loss) Earnings from continuing operations .........     $  (0.38)     $   0.03      $   1.24
   Loss from discontinued operations ..................           --            --         (0.09)
                                                            --------      --------      --------
   (Loss) Earnings per Class A share ..................     $  (0.38)     $   0.03      $   1.15
                                                            ========      ========      ========

   Shares used in calculation (in thousands) ..........       19,184        19,057        24,331
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       49
<PAGE>
               AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS



<TABLE>
<CAPTION>
                                                                       ASSETS AS AT
                                                                       ------------
                                                                 DECEMBER 31,  DECEMBER 31,
                                                                     2001         2000
                                                                     ----         ----
                                                                  (DOLLARS IN THOUSANDS)

<S>                                                              <C>           <C>
Cash and cash equivalents ...................................     $  7,973     $  5,842


Deposits, notes and loans receivable (Note 5) ...............       17,172       14,804


Investments (Notes 4, 6 and 13) .............................      260,175      307,600


Real estate property, less accumulated depreciation of $7,500
   and $9,310 ...............................................       66,643       87,480


Other assets ................................................       31,870       30,902
                                                                  --------     --------


         TOTAL ASSETS .......................................     $383,833     $446,628
                                                                  ========     ========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       50
<PAGE>
               AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                              LIABILITIES AND SHAREHOLDERS'
                                                                                     EQUITY AS AT
                                                                                     ------------
                                                                              DECEMBER 31,   DECEMBER 31,
                                                                                  2001           2000
                                                                                  ----           ----
                                                                                (DOLLARS IN THOUSANDS)
<S>                                                                           <C>            <C>
                                   LIABILITIES
Notes and loans payable: (Note 7)
   Related parties .......................................................     $      --      $  11,605
   Others ................................................................       122,805        165,938
Debentures (Note 8) ......................................................        23,096         24,033
Accounts and income taxes payable, accrued expenses and minority interests        86,712         80,650
                                                                               ---------      ---------

  Total liabilities ......................................................       232,613        282,226
                                                                               ---------      ---------

                          SHAREHOLDERS' EQUITY (Note 9)
4%Cumulative Convertible Preferred Stock, $5 par value; authorized
  189,287 shares; issued 146,226 and 156,401 shares; outstanding 142,876
  and 153,051
   shares ................................................................           731            782

6-1/2% Cumulative Convertible Preferred Stock, $5 par value;
authorized. 988,055 shares; issued 726,680 and 745,814 shares; outstanding
604,144 and
    623,278 shares .......................................................         3,633          3,729

Class A Stock, $1 par value; authorized 60,000,000 shares; issued
  25,407,940 and 25,303,002 shares; outstanding 19,247,276 and 19,134,838
   shares ................................................................        25,408         25,303

Additional paid-in capital ...............................................        58,253         58,194

Retained earnings ........................................................       111,740        118,941

Treasury stock, at cost (Note 3) .........................................       (33,238)       (33,275)

Accumulated other comprehensive loss .....................................       (15,307)        (9,272)
                                                                               ---------      ---------

  Total shareholders' equity .............................................       151,220        164,402
                                                                               ---------      ---------

  TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............................     $ 383,833      $ 446,628
                                                                               =========      =========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.



                                       51
<PAGE>
               AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                              YEAR ENDED DECEMBER 31,
                                                                              -----------------------
                                                                           2001          2000          1999
                                                                         --------      --------      --------
                                                                                  (DOLLARS IN THOUSANDS)
<S>                                                                      <C>           <C>           <C>
         Cash flows from operating activities:
            Net (loss) income......................................      $ (6,974)     $    813      $ 28,031
            Adjustments to reconcile net (loss) income to
              net cash provided by operating activities:
            Equity in losses (earnings) of affiliates ..............        2,174       (11,876)      (16,003)
            Loss from discontinued operations ......................           --            --         2,156
            Realized and unrealized losses (gains)  on
              Investments ..........................................        1,722        (7,795)      (30,501)
            Gain on sale of real estate rental property ............      (10,038)           --        (9,523)
            Depreciation expense ...................................        2,293         2,208         1,003
            Amortization expense ...................................          252           823         1,356
            Impairment of investments ..............................       12,988         7,595         3,025
            Minority interests .....................................         (226)       (1,127)         (762)
            Consolidation of subsidiary previously
              accounted for by the equity ..........................           --            --           386
         method
            Translation (gain) loss ................................       (2,127)        1,257         1,185
            (Increase) decrease in other assets ....................       (7,796)       (4,331)        3,460
            Increase in accounts and income
              taxes payable, accrued expenses and minority
              interests ............................................        5,601         9,619         3,925
         Investments made in trading securities ....................         (409)      (23,341)      (28,004)
         Proceeds from sale of trading securities ..................        9,289        42,759        30,131
         Dividends received from affiliates ........................       27,128         6,784        10,415
                                                                         --------      --------      --------

            Net cash provided by operating activities ..............       33,877        23,388           280
                                                                         --------      --------      --------

         Cash flows from investing activities:
          Deposits, notes and loans receivable collected ...........        2,744         8,896         9,635
          Deposits, notes and loans receivable granted .............       (7,977)       (2,089)       (4,869)
          Investments made in:
           Available-for-sale securities ...........................       (1,257)       (2,127)      (24,147)
           Affiliates and others ...................................      (10,089)      (42,136)      (12,935)
          Proceeds from sale of investments:
           Affiliate ...............................................           --            --        29,622
           Available-for-sale securities ...........................        3,054            --            --
           Others ..................................................        1,047         2,149         1,537
          Return of capital by partnership .........................          120           722            --
          Capital improvements .....................................       (2,180)      (16,762)       (1,944)
          Proceeds from sale of real estate property,net ...........       34,906            --        15,076
                                                                         --------      --------      --------

           Net cash provided by (used in) investing activities .....       20,368       (51,347)       11,975
                                                                         --------      --------      --------
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       52
<PAGE>
               AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                                           YEAR ENDED DECEMBER 31,
                                                                                      2001          2000          1999
                                                                                     --------      --------      --------
                                                                                              (DOLLARS IN THOUSANDS)
<S>                                                                                  <C>           <C>           <C>
         Cash flows from financing activities: Notes and loans payable received:
           Related parties .....................................................     $     --      $     25      $  8,139
           Others ..............................................................       11,779        58,879        19,417
          Notes and loans payable repaid:
           Related parties .....................................................       (5,190)       (3,143)       (1,281)
           Others ..............................................................      (57,571)      (23,983)       (5,029)
          Proceeds from exercise of stock options ..............................           --           759            --
          Debentures repaid ....................................................       (1,894)       (6,402)       (5,785)
          Purchase of treasury stock ...........................................           --            --       (31,724)
          Contribution to partnership by minority
           Interests ...........................................................        1,295            --            --
          Issuance of shares to related parties and others .....................           --            10            --
          Dividends paid .......................................................         (227)         (234)         (284)
                                                                                     --------      --------      --------
           Net cash (used in) provided by financing
            activities .........................................................      (51,808)       25,911       (16,547)
                                                                                     --------      --------      --------

         Effect of exchange rate changes on cash and
          cash equivalents .....................................................         (306)          481          (346)
                                                                                     --------      --------      --------

         Net increase (decrease)  in cash and cash equivalents .................        2,131        (1,567)       (4,638)
         Cash and cash equivalents at beginning of year ........................        5,842         7,409        12,047
                                                                                     --------      --------      --------

         Cash and cash equivalents at end of year ..............................     $  7,973      $  5,842      $  7,409
                                                                                     ========      ========      ========

         Supplemental Disclosure of Cash Flow Information
         Cash paid during the year:
          Interest:
           Related parties .....................................................     $    173      $     25      $    613
           Others ..............................................................        7,763         6,502         2,205
                                                                                     --------      --------      --------
             Total interest paid ...............................................     $  7,936      $  6,527      $  2,818
                                                                                     ========      ========      ========

          Income taxes paid ....................................................     $  5,514      $    382      $ 11,593
                                                                                     ========      ========      ========
         Supplemental Disclosure of None cash Investing and
         Financing Activities
             Issuance of  treasury stock for charity ...........................     $     55            --            --
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       53
<PAGE>
               AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                 YEAR ENDED DECEMBER 31,
                                                                            2001           2000           1999
                                                                          ---------      ---------      ---------
                                                                             (DOLLARS IN THOUSANDS, EXCEPT SHARE
<S>                                                                       <C>            <C>            <C>
AMOUNTS AND PER SHARE DATA)
          4% PREFERRED STOCK
          Balance, beginning of year ................................     $     782      $     829      $     861
          Conversion of 10,175, 9,422 and 6,415 shares
           into Class A Stock .......................................           (51)           (47)           (32)
                                                                          ---------      ---------      ---------
          Balance, end of year ......................................     $     731      $     782      $     829
                                                                          =========      =========      =========

          6-1/2% PREFERRED STOCK
          Balance, beginning of year ................................     $   3,729      $   4,459      $   4,626
          Conversion of 19,134, 145,949 and 33,516 shares
           into Class A Stock .......................................           (96)          (730)          (167)
                                                                          ---------      ---------      ---------
          Balance, end of year ......................................     $   3,633      $   3,729      $   4,459
                                                                          =========      =========      =========

          CLASS A STOCK
          Balance, beginning of year ................................     $  25,303      $  24,817      $  24,685
          Issuance of shares upon conversion of
           Preferred Stock ..........................................           105            485            132
          Issuance of additional shares .............................            --              1             --
          Balance, end of year ......................................     $  25,408      $  25,303      $  24,817
                                                                          =========      =========      =========

          ADDITIONAL PAID-IN CAPITAL
          Balance, beginning of year ................................     $  58,194      $  57,896      $  57,829
          Conversion of Preferred Stock .............................            42            292             67
          Issuance of additional shares .............................            17              9             --
          Exercise of stock options, including tax benefit ..........            --             (3)            --
          Balance, end of year ......................................     $  58,253      $  58,194      $  57,896
                                                                          =========      =========      =========

          RETAINED EARNINGS
          Balance, beginning of year ................................     $ 118,941      $ 118,362      $  90,615
          Net (loss) income .........................................        (6,974)           813         28,031
          Dividends:
            4% Preferred Stock - $0.20 per share ....................           (29)           (30)           (32)
            6-1/2% Preferred Stock - $.325 per share ................          (198)          (204)          (252)
                                                                          ---------      ---------      ---------
          Balance, end of year ......................................     $ 111,740      $ 118,941      $ 118,362
                                                                          =========      =========      =========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       54
<PAGE>
               AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


<TABLE>
<CAPTION>
                                                                                       YEAR ENDED DECEMBER 31,
                                                                                  2001          2000          1999
                                                                                --------      --------      --------
                                                                            (DOLLARS IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<S>                                                                             <C>           <C>           <C>
        TREASURY STOCK (Note 3)
           4% PREFERRED STOCK
           Balance, beginning of year .............................             $    (84)     $    (84)     $     --
           Purchase of 3,350 shares, at cost ......................                   --            --           (84)
                                                                                --------      --------      --------
           Balance, end of year ...................................                  (84)          (84)          (84)
                                                                                --------      --------      --------

           6-1/2% PREFERRED STOCK
           Balance, beginning of year .............................               (1,853)       (1,853)           --
           Purchase of 122,536 shares, at cost ....................                   --            --        (1,853)
                                                                                --------      --------      --------
           Balance, end of year ...................................               (1,853)       (1,853)       (1,853)
                                                                                --------      --------      --------

           CLASS A STOCK
           Balance, beginning of year - 6,168,164,
           6,528,181 and  605,400 shares, at cost .................              (31,338)      (33,615)       (3,829)
           Issuance of 7,500 and 360,017 shares ...................                   37         2,277            --

           Purchase of 5,922,781 shares, at cost ..................                   --            --       (29,786)
                                                                                --------      --------      --------
           Balance, end of year - 6,160,664, 6,168,164, and
           6,528,181 shares, at cost ..............................              (31,301)      (31,338)      (33,615)
                                                                                --------      --------      --------


        Balance, end of year ......................................             $(33,238)     $(33,275)     $(35,552)
                                                                                ========      ========      ========

        ACCUMULATED OTHER COMPREHENSIVE LOSS

           Cumulative translation adjustments:
           Balance, beginning of year .............................             $(17,217)     $(17,676)     $(18,580)
           Foreign currency translation adjustments ...............               (2,946)          459           904
                                                                                --------      --------      --------
           Balance, end of year ...................................              (20,163)      (17,217)      (17,676)
                                                                                --------      --------      --------

           Unrealized gain on marketable securities:
           Balance, beginning of year .............................                7,945         3,699         4,958
           Unrealized (loss) gain, net ............................                 (603)        4,246         3,699
           Sale of available-for-sale securities ..................               (2,486)           --        (3,247)
           Transfer to trading securities .........................                   --            --        (1,711)
                                                                                --------      --------      --------
           Balance, end of year ...................................                4,856         7,945         3,699
                                                                                --------      --------      --------

        Balance, end of year ......................................             $(15,307)     $ (9,272)     $(13,977)
                                                                                ========      ========      ========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       55
<PAGE>
               AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
             CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
                                                                                     2001          2000          1999
                                                                                   --------      --------      --------
                                                                                           (DOLLARS IN THOUSANDS)
<S>                                                                                <C>           <C>           <C>
           Net (loss) income .................................................     $ (6,974)     $    813      $ 28,031
                                                                                   --------      --------      --------

           Other comprehensive (loss) income, net of tax:
            Foreign currency translation adjustments .........................       (2,946)          459           904
            Unrealized (loss) gain on securities .............................         (603)        4,246         3,699
                                                                                   --------      --------      --------
            Other comprehensive (loss) income ................................       (3,549)        4,705         4,603
                                                                                   --------      --------      --------

            Comprehensive (loss) income ......................................     $(10,523)     $  5,518      $ 32,634
                                                                                   ========      ========      ========

           Related tax (expense) benefit of other comprehensive (loss) income:
            Foreign currency translation adjustments .........................     $    725      $    (50)     $    223
            Unrealized gain on securities ....................................     $ (1,716)     $ (2,428)     $ (1,915)
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.


                                       56
<PAGE>
               AMPAL-AMERICAN ISRAEL CORPORATION AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)      THE COMPANY

         As used in these financial statements, the term the "Company" refers to
Ampal-American Israel Corporation ("Ampal") and its consolidated subsidiaries. A
substantial portion of the Company's operations involved transactions with Bank
Hapoalim B.M. ("Hapoalim"), the largest bank in Israel, and companies affiliated
or related thereto. Prior to July 6, 1999, Hapoalim and its wholly-owned
subsidiary, Atad Hevra Lehashkaot Limited owned 24.4% of Ampal's outstanding
Class A Stock. On July 6, 1999, the Company acquired all of Hapoalim's holdings
in Ampal (see Note 3). Commencing with the third quarter of 1999, transactions
with Hapoalim and its related parties, which were reflected as related parties
transactions in the Company's consolidated financial statements through June 30,
1999, are no longer reflected as transactions with a related party.

         The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

(b)      CONSOLIDATION

         The consolidated financial statements include the accounts of Ampal and
its subsidiaries. Certain prior year amounts have been reclassified to conform
with the current year's presentation.

(c)      TRANSLATION OF FOREIGN CURRENCIES

         For those subsidiaries and affiliates whose functional currency is
considered to be the New Israeli Shekel, assets and liabilities are translated
using year-end rates of exchange. Revenues and expenses are translated at the
average rates of exchange during the year. Translation differences of those
foreign companies' financial statements are reflected in the cumulative
translation adjustment accounts which is included in accumulated other
comprehensive loss.

         Assets and liabilities of foreign subsidiaries and companies accounted
for by the equity method whose functional currency is the U.S. dollar are
translated using year-end rates of exchange, except for property and equipment
and certain investment and equity accounts, which are translated at rates of
exchange prevailing on the dates of acquisition. Revenues and expenses are
translated at average rates of exchange during the year except for revenue and
expense items relating to assets translated at historical rates, which are
translated on the same basis as the related asset. Translation gains and losses
for these companies are reflected in the consolidated statements of income.


                                       57
<PAGE>
NOTE 1 -- SUMMARY OF  SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

(d)      FOREIGN EXCHANGE FORWARD CONTRACTS

         Effective January 1, 2001, the company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133 "Accounting for Derivative Instruments and
Hedging Activities".

         The Company's derivative financial instruments consist of foreign
currency forward exchange contracts. These contracts are utilized by the
Company, from time to time, to manage risk exposure to movements in foreign
exchange rates. None of these contracts have been designated as hedging
instruments. These contracts are recognized as assets or liabilities on the
balance sheet at their fair value, which is the estimated amount at which they
could be settled based on market prices or dealer quotes, where available, or
based on pricing models. Changes in fair value are recognized currently in
earnings.

         The adoption of SFAS No. 133 had no material impact on reported
earnings for the year ended December 31, 2001.

         At December 31, 2001, the open foreign exchange forward contracts
totaled $7 million.

(e)      INVESTMENTS

         (i)      Investments in Affiliates

                  Investments in which the Company exercises significant
         influence, generally 20%-to 50%-owned companies ("affiliates"), are
         accounted for by the equity method, whereby the Company recognizes its
         proportionate share of such companies' net income or loss. Goodwill,
         representing the excess of the purchase price over the fair value of
         the net assets of the acquired entities, is being amortized on a
         straight-line basis over the period of expected benefit of ten years.
         The Company reduces the carrying value of its investment in an
         affiliate if an impairment in value of that investment is deemed to be
         other than temporary.

         (ii)     Investments in Marketable Securities

                  Marketable equity securities, other than equity securities
         accounted for by the equity method, are reported at fair value. For
         those securities, which are classified as trading securities,
         unrealized gains and losses are reported in the statements of income.
         Unrealized gains and losses from those securities, which are classified
         as available-for-sale, are reported as a separate component of
         shareholders' equity.

         (iii)    Cost Basis Investments

                  Equity investments of less than 20% in non-publicly traded
         companies are carried at cost. Changes in the value of these
         investments are not recognized unless an impairment in value is deemed
         to be other than temporary. At December 31, 2001, and December 31,
         2000, the carrying value of the cost basis investments was $153 million
         and $152.9 million, respectively.

(f)      PROPERTY AND EQUIPMENT

         The Company's policy is to record long-lived assets at cost, amortizing
these costs over the expected useful life of the related assets. These assets
are reviewed on a quarterly and annual basis for impairment whenever events or
changes in circumstances indicate that the carrying amounts of the assets


                                       58
<PAGE>
may not be recoverable. Furthermore, the assets are evaluated for continuing
value and proper useful lives by comparison to expected future cash flows.

(g)      INCOME TAXES

         The Company applies the deferred method of accounting for income taxes,
whereby deferred taxes are recognized for the tax consequences of "temporary
differences" by applying enacted statutory tax rates to differences between
financial statements carrying amounts and the tax bases of existing assets and
liabilities.

         Deferred income taxes are not provided on undistributed earnings of
foreign subsidiaries adjusted for translation effect totaling approximately $
17.3 million, since such earnings are currently expected to be permanently
reinvested outside the United States. If the earnings were not considered
permanently invested, approximately $6.1 million of deferred income taxes would
have been provided.


                                       59
<PAGE>
NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- CONTINUED

income taxes are provided on equity in earnings of affiliates, gains on issuance
of shares by affiliates and unrealized gains on investments. Ampal's foreign
subsidiaries file separate tax returns and provide for taxes accordingly.

(h)      CASH EQUIVALENTS

         Cash equivalents include time deposits with maturities at acquisition
of 90 days or less.

(i)      ACCUMULATED COMPREHENSIVE LOSS

         Accumulated other comprehensive loss consists of cumulative translation
adjustments and unrealized gains (losses) on available-for-sale marketable
securities presented net of income taxes.

(j)      RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

         In July 2001, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards No. 141, Business Combinations
("SFAS 141") and No. 142, Goodwill and Other Intangible Assets ("SFAS 142").
SFAS 141 requires all business combinations initiated after June 30, 2001, to be
accounted for using the purchase method. Under SFAS 142, goodwill and intangible
assets with indefinite lives are no longer amortized but are reviewed annually
(or more frequently if impairment indicators arise) for impairment. All other
intangible assets will continue to be amortized over their estimated useful
lives. The amortization provisions of SFAS 142 apply to goodwill and intangible
assets acquired after June 30, 2001. With respect to goodwill and intangible
assets acquired prior to July 1, 2001, the company is required to adopt SFAS 142
effective January 1, 2002. The Company is currently evaluating the effect that
adoption of the provisions of SFAS 142 that are effective January 1, 2002,
will have on its results of operations and financial position. Had the Company
adopted SFAS 142 at January 1, 2001, it would not have a material effect on
it's financial results for December 31, 2001.

         In August 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets ("SFAS 144"). Although SFAS 144
supersedes SFAS Statement No. 121, it retains the requirements of SFAS 121
regarding recognition of impairment loss for long-lived assets to be held and
used (based on undiscounted cash flows) and resolves certain implementation
issues. Also, the accounting model used in SFAS 121 for long-lived assets to be
disposed of by sale (lower of carrying amount or fair value less cost to sell)
is broadened by SFAS 144 to include discontinued operations and supersedes APB
Opinion No. 30. Therefore, discontinued operations will no longer be measured
on a net realizable value basis and future operating losses will no longer be
recognized before they occur. SFAS 144 also broadens the presentation of
discontinued operations to include a component of an entity (rather than a
segment of a business). The provisions of SFAS 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001, and
interim periods within those years. The Company believes that the adoption of
SFAS 144 will not have a material impact on the Company's financial statements.

NOTE 2 -- DISCONTINUED OPERATIONS

         On November 2, 1999, the Company completed the sale of its 85%-owned
mattress manufacturing subsidiary, Paradise Industries Ltd., ("Paradise") to
Beit Hafuton, AA Ltd. ("Beit Hafuton"). Accordingly, the results of Paradise,
whose financial statements were previously consolidated with the Company's
financial statements, have been presented as discontinued operations for all
periods presented. In connection with the sale, the Company agreed to the
following: a) to forgive a capital note in the amount of $0.5 million from
Goodnight Center Ltd. ("Goodnight Center"), a subsidiary of Beit Hafuton, b) to
forgive a loan to Paradise in the amount of approximately $0.5 million and c) to
pay an additional $1.8 million with respect to bank guarantees issued on behalf
of Paradise and Goodnight Center. As a result of the aforementioned sale, the
Company recorded a loss on disposition of approximately $3.6 million ($1.1
million net of taxes) in the consolidated financial statements for the year
ended December 31, 1999.

NOTE 3 - -  TRANSACTION WITH HAPOALIM

         On July 6, 1999, the Company completed a transaction with Hapoalim and
two wholly-owned subsidiaries of Hapoalim, which provided for the following:

         (a)      The Company acquired from Hapoalim all of its holdings in
                  Ampal - 5,874,281 shares of Class A Stock, 3,350 shares of 4%
                  Preferred Stock and 122,536 shares of 6 1/2% Preferred Stock
                  for $31.5 million.

         (b)      The Company sold to Hapoalim's subsidiary seven real estate
                  properties totaling 53,000 sq. ft., which had previously been
                  leased to and occupied by Hapoalim, for $14.7 million.

         (c)      Ampal's subsidiary renewed the lease agreement with Hapoalim
                  with respect to a 4,400 sq. ft. branch in Bnei Brak, Israel
                  for ten years at an annual rental income of $346,000. (see
                  note 4 b 2).

         As a result of the above transaction, the Company recorded a gain of
$9.2 million ($6 million net of taxes) on the sale of the aforementioned real
estate properties in the December 1999 consolidated financial statements.


                                       60
<PAGE>
NOTE 4 -- ACQUISITIONS AND DISPOSITIONS

      (a)   In 2001 the Company made investments aggregating $14 million, as
            follows:

                  1.    An additional investment of $5 million in Xacct, a
                        provider of business infrastructure software for the
                        next-generation public network. The company holds an
                        approximate 16.9% equity interest in Xacct.

                  2.    An additional investment of $1.5 million (including $
                        0.4 million conversion of loans) in Enbaya Ltd., a
                        developer of a 3D browser that enables fast viewing,
                        compression and steaming of 3D models, and increased its
                        equity interest in the company from 12.9% to 19.1%.

                  3.    An additional investment of $1.7 million (includes the
                        conversion of a $0.5 million loan) in Shellcase Ltd.
                        ("shellcase")(CDNX: SSD), a developer of chip-size
                        packaging technology for semiconductors using a
                        wafer-level process. The company holds an approximate
                        13.2% equity interest in Shellcase.

                  4.    An additional investments of an aggregrate of $0.9
                        million in CUTe Ltd. ("CUTe"), a developer of bandwidth
                        efficient techniques for the delivery of digital media
                        over wireless networks. The Company holds an approximate
                        20% equity interest in CUTe.

                  5.    An additional investment of $0.6 million in the share of
                        Breezecom Ltd. (NASDAQ:"BRZE") a developer of wireless
                        local area network products, and $0.6 million in the
                        share of Floware Wireless Systems Ltd. (NASDAQ:"FLRE"),
                        a developer of broadband wireless transmission solution.
                        These two companies merged during 2001 to create a
                        company called Alvarion (NASDAQ: ALVR).

                  6.    An additional investment of $0.6 million in Star
                        Management of Investment No. II (2000) L.P. a venture
                        capital fund which focuses in investment in
                        communication, Internet, software and medical devices.
                        (total equity interest of 10%).

                  7.    An additional investment of $0.5 million in PowerDsine
                        Ltd. (total equity interest of 8.4%) a leading developer
                        of power supply devices for the telecommunications
                        industry.

                  8.    An owners' loan to Netformx Ltd. of $1.5 million, (net
                        equity interest of 20%) a developer of network design
                        tools.

                  9.    An owners' loan to Camelot Information Technologies
                        Ltd., of $0.5 million (total equity interest of 20%) a
                        developer of security solution for organizations.

                  10.   An owners' loan to Shiron Satellite Communications
                        (1996) Ltd. of $0.3 million, (equity interest 10%) a
                        developer and marketer of two-way satellite
                        communication products.


                                       61
<PAGE>
                  11.   See note 13(c).

      (b)   1.    On March 2001, the Company sold its interest in an office
                  building located at 800 Second Avenue, New York, New York, to
                  Second 800 LLC, for $ 33 million and recorded a pre tax gain
                  of approximately $8 million.

            2.    On May 2001, the Company sold its interest in an office
                  building in Bnei Brak for $3.1 million and recorded a pre tax
                  gain of $2.1 million.

            3.    On December 2001 the Company sold its interest in the Amethyst
                  fund in Korea for $0.9 million and recorded a pre tax loss of
                  $ 0.2 million. During 2001 the Company received $ 0.4 million
                  as management fees from Amethyset and reimbursed Cavallo
                  Capital (a related party) for $ 0.1 million of expenses.

      (c)   In 2001 the Company recorded loss from impairment of investments of
            $ 13 million as follows:

                  1.    Netformx Ltd. $1.6 million investment and $1 million
                        loan

                  2.    RealM technologies Ltd. $1.3 million

                  3.    mPrest Technologies Ltd. $0.8 million

                  4.    Shiron Satellite Communications (1996) Ltd. $1.4 million

                  5.    Enbaye Ltd. $1.4 million

                  6.    Camelot Information Technologies Ltd. $4.5 million
                        investment and $0.5 million of loan

                  7.    Babylon Ltd. $0.3 million

                  8.    ElephantX Dot Com LLC - $ 0.2 million

     (d)    In 2000, the Company made the following investments, aggregating $37
            million:

                  1.    a $6.2 million investment to acquire a 4.9% interest in
                        Arel Communications and Software Ltd., a leading
                        provider of interactive distance learning systems;

                  2.    an additional $3.3 million investment in Camelot
                        Information Technologies Ltd. ("Camelot") (total equity
                        interest is 20.7%, including net indirect equity through
                        Ophirtech Ltd. ("Ophirtech")), a developer of innovative
                        software solutions to secure organizational
                        communication networks;

                  3.    a $2.8 million investment to acquire a 4% interest in
                        BridgeWave Communications Inc., a developer of wireless
                        solutions for cable companies;

                      4. an additional $2.75 million investment in Netformx Ltd.
                      ("Netformx") (net equity interest is 20.2%, including net
                      indirect equity through Trinet Venture Capital Ltd.
                      ("Trinet") and Ophirtech), a developer of network design
                      tools;

                  5.    a $2.75 million investment to acquire a 16.6% interest
                        in Xpert Integrated Systems Ltd., a software and systems
                        integrator specializing in systems security;

                  6.    an additional $2.2 million investment in MuTek Solutions
                        Ltd. ("MuTek") (total equity interest is 6.1%), a
                        developer and marketer of software solutions that
                        improve the availability of business critical software
                        applications;

                  7.    a $2.2 million investment to acquire a 17% interest in
                        Oblicore Ltd., a provider of a unique solution that
                        enables businesses to track service performance relative
                        to service targets and allocate service resources to
                        maximize their success;


                                       62
<PAGE>
                  8.    a $2 million investment to acquire a 0.4% interest in
                        Sonic Foundry Inc., a developer of digital media and
                        Internet software tools, services and systems;

                  9.    an additional $1.8 million investment in PowerDsine Ltd.
                        ("PowerDsine") (total equity interest -- 10.8%), a
                        leading developer of power supply devices for the
                        telecommunications industry;

                  10.   a $1.65 million investment to acquire a 7.6% interest in
                        Modem Art Ltd., a developer of system-on-a-chip
                        solutions for wideband and broadband communication
                        systems;

                  11.   a $1.25 million investment to acquire a 13% interest in
                        RealM Technologies Ltd. (total equity interest -- 19.2%,
                        including net indirect equity through Ophirtech), a
                        developer of a network of servers, which will allow the
                        introduction of the next generation of applicable
                        services, while maximizing performance and optimizing
                        bandwidth usage;

                  12.   a $1.25 million investment in Star Management of
                        Investments No. II (2000) L.P., a venture capital fund
                        which focuses on investments in communications,
                        Internet, software and medical devices;

                  13.   an additional $1.1 million investment in Compugen Ltd.
                        (total equity interest -- 1.5%), a pioneer in the field
                        of computational genomics and proteomics;

                  14.   a $1.1 million investment to acquire a 20% interest in
                        Ampal Cavallo Intervest Fund, a new Korean venture
                        capital fund which will be managed by Ampal;

                  15.   a $1 million investment to acquire a 0.5% interest in
                        SeraNova, Inc., a provider of E-business services;

                  16.   a $0.9 million investment to acquire a 20% interest in
                        CUTe Ltd., a designer of intellectual property rights
                        and software modules on key components of the physical
                        layer of wireless telecommunications systems;

                  17.   a $0.75 million investment to acquire a 9.5% equity
                        interest in mPrest Technologies Ltd. (formerly WapDWap
                        Ltd), a developer of web-based applications for cellular
                        phones;

                  18.   an additional $0.6 million investment to maintain its
                        interest in Shiron Satellite Communications (1996) Ltd.
                        (total equity interest -- 9%), a developer and marketer
                        of two-way multimedia satellite communication products;

                  19.   a $0.5 million investment to acquire a 12.9% interest in
                        Enbaya Ltd., a developer and marketer of a 3D browser
                        that enables fast viewing, compression and streaming of
                        3D models;

                  20.   a $0.5 million investment to acquire a 5.6% interest in
                        Zactus, Inc., a developer of a web site for musicians;

                  21.   an additional $0.4 million investment in Shellcase Ltd.,
                        (total equity interest - 17.6%), a developer of the
                        smallest packages for semiconductor chips.


                                       63
<PAGE>
NOTE 4 -- ACQUISITIONS AND DISPOSITIONS - CONTINUED


      (e)   In 2000, the Company recorded an $11.1 million loss from impairment
            of investments attributable to the $3.5 million bank guarantees paid
            on behalf of M.D.F. Industries Ltd. ("M.D.F.") and to the impairment
            in values of the Company's investments in SmartLight Ltd. ($3
            million), Netformx Ltd. ($2.5 million), Qronus Interactive Israel
            (1994) Ltd. ($1.1 million), Zactus Inc. ($0.5 million) and
            ContactNOW Inc. ($0.5 million). In 1999, the Company recorded $3
            million of losses from impairment of investments which were
            primarily attributable to its investments in M.D.F. ($1.5 million),
            Unic View Ltd. ($1 million) and MuTek ($0.4 million). In 1998, the
            Company recorded a $1.9 million loss from impairment of its
            investments in MuTek, Ortek Ltd., Medco Electronics Systems Ltd. and
            Geotek Communications Ltd.

      (f)   On December 31, 1999, the Company invested $6 million for a 50%
            equity interest in Am-Hal Ltd. ("Am-Hal"). The purchase price of
            this acquisition was allocated to the net assets based upon their
            estimated fair values at the time of the acquisition. Goodwill
            resulting from this transaction is amortized over the useful life of
            the related assets. As a result of this transaction, the Company
            holds a 100% equity interest in Am-Hal, the owner and manager of a
            chain of luxury senior citizens facilities in Israel. Accordingly,
            Am-Hal's balance sheet was consolidated with the Company's
            consolidated balance sheet at December 31, 1999.

      (g)   On October 12, 1999, the Company, as part of a third round
            financing, invested approximately $5 million in XACCT Technologies
            (1997) Ltd. ("XACCT"), a developer of billing, auditing and
            accounting software for TCP/IP networks, and increased its equity
            interest in XACCT by 0.8% to 16.2%.

      (h)   On June 23, 1999, the Company acquired a 3.9% interest in Blue
            Square-Israel Ltd. ("Blue Square") for approximately $24 million.
            Blue Square owns 168 supermarkets in Israel.

      (i)   The Company made the following additional investments during the
            year ended December 31, 1999, aggregating $11.7 million, notably:

            1.    a $4.3 million investment to acquire an additional 0.2%
                  interest (total equity interest is 0.88%) in Bank Leumi le'
                  Israel B.M. ("Leumi");

            2.    a $2.5 million investment to acquire a 2.45% interest in
                  Floware Wireless Systems Ltd., a developer of products that
                  enable the transmission of broadband wireless services;

            3.    a $1.8 million investment to acquire an additional 1.2%
                  interest (total equity interest is 20.3%) in Granite Hacarmel
                  Investments Ltd.;

            4.    a $1.25 million investment to acquire a 14% interest
                  (subsequently diluted to 12.6%) in Camelot, a developer of
                  intelligent adaptive systems for the detection of illegal
                  activities on computer systems;

            5.    an approximately $0.6 million investment to maintain its
                  equity interest in Netformx (total equity interest - 20.7%);

            6.    a $0.5 million investment to acquire a 2.1% interest in
                  Babylon Ltd., a developer and marketer of single click
                  translation software for non-English speaking Internet users;

            7.    a $0.5 million investment to acquire a 4.6% interest in
                  ContactNOW Inc., a developer of Internet-based community
                  enablers; and


                                       64
<PAGE>
            8.    a $0.2 million investment to acquire a 5% interest in Modem
                  Art Ltd., a developer of programmable modems.


      (j)   On April 14, 1999, the Company sold its 46% equity interest in
            Moriah Hotels Ltd. ("Moriah") to Koor Tourism Enterprises Ltd. and
            Sheraton International Ltd. for $29.6 million. Prior to the sale, on
            April 12, 1999, the Company received a dividend from Moriah in the
            amount of $7.9 million. As a result of the aforementioned
            transaction, the Company recorded a gain on sale in the amount of
            approximately $13.5 million ($8.8 million, net of income taxes) in
            the December 31, 1999 consolidated financial statements.

      (k)   On January 22, 1998, the Company completed its purchase of a one -
            third interest in the assets of a new wireless communications
            service provider, MIRS Communications Company Ltd. ("MIRS") for $
            110 million. In March 1998, the Company transferred its interest in
            MIRS to a limited partnership. A wholly - owned Israeli subsidiary
            of Ampal is the general partner of the partnership and owns 75.1% of
            the partnership. The partnership owns all of the authorized
            preferred shares of MIRS and Motorola Israel owns all of the
            authorized ordinary shares. Each share issued by MIRS is entitled to
            one vote. The Company accounts for its investment in MIRS using the
            cost method of accounting. Under the cost method, the Company
            recognizes income from dividends as they are declared. On March 21,
            1999, MIRS declared a dividend, the Company's share of which amounts
            to $ .9 million (net of minority interest), which was paid in
            September 1999.


                                       65
<PAGE>
NOTE 5 -- DEPOSITS, NOTES AND LOANS RECEIVABLE

      Deposits, notes and loans receivable earn interest at varying rates
depending upon their linkage provisions. The deposits are guaranteed by
Hapoalim. Deposits have maturities of up to 4 years and notes and loans
receivable have maturities of up to 7 years. At December 31, 2001 and 2000,
deposits, notes and loans receivable from related parties were $1.4 million and
$3.2 million, respectively, and such balances with others were $15.8 million and
$11.6 million, respectively (see Notes 1(a) and 3).

NOTE 6 -- INVESTMENTS IN MARKETABLE SECURITIES

      The Company classifies investments in marketable securities as trading
securities or available-for-sale securities and periodically re-evaluates such
classifications.

(a)   TRADING SECURITIES

      The cost and market values of trading securities at December 31, 2001 and
2000 are as follows:

<TABLE>
<CAPTION>
                                               UNREALIZED      MARKET
DECEMBER 31, 2001                    COST       (LOSSES)       VALUE
-----------------                  --------     --------      --------
                                         (DOLLARS IN THOUSANDS)
<S>                                <C>         <C>            <C>
Bonds ........................     $     10     $     --      $     10
Equity Securities ............       17,311       (7,398)        9,913
                                   --------     --------      --------

Total Trading Securities .....     $ 17,321     $ (7,398)     $  9,923
                                   ========     ========      ========

DECEMBER 31, 2000

Bonds ........................     $     10     $     --      $     10

Equity Securities ............       26,585       (2,817)       23,768
                                   --------     --------      --------

Total Trading Securities .....     $ 26,595     $ (2,817)     $ 23,778
                                   ========     ========      ========
</TABLE>


      In the years ended December 31, 2001, 2000 and 1999, the Company recorded
$(3.3) million, $(5.9) million, and $12.1 million of unrealized (losses) gains,
respectively, on trading securities in the statement of income.

      During 2001, 2000 and 1999, the Company invested approximately $ 0.4
million, $23.3 million, and $28 million, respectively, in marketable securities,
which are classified as trading securities.

(b)   AVAILABLE-FOR-SALE SECURITIES

      The cost and market values of available-for-sale securities at December
31, 2001 and 2000 are as follows:

<TABLE>
<CAPTION>
                                           UNREALIZED      MARKET
DECEMBER 31, 2001               COST     GAINS/(LOSSES)    VALUE
-----------------             --------   --------------   --------
                                     (DOLLARS IN THOUSANDS)
<S>                           <C>        <C>              <C>
Equity Securities .......     $ 31,743      $ (1,025)     $ 30,718
                              ========      ========      ========

DECEMBER 31, 2000

Equity Securities .......     $ 32,114      $  2,294      $ 34,408
                              ========      ========      ========
</TABLE>


                                       66
<PAGE>
NOTE 7 -- NOTES AND LOANS PAYABLE

      Notes and loans payable consist primarily of bank borrowings either in
U.S. Dollars, linked to the Consumer Price Index in Israel or in unlinked
shekels with interest rates varying depending upon their linkage provision and
mature through 2008.

      The Company has two long-term loans from Hapoalim and Leumi in the amount
of $38.7 million and $36.4 million as of December 31, 2001, (in connection with
its investment in shares of MIRS. Both loans are due on March 31, 2008 and bear
interest at a rate of LIBOR plus 0.8%. Other than as described below, the loans
are non-recourse to the Company and are secured by the Company's shares in MIRS.
The principal payments are due as follows: 10% on March 31, 2004, 15% on March
31, 2005 and 25% on each of the following dates - March 31, 2006, 2007 and 2008.
Interest will be paid annually on March 31 of each year from March 31, 2001
until and including March 31, 2008.

      These loans are subject to the compliance by MIRS with covenants regarding
its operations and financial results. In March 2002, some of the covenants in
the Leumi loan were amended to reflect changes in MIRS' business. In connection
with these amendments, the Company agreed that Leumi will have recourse to the
Company for an amount of up to $3.5 million if Motorola Israel does not make a
guaranteed payment to the Company in March 2003 as is required by the terms of
the agreement under which the Company purchased its interest in MIRS from
Motorola Israel. In addition, Leumi will have recourse to the Company for
another $0.5 million beginning in 2006 in relation to the Company's repayment
obligations under the loan. The Company anticipates that similar amendments
will be required in the Hapoalim loan. In the event that any such amendments are
made to the Hapoalim loan, the terms of the security provided by the Company
under that loan may also be changed. Any such changes may result in the Company
directly guaranteeing part of this loan too.

      At December 31, 2001 and 2000, notes and loans payable include $14.1
million and $23.9 million ($4.1 million to related parties) of loans,
respectively, attributed to Am-Hal (see Note 4(f)). The loans are dollar linked,
mature through 2002 and have interest rates of zero to LIBOR plus 1%. The loans
are secured by a lien on Am-Hal's properties.

      The weighted average interest rates on the balances of short-term
borrowings at year-end are as follows: 3.23% on $31.1 million and 5.84% on $86.1
million in 2001 and 2000, respectively.

NOTE 8 -- DEBENTURES

      Debentures outstanding at December 31 consist of:

<TABLE>
<CAPTION>
                                                           2001         2000
                                                         --------     --------
<S>                                                      <C>          <C>
      (DOLLARS IN THOUSANDS)
AMPAL:
Fifteen Year 11% Discount Debenture, maturing 2003 .     $ 18,016     $ 18,026

AMPAL DEVELOPMENT (ISRAEL) LTD.:
Various series with interest rates ranging from
  6.2%-7.5%, linked to the Consumer Price Index in
  Israel, maturing 2001-2005, secured by assets of
  $7.5 million and $10 million, respectively .......        7,268        9,766
                                                         --------     --------
                                                           25,284       27,792

Less: Unamortized discounts ........................        2,188        3,759
                                                         --------     --------

Total ..............................................     $ 23,096     $ 24,033
                                                         ========     ========
</TABLE>




                                       67
<PAGE>
NOTE 8 -- DEBENTURES -- CONTINUED

      Certain debentures are presentable for early redemption. If presented for
early redemption, maturities (including required obligations) for the five years
ending December 31 would be:

<TABLE>
<S>                                                    <C>
      2002...........................................  $ 16,095*
      2003...........................................     1,795
      2004...........................................     1,795
      2005...........................................     1,882
</TABLE>

----------
* If no debentures are presented for early redemption, scheduled maturities will
  amount to $1,795.

NOTE 9 -- SHAREHOLDERS' EQUITY

Capital Stock

      The 4% and 6-1/2% preferred shares are convertible into 5 and 3 shares of
Class A Stock, respectively. At December 31, 2001, a total of 5,341,812 shares
of Class A Stock are reserved for issuance upon the conversion of the Preferred
Stock and the exercise of 2,815,000 options.

      The 4% and 6-1/2% Preferred Stock are preferred as to dividends on a
cumulative basis. Additional dividends out of available retained earnings, if
declared, are payable on an annual non-cumulative basis as a percentage of par
value as follows:

            (i)   up to 4% on Class A Stock, then
            (ii)  on 4% Preferred Stock and Class A Stock ratably.

      Preferred shares are non-voting, unless dividends are in arrears for three
successive years. At December 31, 2001, there are no dividend arrearages.

Retained Earnings

      At December 31, 2001, retained earnings include $20.3 million for
affiliates accounted for by the equity method, of which $2.4 million and an
additional $46.2 million from subsidiaries is not available for the payment of
dividends. In most cases this results from Israeli requirements that dividends
may only be paid on the basis of shekel-denominated and not dollar-denominated
retained earnings.

NOTE 10 -- STOCK OPTIONS

      In March 1998, the Company entered into a Stock Option and Stock Purchase
Agreement (the "Agreement") with Dr. Gleitman, the Company's then Chief
Executive Officer. Pursuant to the Agreement, the Chief Executive Officer was
granted options to purchase up to 1,000,000 shares of the Company's Class A
Stock. The Company also granted, based on certain terms and conditions, the
rights to purchase ("Share Purchase Rights"), at a discount, up to 200,000
shares of the Company's Class A Stock. On June 29, 1999, Dr. Gleitman announced
his resignation, effective July 1, 1999. The Agreement that the Company entered
into with Dr. Gleitman in 1998 was terminated on the date of his resignation.
Upon Dr. Gleitman's resignation, 437,500 stock options and 100,000 stock rights
have been forfeited.



                                       68
<PAGE>
      Also in March 1998, the Board approved a Long-Term Incentive Plan (the
"1998 Plan") permitting the granting of options to all employees, officers,
directors and consultants of the Company and its subsidiaries to purchase up to
an aggregate of 400,000 shares of Class A Stock. The 1998 Plan remains in effect
for a period of ten years.

      On February 15, 2000, the Stock Option Plan Committee approved a new
incentive plan, (the "2000 Plan") under which the Company has reserved 4 million
shares of Class A Stock for grants to present and future employees. The 2000
Plan was approved by the Board of Directors at a Meeting held on March 27, 2000
and was approved by a majority of the Company's shareholders at the June 29,
2000 annual meeting of shareholders.

      The options granted under the 1998 Plan and the 2000 Plan (together with
the 1998 Plan, the "Plans") may be either incentive stock options, at an
exercise price to be determined by the Committee but not less than 100% of the
fair market value of the underlying options on the date of grant, or
non-incentive stock options, at an exercise price to be determined by the
Committee. The Committee may also grant, at its discretion, "restricted stock,"
"dividend equivalent awards," which entitle the recipient to receive dividends
in the form of Class A Stock, cash or a combination of both and "stock
appreciation rights," which permit the recipient to receive an amount in the
form of Class A Stock, cash or a combination of both, equal to the number of
shares of Class A Stock with respect to which the rights are exercised
multiplied by the excess of the fair market value of the Class A Stock on the
exercise date over the exercise price. The options granted under the Plans were
granted either at market value or above.

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31,
                                             --------------------------------
                                               2001        2000        1999
                                             --------    --------    --------
                                           (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                 <C>                    <C>           <C>         <C>
Net income (loss):  As reported.........      (6,974)    $    813    $ 28,031
                    Pro forma...........     (11,647)     (10,640)     27,305

Basic EPS:          As reported.........       (0.38)    $   0.03    $   1.32
                    Pro forma...........       (0.63)       (0.57)       1.29

Diluted EPS:        As reported.........       (0.38)    $   0.03    $   1.15
                    Pro forma...........       (0.63)       (0.57)       1.12
</TABLE>
      The Company accounts for all plans under APB Opinion No. 25, under which
no compensation costs were incurred in the years ended December 31, 1999, 2000
and 2001 Had compensation cost for the options under the above Plans been
determined in accordance with SFAS No. 123, the Company's net income (loss) and
EPS would have been reduced as follows:

      Under SFAS No. 123, the fair value of each option is estimated on the date
of grant using the Black Scholes option-pricing model with the following
weighted average assumptions used for the options granted as of December 31,
2001, December 31, 2000 and December 31, 1999, respectively: (1) expected life
of options of 5, 5.92 and 5 years; (2) dividend yield of 0%; (3) expected
volatility of 71%, 59% and 41%; and (4) risk-free interest rate of 1.75%, 6.68%
and 6.35%.

      Because the SFAS No. 123 method of accounting has not been applied to
options granted prior to January 1, 1995, the resulting pro forma compensation
cost may not be representative of that to be expected in future years.



                                       69
<PAGE>
      Transactions under both Stock Option Plans and Agreement were as follows:

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31, 2001
                                                     ----------------------------
                                                                        WEIGHTED
                                                                         AVERAGE
                                                                        EXERCISE
                                                      OPTIONS             PRICE
                                                      --------          --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                              <C>                    <C>
Outstanding at beginning of year .............           3,161          $  24.43
Granted ......................................             205          $   5.94
Exercised ....................................              --          $     --
Forfeited/Expired ............................            (551)         $  24.72
                                                      --------
Outstanding at end of year ...................           2,815          $  23.03
                                                      ========

Exercisable at end of year ...................             912                --
                                                      ========
Weighted average fair value of options granted                          $   3.51
                                                                        ========
</TABLE>

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31, 2001
                                                     ----------------------------
                                                                        WEIGHTED
                                                                         AVERAGE
                                                                        EXERCISE
                                                      OPTIONS             PRICE
                                                      --------          --------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                              <C>                    <C>

Outstanding at beginning of year .............             762          $   8.55
Granted ......................................           2,972          $  25.48
Exercised ....................................            (511)         $   8.59
Forfeited/Expired ............................             (62)         $  10.00
                                                      --------
Outstanding at end of year ...................           3,161          $  24.43
                                                      ========

Exercisable at end of year ...................             884                --
                                                      ========
Weighted average fair value of options granted                          $   6.94
                                                                        ========
</TABLE>


                                       70
<PAGE>
NOTE 10 -- STOCK OPTIONS - CONTINUED

<TABLE>
<CAPTION>
                                            YEAR ENDED DECEMBER 31, 1999
                                    --------------------------------------------
                                                WEIGHTED                Weighted
                                      SHARE      AVERAGE                 Average
                                    PURCHASE    EXERCISE                Exercise
                                     RIGHTS      PRICE       OPTIONS     Price
                                    --------    --------     -------    --------
                                        (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                 <C>         <C>          <C>        <C>
Outstanding at beginning of year        100          (1)      1,036      $ 8.82
Granted ........................         --                     199      $ 8.00
Exercised ......................         --                      --          --
Forfeited/Expired ..............       (100)         (1)       (473)     $ 8.91
                                     ------                  ------
Outstanding at end of year .....          0                     762      $ 8.55
                                     ======                  ======

Exercisable at end of year .....         --          --         684          --
                                                             ======
Weighted average fair value of
  options granted ..............                                         $ 3.67
                                                                         ======
</TABLE>


(1)   Pursuant to the Agreement, exercise price to be determined based on 80% of
      the market price of the shares purchased on the date of exercise.

----------

      The 2,815,000 options outstanding as of December 31, 2001 have exercise
prices between $5.94 and $32 with a weighted average exercise price of $23.03
and a weighted average remaining contractual life of 4.8 years. Of these
2,815,000 options, 912,000 are exercisable; their weighted average exercise
price is $16.78.

      The 3,161,000 options outstanding as of December 31, 2000 had exercise
prices between $6.06 and $32 with a weighted average exercise price of $24.43
and a weighted average remaining contractual life of 5.8 years. Of these
3,161,000 options, 884,000 are exercisable; their weighted average exercise
price is $20.09.

NOTE 11 - EARNINGS (LOSS) PER CLASS A SHARE

      In accordance with SFAS No. 128 "Earnings Per Share", net earnings per
Class A share ("basic EPS") were computed by dividing net earnings by the
weighted average number of Class A shares outstanding and excluded any potential
dilution. Net earnings per Class A share amounts, assuming dilution ("diluted
EPS") were computed by reflecting potential dilution from the conversion of the
4% and 6-1/2% Preferred Stocks into Class A Stock and the exercise of stock
options. SFAS No. 128 requires the presentation of both basic EPS and diluted
EPS on the face of the income statement.

      A reconciliation between the basic and diluted EPS computations for net
earnings is as follows:

<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31, 2001
                                               ------------------------------------
                                                                          PER SHARE
                                                INCOME         SHARES      AMOUNTS
                                               --------       --------    ---------
                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>            <C>         <C>
Basic EPS:
Net (loss) attributable to Class A Stock .     $ (7,201)(1)     19,184    $  (0.38)
                                               ========       ========    ========


Diluted EPS(2):
  Net (loss) attributable to Class A Stock     $ (7,201)        19,184    $  (0.38)
                                               ========       ========    ========
</TABLE>


                                       71
<PAGE>
<TABLE>
<CAPTION>
                                                   YEAR ENDED DECEMBER 31, 2000
                                               ------------------------------------
                                                                          PER SHARE
                                                INCOME         SHARES      AMOUNTS
                                               --------       --------    ---------
                                               (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                            <C>            <C>         <C>
Basic EPS:
Net income attributable to Class A Stock .     $    579(1)      18,916    $   0.03
                                               ========       ========    ========

Effect of Dilutive Securities:
  Exercise of stock options ..............                         141
                                                              --------

Diluted EPS(2):
  Net income attributable to Class A Stock     $    579         19,057    $   0.03
                                               ========       ========    ========
</TABLE>


<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31, 1999
                                                 ------------------------------------
                                                                            PER SHARE
                                                  INCOME         SHARES      AMOUNTS
                                                 --------       --------    ---------
                                                 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                              <C>            <C>         <C>
Basic EPS:
  Income from continuing operations ..........   $ 29,903(1)                $   1.42
  Loss from discontinued operations ..........     (2,156)                     (0.10)
                                                 --------                   --------
  Net income attributable to Class A Stock ...   $ 27,747         20,966    $   1.32
                                                 ========                   ========

Effect of Dilutive Securities:
  Conversion of 4% and 6-1/2% Preferred Stocks                     3,365
                                                                --------

Diluted EPS:
  Income from continuing operations ..........   $ 30,187                   $   1.24
  Loss from discontinued operations ..........     (2,156)                     (0.09)
                                                 --------                   --------
  Net income attributable to Class A Stock ...   $ 28,031         24,331    $   1.15
                                                 ========       ========    ========
</TABLE>

(1)   After deduction of Preferred Stock dividends of $227, $234 and $284 in
      2001, 2000 and 1999 respectively.
(2)   In 2001 and 2000, the conversion of the 4% and 6-1/2% Preferred Stocks was
      excluded from the diluted EPS calculation due to the antidilutive effect.

      Options to purchase 2,815,000, 3,161,000 and 762,000 shares of common
stock were outstanding as of December 31, 2001, 2000 and 1999, respectively, of
which 2,815,000, 2,957,000 and 762,000 options were not included in the
computation of diluted EPS because of their anti-dilutive effect.

NOTE 12 -- INCOME TAXES

<TABLE>
<CAPTION>
                                                  YEAR ENDED DECEMBER 31,
                                           ------------------------------------
                                             2001          2000          1999
                                           --------      --------      --------
                                                  (DOLLARS IN THOUSANDS)
<S>                                        <C>           <C>           <C>
The components of current and deferred
  income tax expense (benefit) are:
Current:
  State and local ....................     $  1,038      $     65      $      5
  Federal ............................          500        (2,737)          542
  Foreign ............................          409           164        13,291
Deferred:
  State and local ....................          343            14          (182)
  Federal ............................       (3,368)        3,295        (1,582)
  Foreign ............................       (3,459)       (2,994)        3,488
                                           --------      --------      --------
  Total ..............................     $ (4,537)     $ (2,193)     $ 15,562
                                           ========      ========      ========
</TABLE>



                                       72
<PAGE>
<TABLE>
<S>                                        <C>           <C>           <C>
The components of deferred income
  tax expense (benefit) are:

Unrealized gains (losses) ............     $ (1,619)     $ (4,750)     $  4,375
Goodwill .............................        1,593         1,593         1,186
Foreign tax credit utilization .......           --            --        (1,740)
Equity in earnings of affiliates .....       (7,260)          894        (1,349)
Loss from impairment of investments ..       (1,454)           90          (875)
Net operating loss carryforwards .....          (71)          813           141
Deferred income ......................        1,598         1,840           255
Other ................................          729          (165)         (269)
                                           --------      --------      --------
   Total .............................     $ (6,484)     $    315      $  1,724
                                           ========      ========      ========

The domestic and foreign components
  of (loss) income from continuing
  operations before income taxes are:

Domestic .............................     $  5,106      $ (2,496)     $ (2,540)
Foreign ..............................      (16,617)        1,116        48,289
                                           --------      --------      --------
   Total .............................     $(11,511)     $ (1,380)     $ 45,749
                                           ========      ========      ========

A reconciliation of income taxes
  between the statutory and effective
  tax is as follows:

Federal income tax (benefit) expense
  at 35% .............................     $ (4,029)     $   (483)     $ 16,012
Taxes on foreign income (below) U.S.
  rate, net of tax credits ...........       (1,386)       (1,614)         (303)

State and local taxes
  net of federal effect ..............          898            51          (115)
Other ................................          (20)         (147)          (32)
                                           --------      --------      --------
   Total effective tax: 39%,
      159%, and 34% ..................     $ (4,537)     $ (2,193)     $ 15,562
                                           ========      ========      ========
</TABLE>

      Other assets include approximately $11 million ($6.3 million in 2000) of
deferred tax assets which primarily represent the tax benefit of the temporary
differences between the carrying values of the investments in the financial
statements and their income tax bases and a $6.5 million asset ($4.1 million in
2000) representing a tax benefit with respect to the net operating loss
carryforwards. Accounts and income taxes payable and accrued expenses include
approximately $19.5 million ($24.1 million in 2000) of deferred tax liability
which primarily consists of tax liability provided on undistributed earnings of
affiliates of approximately $13.7 million ($22.9 million in 2000).



                                       73
<PAGE>
NOTE 13 -- INVESTMENTS IN AFFILIATES

      The companies accounted for by the equity method and the Company's share
of equity in those investees are:

<TABLE>
<CAPTION>
                                                         AS OF DECEMBER 31,
                                                      ------------------------
                                                      2001      2000      1999
                                                      ----      ----      ----
<S>                                                   <C>       <C>       <C>
Bay Heart Limited (a) ..........................      37        37        37
Carmel Containers Systems Limited ..............      21.8      21.8      20.7
Coral World International Limited ..............      50        50        50
CUTe Ltd .......................................      20        --        --
Epsilon Investment House Ltd. ..................      20        20        20
Granite Hacarmel Investments Limited ("Granite")      20.2      20.2      20.3

Hod Hasharon Sport Center (1992) Limited
  Partnership ..................................      50        50        50
Ophir Holdings Ltd. ............................      42.5      42.5      42.5
Ophirtech Ltd. .................................      42.5      42.5      --
Renaissance Investment Company Ltd. ............      20        20        20
Trinet Investment in High-Tech Ltd. ............      37.5      37.5      37.5
Trinet Venture Capital Ltd.(b)(c) ..............      50        50        50
</TABLE>

      Combined summarized financial information for the above companies is as
follows:

<TABLE>
<CAPTION>
                                                      YEAR ENDED DECEMBER 31,
                                                 ----------------------------------
                                                   2001         2000         1999
                                                 --------     --------     --------
                                                       (DOLLARS IN THOUSANDS)
<S>                                              <C>          <C>          <C>
Revenues ...................................     $724,220     $843,152     $678,537
Gross profit ...............................      158,057      183,680      216,285
Net income .................................       12,452       36,799       51,443

Property and equipment .....................     $353,122     $266,123     $272,548
Other assets ...............................      598,370      668,750      597,505
                                                 --------     --------     --------
  Total assets .............................     $951,492     $934,873     $870,053
                                                 ========     ========     ========

Total liabilities, including bank borrowings     $730,513     $635,873     $627,509
                                                 ========     ========     ========
</TABLE>


(a)   At December 31, 2001, 2000 and 1999, the Company had a note receivable
      from Bay Heart Limited in the amount of $ 0.4 , $ 0.4 and $ 0.4 million
      respectively.

(b)   At December 31, 2001, 2000 and 1999, the Company had a non-interest
      bearing note receivable from Trinet Venture Capital Ltd. in the amount of
      $2.3 million, $2.5 million and $2.4 million, respectively.

(c)   On December 31,2001 the Company acquired 50% of the holdings of Trinet
      Venture Capital Ltd ("Trinet") in Smart Link Ltd, Peptor Ltd and Netformx
      Ltd for consideration of Capital notes, in the total amount of $ 2.3
      million.

The carrying value of the Company's investments in shares of its publicly traded
affiliates at December 31, 2001, amounted to $29.9 million and had a market
value of $51.8 million, based upon quoted market prices of shares traded on the
New York Stock Exchange, American Stock Exchange, NASDAQ National Market and the
Tel Aviv Stock Exchange. There is no assurance that any of these investments
could be realized at the quoted market price.


                                       74
<PAGE>
NOTE 14 -- SEGMENT INFORMATION

      SFAS 131 "Disclosure about Segments of an Enterprise and Related
Information" establishes annual and interim reporting standards for an
enterprise's operating segments and related disclosures about its products,
services, geographic areas and major customers. Segment information presented
below results primarily from operations in Israel.

<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31,
                                      ------------------------------------------
                                         2001            2000            1999
                                      ----------      ----------      ----------
                                                (DOLLARS IN THOUSANDS)
<S>                                   <C>             <C>             <C>
REVENUES:
Finance .........................     $    9,561      $   16,512      $   45,501
Real estate rental ..............         18,872           9,981           6,902
Leisure-time ....................          1,885           1,816           1,674
Intercompany adjustments ........           (804)           (488)           (467)
                                      ----------      ----------      ----------
     Total ......................     $   29,514      $   27,821      $   53,610
                                      ==========      ==========      ==========

EQUITY IN EARNINGS OF AFFILIATES:
Finance(b) ......................     $    1,354      $    2,745      $    5,595
Real estate rental(b) ...........           (481)          2,915           5,277
Leisure-time(a) .................          1,486           1,418             782
                                      ----------      ----------      ----------
     Total ......................     $    2,359      $    7,078      $   11,654
                                      ==========      ==========      ==========

INTEREST INCOME:
Finance .........................     $    1,293      $    1,694      $    2,503
Real estate rental ..............             95              --              --
Intercompany adjustments ........           (146)           (488)           (467)
                                      ----------      ----------      ----------
      Total .....................     $    1,242      $    1,206      $    2,036
                                      ==========      ==========      ==========

INTEREST EXPENSE:
Finance .........................     $   10,385      $   10,998      $    8,947
Real estate rental ..............          1,591           2,732           1,374
Leisure-time ....................            112              75             149
Intercompany adjustments ........           (145)           (488)           (467)
                                      ----------      ----------      ----------
      Total .....................     $   11,943      $   13,317      $   10,003
                                      ==========      ==========      ==========

PRETAX OPERATING (LOSS) INCOME:
Finance .........................     $  (17,709)     $  (12,647)     $   26,873
Real estate rental ..............          7,942          (1,933)          2,000
Leisure-time ....................            204             197             111
                                      ----------      ----------      ----------
     Total ......................     $   (9,563)     $  (14,383)     $   28,984
                                      ==========      ==========      ==========

INCOME TAX (BENEFIT) EXPENSE:
Finance .........................     $   (7,889)     $   (2,246)     $   15,583
Real estate rental ..............          3,261              42              88
Leisure-time ....................             91              11            (109)
                                      ----------      ----------      ----------
     Total ......................     $   (4,537)     $   (2,193)     $   15,562
                                      ==========      ==========      ==========

TOTAL ASSETS:
Finance .........................     $  300,234      $  324,593      $  288,961
Real estate rental ..............         73,596         125,017         104,337
Leisure-time ....................         14,511          13,708          13,882
Intercompany adjustments ........         (4,508)        (16,690)        (10,400)
                                      ----------      ----------      ----------
     Total ......................     $  383,833      $  446,628      $  396,780
                                      ==========      ==========      ==========
</TABLE>


                                       75
<PAGE>
NOTE 14 -- SEGMENT INFORMATION -- CONTINUED

<TABLE>
<CAPTION>
                                                YEAR ENDED DECEMBER 31,
                                      ------------------------------------------
                                         2001            2000            1999
                                      ----------      ----------      ----------
                                                (DOLLARS IN THOUSANDS)
<S>                                   <C>             <C>             <C>
INVESTMENTS IN AFFILIATES:
Finance(b) ......................     $    1,884      $   11,757      $    9,109
Real estate rental(b) ...........         14,295          24,453          23,070
Leisure-time(a) .................         12,314          11,187          11,017
                                      ----------      ----------      ----------
      Total .....................     $   28,493      $   47,397      $   43,196
                                      ==========      ==========      ==========

CAPITAL EXPENDITURES:
Finance .........................     $      214      $      733      $      819
Real estate rental ..............          1,769          15,893           1,014
Leisure-time ....................            197             136             111
                                      ----------      ----------      ----------
      Total .....................     $    2,180      $   16,762      $    1,944
                                      ==========      ==========      ==========

DEPRECIATION AND AMORTIZATION:
Finance .........................     $    1,805      $    1,663      $    1,434
Real estate rental ..............            640           1,253             818
Leisure-time ....................            100             115             107
                                      ----------      ----------      ----------
      Total .....................     $    2,545      $    3,031      $    2,359
                                      ==========      ==========      ==========
</TABLE>

      Corporate office expense is principally applicable to the financing
operation and has been charged to that segment above. Revenues and pretax
operating (loss) income above exclude equity in (losses) earnings of affiliates
and minority interests. Equity in earnings of affiliates only includes the
equity in earnings of those affiliates whose operations are represented by the
Company's segments. Total assets exclude assets from discontinued operations.

      (a) Operations in Australia, Israel and the United States (see Note 13).

      (b) Operations in Israel.

      The real estate rental segment consists of rental property owned in Israel
and the United States leased to related and unrelated parties. The leisure-time
segment consists of Moriah Hotels Ltd.(that was sold on March 1999) (hotel chain
in Israel-see Note 4 (j)), Coral World International Limited (marine parks
located around the world) and Country Club Kfar Saba (the Company's 51%-owned
subsidiary located in Israel).

NOTE 15 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

      The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

(a)   CASH AND CASH EQUIVALENTS

      For short-term investments, the carrying amount is a reasonable estimate
of fair value (see Note 1(h)).

(b)   DEPOSITS, NOTES AND LOANS RECEIVABLE

      The fair value of these deposits, notes and loans is estimated by
discounting the future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.


                                       76
<PAGE>
NOTE 15 -- DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS -- CONTINUED

(c)   INVESTMENTS

      For financial instruments with maturities between 91 days and 1 year, and
all marketable securities, the carrying amount is a reasonable estimate of fair
value.

(d)   COMMITMENTS

      Due to the relatively short term of commitments discussed in Note 16,
their contract value is considered to be their fair value.

(e)   DEPOSITS, NOTES AND LOANS PAYABLE AND DEBENTURES

      The fair value of notes and loans payable, deposits payable and debentures
outstanding is estimated by discounting the future cash flows using the current
rates offered by lenders for similar borrowings with similar credit ratings and
for the same remaining maturities.

<TABLE>
<CAPTION>
                                          YEAR ENDED DECEMBER 31,
                                                  2001                      2000
                                         ---------------------     ---------------------
                                         CARRYING       FAIR       CARRYING       FAIR
                                          AMOUNT        VALUE       AMOUNT        VALUE
                                         --------     --------     --------     --------
Financial assets:                                     (DOLLARS IN THOUSANDS)
<S>                                      <C>          <C>          <C>          <C>
Cash and cash equivalents ..........     $  7,973     $  7,973     $  5,842     $  5,842
Deposits, notes and loans receivable       17,172       16,957       14,804       14,602

Investments ........................       40,641       40,641       58,186       58,186
                                         --------     --------     --------     --------
                                         $ 65,786     $ 65,571     $ 78,832     $ 78,630
                                         ========     ========     ========     ========

Financial liabilities:

Notes and loans payable ............     $122,805     $132,167     $177,543     $175,957
Debentures outstanding .............       21,560       20,742       24,033       24,161
                                         --------     --------     --------     --------
                                         $144,365     $152,909     $201,576     $200,118
                                         ========     ========     ========     ========
</TABLE>

NOTE 16-- COMMITMENTS AND CONTINGENCIES

      (a)   The combined minimum annual lease payments on Ampal's corporate
offices and Country Club Kfar Saba, without giving effect to future escalations,
are $0.2 million in each of the years 2002-2006, and $1 million in the
aggregate, thereafter, totaling $6.2 million. The lease of the corporate offices
expires at will and the Kfar Saba lease expires at 2037.

      (b)   The Company has issued guarantees on bank loans to its investees and
subsidiaries totaling $6.2 million.

      The Company provided a lien to the bank on AM- Hal properties in Rishon -
Le Zion and Hod Hashron to guarantee a loan of $ 14.1 million.

The Company provided $ 5.5 million guarantee to AM - Hal  tenants .



                                       77
<PAGE>
NOTE 16-- COMMITMENTS AND CONTINGENCIES -- CONTINUED

      (c)   The Company made a commitment to invest $ 3.2 million in Star II
(2000 L.P.) and $0.7 million in PowerDsine Ltd.

      (d)   The recently-enacted Law of Arrangements in the Israeli Economy 5761
- 2001 contains new laws and regulations regarding the arrangements of
maintaining emergency fuel reserves. Under the new regulations, two new
categories were created: security reserves and civilian reserves. These
regulations, which went into effect in August 2001, stipulate that the security
reserves are to be stored in separate tanks in specified sites and are to be
used in emergency situations. Pursuant to the enactment of these laws, the State
of Israel will continue to finance the holding of the reserves and maintain the
value of only the fuels defined as security reserves.

      With regard to reserves falling into the civil reserves category, fuel
companies selling diesel fuel to the civilian market are required to hold
reserves of diesel fuel in the volumes stated in the law. The State fixes the
value of the civilian diesel fuel reserves so that there is no loss or profits
stemming from fluctuations in the price for diesel fuel but the State does not
pay for maintaining the reserves. As a result, the amount of reserves that Sonol
is required to finance will increase. In light of these changes, the price of
gasoline, which is controlled by the State, was adjusted to compensate for the
extra cost to fuel companies in financing civilian reserves. The prices of the
other products are not controlled.

      As a result of these changes, the operational reserves of Sonol increased,
as did Sonol's exposure to changes in the value of the reserves stemming from
fluctuations in the market price of diesel fuel. Fluctuations in the market
prices of fuel may materially affect the periodic business results of Sonol.
Sonol is looking for ways to minimize these effects. There can be no guarantee
that these changes will not materially impact the financial condition or results
of operation of Sonol.

      In February 2000, a petition was filed against Sonol, a wholly-owned
subsidiary of Granite, Paz Oil Company Ltd. and Delek, the Israeli Fuel Company
Ltd., in the Jerusalem District Court, to allow a class action suit regarding
fixing the retail price of diesel fuel. The lawsuit, if certified as a class
action, will be in the amount of NIS 234.4 million. Sonol's share is NIS 55
million, or approximately $12 million, Sonol denies the claim and based on legal
advice is of the opinion that there is a reasonable chance that the suit will
not be certified as class action.

      In May 2001, a claim was filed in the Jerusalem District Court against
Sonol, its subsidiary company, Sprint Motors Ltd., and four unrelated companies
by customers who purchased fuel products in filling stations, contending that
the defendants charged an illegal "service charge" over a period of many years.
The plaintiffs have requested the court to recognize their claim as a class
action. The amount of the claim is NIS. 5.30, however, should the court certify
the class action, it will total approximately NIS 379 million. Or $86 million
From the claim, it is not clear as to what is Sonol's and its subsidiary's share
of this amount. Granite's management believes that there is a weak chance that
the claim will be certified as a class action.

      In June 2001, a claim was filed by customers against Supergas (Granite's
wholly-owned consolidated subsidiary), alleging that the defendant made illegal
periodic charges to its customers. The plaintiff applied to the Tel Aviv
District Court to have the claim recognized as a class action in a total amount
of NIS 125 million or $ 28 million Supergas's management, based on legal advice,
is of the opinion that it is more likely than not that Supergas will prevail in
this case.

      A class action was allowed by the Tel-Aviv District Court against Supergas
and four other gas companies for a declaratory judgment regarding the
responsibility of the gas companies to refund to their customers payments which
were paid for periodic examinations which were not performed. Supergas filed for
permission to appeal this decision to the Israeli Supreme Court.



                                       78
<PAGE>
      Three claims were lodged against Granite's formerly affiliated company and
its past and present shareholders, which included Sonol in the Haifa District
Court. The total amount of the claims is approximately NIS 61 million ($15
million). The plaintiff's allegations concern the sale of fuel products pursuant
to restrictive trade practices among the fuel companies and their affiliates. In
the opinion of the legal counsels of Sonol and the formerly affiliated company,
the companies have a sound defense against the claims.

      Sonol has filed a claim against one of its agencies for approximately NIS
38 million (approximately $9 million) in the Tel Aviv District Court, on account
of an unpaid debt and damages caused to Sonol, alleging that the agency violated
the terms of the agency agreement by dealing with one of Sonol's competitors.
The agency, in turn, filed a counterclaim in the amount of approximately NIS 58
million (approximately $14 million), stating various causes, including a claim
that the contractual agreement between it and Sonol is a restrictive agreement.

      In the opinion of Sonol's management, based on opinion of Sonol's legal
counsel, the prospects of Sonol's claim against the agency relating to amounts
owed to Sonol are good and, regarding the amount claimed for damages on account
of the violation of the agency agreement, such amount is subject to deliberation
by the court. Regarding the prospects of the agency's counterclaim, Sonol's
legal counsel are unable, at this time, to estimate its prospects, insofar as it
relates to the claim of a restrictive agreement. Should the claim of a
restrictive agreement be rejected by the court, the prospects of the
counterclaim will not be favorable. Currently, the dispute has been referred to
mediation.

      At this time, it is too early to estimate the effects of the said
developments on the overall Israeli fuel market in general, and on Granite in
particular.

      (e)   Both Etz Vanir and Yakhin Mataim cultivate orange, grapefruit,
clementine, lemon and avocado groves in Israel, both for export and domestic
use, pursuant to various long-term land leases which, including renewal options,
do not expire until the mid-21st century. These properties are located near the
city of Netanya between an existing and a proposed highway. Approximately 1,200
acres are presently under cultivation by these two companies.

      Ampal historically believed that it owned 50% of the equity of Etz Vanir
and Yakhin Mataim and that the remaining 50% was owned by an unrelated company,
Yakhin Hakal Ltd. ("Yakhin Hakal"), which manages their operations. In February
1995, Yakhin Hakal and its affiliates commenced a legal proceeding in Tel Aviv
District Court seeking to cause Etz Vanir and Yakhin Mataim to redeem the
perpetual debentures owned by the Company for approximately $700,000 and to
require the Company to surrender all of its preferred shares of Etz Vanir and
Yakhin Mataim for their par value (which is a nominal amount), on the alleged
grounds that the perpetual debentures are debt and not equity investments. It is
the Company's view that its investments in these companies, which were made in
the 1950's, are equity investments and are not subject to redemption by these
companies, other than upon liquidation.

      On July 27, 1998, a Tel Aviv District Court ruled in favor of Yakhin
Hakal. The judge's decision allows Etz Vanir and Yakhin Mataim to redeem
debentures owned by the Company for approximately $800,000 and to require the
Company to surrender all of its preferred shares of Etz Vanir and Yakhin Mataim
for their par value. After the redemption and surrender, the Company will no
longer have any interest in Etz Vanir or Yakhin Mataim.

      On October 15, 1998, the Company filed an appeal with the Israeli Supreme
Court in Jerusalem. On September 30, 2001, the Supreme Court dismissed the
appeal filed by the Company, on the grounds that the Company failed to timely
produce a guarantee to cover Yakhin Hakal's expenses in the appeal.



                                       79
<PAGE>
      On November 1, 2001, the Company filed a petition to the Supreme Court,
contending that the dismissal of an appeal due to a delay in producing
guarantees as part of the appeal is unreasonable and that the law allowing this
should be changed. On December 30, 2001, the Company filed a motion to allow it
to file a new appeal in this case.

      On October 12, 2001, the Company filed a request to the Tel-Aviv District
Court for a preliminary injunction and other remedies in relation to the
validity and enforceability of Etz Vanir's and Yakhin Mataim's decisions to
redeem the debentures owned by the Company and to require the Company to
surrender all of its preferred shares in Etz Vanir and Yakhin Mataim. On January
28, 2002, the District Court dismissed the appeal. On March 12, 2002, the
Company filed an appeal with regard to this decision with the Israeli Supreme
Court.

      As of the date hereof, the Company cannot estimate the outcome of these
proceedings.

      Due to the uncertainty regarding the ownership of the Company's 50%
interest in Etz Vanir and Yakhin Mataim, the Company has not included Etz
Vanir's and Yakhin Mataim's financial results in the Company's financial
statements.

      (f)   On January 1, 2002, Galha (1960) Ltd. ("Galha") filed a suit against
the Company and other parties, including directors of Paradise Industries Ltd.
("Paradise") appointed by Ampal Properties, in the Tel Aviv District Court, in
the amount of NIS 8,121,456. Galha claimed that the Company, which was a
shareholder of Paradise, and another shareholder of Paradise, misused funds that
were received by Paradise from an insurance company for the purpose of
reconstructing an industrial building owned by Galha and used by Paradise which
burnt down. Paradise is currently under liquidations proceedings. At this stage,
the Company can not estimate the impact this claim will have on it.

      (g)   A petition to certify a class action against MIRS in the amount of
NIS 170 million ($38 million) was filed in the Tel Aviv District Court in
September 2001. The claim is in connection with the change in MIRS' tariffs
resulting from the implementation of MIRS' own dialing prefix, which replaced
its previous dialing prefix, the Tel-Aviv area code. As a result, persons in the
Tel Aviv area code claimed that they are subject to higher tariffs than those
they had been subject to under MIRS's previous dialing prefix. Mir's management
estimates the maximum exposure to be substantially less than the amount claimed.

      (h)   Legal claims arising in the normal course of business have been
filed against subsidiaries and affiliates of the Company. In the opinion of the
companies' managements, based on the opinions of legal counsel, the provisions
made are sufficient.


                                       80
<PAGE>
NOTE 17 -- SUBSEQUENT EVENTS

      On February 26, 2002, the controlling shareholder of the Company, Rebar
Financial Corp., a company controlled by Daniel and Raz Steinmetz, signed a
definitive agreement to sell all of its stock in the Company to Y.M. Noy
Investments Ltd., a company organized by Yosef Maiman, for an aggregate purchase
price of approximately $82.9 million. Closing is subject to the approval of the
Israeli Ministry of Communication and the Israeli Antitrust Commissioner.

      In connection with the closing of this proposed sale, all options
outstanding under the Company's stock option plans will become immediately
exercisable. However, shares issued upon exercise of approximately 300,000 of
these options may be sold to Noy at the same price per share as the shares to be
sold by Rebar.

      On January 4, 2002, the Company made an additional investment of $0.5
million in Shellcase Ltd., a developer and manufacturer of chip size packaging.
The current equity interest of the company in Shellcase is 13.2%.

      On January 28, 2002, the Company made an additional $0.5 million
investment in PowerDsine Ltd., a leading designer and developer of software
controlled power solutions. The Company now holds an approximately 8.1% equity
interest in PowerDsine.

      On January 2, 2002, the Company made a $0.5 million loan to Camelot
Information Technologies Ltd. In February 2002, the Company, together with other
Camelot shareholders, acted to put Camelot into liquidation proceedings.

SELECTED QUARTERLY FINANCIAL DATA
(Unaudited)


<TABLE>
<CAPTION>
                                           FIRST       SECOND        THIRD       FOURTH
                                          QUARTER      QUARTER      QUARTER      QUARTER       TOTAL
                                          --------     --------     --------     --------     --------
                                                  (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S>                                       <C>          <C>          <C>          <C>          <C>
Year Ended December 31, 2001
Revenues .............................    $ 11,845     $  6,241     $  2,728     $  6,526     $ 27,340
Net interest expense .................      (3,983)      (2,763)      (1,930)      (2,025)     (10,701)
Net income (loss) ....................         360       (3,811)      (3,067)        (456)      (6,974)
Basic EPS:
  Earnings (loss) per Class A share(1)        0.01        (0.20)       (0.16)       (0.03)       (0.38)
Diluted EPS:
  Earnings (loss) per Class A share ..        0.01        (0.20)       (0.16)       (0.03)       (0.38)

Year Ended December 31, 2000
Revenues .............................    $ 10,755     $ 20,565     $  9,307     $   (930)    $ 39,697
Net interest expense .................      (2,163)      (3,134)      (4,094)      (2,720)     (12,111)
Net income(loss) .....................    $  1,162     $  7,235     $    359     $ (7,943)    $    813
Basic EPS:
  Earnings(loss) per Class A share(1)     $   0.05     $   0.38     $   0.02     $  (0.42)    $   0.03

Diluted EPS:
  Earnings (loss) per Class A share ..    $   0.05     $   0.38     $   0.02     $  (0.42)    $   0.03
</TABLE>


(1) After deduction of preferred stock dividends of $227 and $234, respectively.



ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

      None




                                       81
<PAGE>
                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

MANAGEMENT

      The following table sets forth certain information regarding Ampal's
directors and executive officers:

<TABLE>
<CAPTION>
NAME                          POSITION
----                          --------
<S>                           <C>

Daniel Steinmetz(1)........   Chairman of the Board of Directors and Director
Raz Steinmetz(1)...........   President and Chief Executive Officer and Director
Shlomo Meichor.............   Vice President-Finance and Treasurer
Alla Kanter................   Vice President-Accounting and Controller
Niv Galanti................   Vice President-Legal and Secretary
Giora Bar-Nir..............   Controller
Michael Arnon(2)(3)(4).....   Director
Benzion Benbassat..........   Director
Jack Bigio.................   Director
Yaacov Elinav..............   Director
Kenneth L. Henderson(3)....   Director
Leo Malamud................   Director
Hillel Peled(1)(2)(3)(4)...   Director
Avi A. Vigder..............   Director
Eliyahu Wagner(2)(4)(5)....   Director
</TABLE>

----------

      The numbers listed below, which follow the names of some of the foregoing
directors, designate committee membership:

      (1) Member of the Executive Committee of the Board which meets as
          necessary between regularly scheduled Board meetings and, consistent
          with certain statutory limitations, exercises all the authority of the
          Board. Mr. D. Steinmetz is the Chairman of the Executive Committee.

      (2) Member of the Audit Committee of the Board which reviews functions of
          the outside auditors, auditors' fees and related matters. Mr. Arnon is
          the Chairman of the Audit Committee.

      (3) Member of the Related Party Transactions Committee of the Board which
          reviews and passes upon the fairness of business transactions between
          Ampal and related parties. Mr. Peled is the Chairman of the Related
          Party Transactions Committee.

      (4) Member of the Stock Option Committee of the Board which administers
          Ampal's 1998 Stock Option Plan and other grants of options. For a
          description of Ampal's 1998 Stock Option Plan, see "Executive
          Compensation - Stock Option Plan." Mr. Wagner is the Chairman of the
          Stock Option Committee.

      (5) Member of the Special Committee of the Board, appointed to oversee the
          sale of the controlling stockholder's interest in the Company.

      In 2001, the Board of Directors met five times and did not act by written
consent; the Executive Committee met twice and did not act by written consent;
the Audit Committee met three times and did not act by written consent; the
Related Party Transactions Committee did not meet; and the Stock Option
Committee met twice and did not act by written consent. Ampal does not have a
nominating committee or compensation committee. All directors attended more than
75% of the aggregate of (1) the total number of Board of Directors meetings held
during the period in 2001 for which such individual was a director and (2) the
total number of meetings held by all committees of the Board on which such
individual served in 2001 (during the period of such service).



                                       82
<PAGE>
      The following sets forth the ages of all of the above-mentioned directors
and officers, all positions and offices with Ampal or its subsidiaries held by
each director and officer and principal occupations during the last five years.

      DANIEL STEINMETZ, 63, has managed family diamond trading businesses in
Israel for more than the past five years. Mr. Steinmetz is the father of Raz
Steinmetz.

      RAZ STEINMETZ, 38, has managed various investments for his family,
including real estate, financial investments and others, since September 1994.
From September 1993 through September 1994, he worked as a trainee at Republic
National Bank of New York. From September 1991 through July 1993, he attended
the University of Pennsylvania, Wharton Business School, where he received a
Masters Degree in Business Administration. He served as a director of Ampal and
has been the Chairman of the Executive Committee since December 1996. On June
29, 1999, Mr. Steinmetz was elected Chief Executive Officer and President. Mr.
Steinmetz is the son of Daniel Steinmetz.

      SHLOMO MEICHOR, 44, assumed the duties of Vice President-Finance and
Treasurer of Ampal on April 1, 1998. For more than five years prior to April 1,
1998, Mr. Meichor was the Finance and Operations Manager of Digital
Semi-Conductors Israel, a semi-conductor subsidiary of Digital Equipment
Corporation.

      ALLA KANTER, 44, has been Vice President-Accounting of Ampal since
September 1995 and Controller of Ampal since August 1990.

      NIV GALANTI, 39, has been Vice President - Legal and Secretary of Ampal
since April 2001. From May 1995 until May 1997, he was the assistant CEO of the
Zeevi Group, an investment group with investments in the real estate,
telecommunication, leisure and other industries. From May 1997 until March of
2001 he was VP Legal Affairs of the Zeevi Group.

      GIORA BAR-NIR, 45, has been the controller of Ampal since March 2002.
Between 1990 and March 2002, Mr. Bar-Niv was the controller of the Israeli
subsidiaries of Ampal.

      MICHAEL ARNON, 77, was Chairman of the Board of Directors of Ampal from
November 1990 to July 1994. From July 1986 until November 1990, he was President
and Chief Executive Officer of Ampal. He became a director of Ampal in 1986.

      BENZION BENBASSAT, 64, has been the President and Chief Executive Officer
of D.R.B. Investments Ltd., an investment company, controlled by Daniel
Steinmetz and Raz Steinmetz, directors of Ampal and the controlling persons of
Ampal's shareholder, for more than the past five years. He became a director of
Ampal in 1997.

      JACK BIGIO, 36, has been Senior Vice President, Operations & Finance of
Merhav Mnf Ltd. since 1998. From 1995 to 1998, he served as Vice President
Operations of Merhav. Merhav invests in and develops projects in the energy,
telecommunication and infrastructure sectors. Mr. Bigio serves as a director of
Eltek Ltd. (The Nasdaq SmallCap Market: ELTK), a developer and manufacturer of
printed circuit boards. He became a director of Ampal in March 2002.

      YAACOV ELINAV, 57, has been a Senior Deputy Managing Director of Hapoalim
since August 1992. From October 1991 to August 1992, he was a Deputy Managing
Director of Hapoalim. From October 1988 to October 1991, he was head of the
Corporate Division of Hapoalim. He became a director of Ampal in 1992.

      KENNETH L. HENDERSON, 46, is an attorney and has been a partner at
Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson") since 1987.
Robinson provided legal services to Ampal during 2001. He became a director of
Ampal in 1997.



                                       83
<PAGE>
      LEO MALAMUD, 50, has been Senior Vice President of Merhav Mnf Ltd. since
1996. Merhav invests in and develops projects in the energy, telecommunication
and infrastructure sectors. Mr. Malamud serves as a director of Eltek Ltd. (The
Nasdaq SmallCap Market: ELTK), a developer and manufacturer of printed circuit
boards. He became a director of Ampal in March 2002.

      HILLEL PELED, 54, has been President of Inveco International, Inc., a
private investment company, since January 1990. From January 1982 to June 1986,
he served as Vice President-Finance and Treasurer of Ampal. He became a director
of Ampal in June 1996.

      AVI A. VIGDER, 41, has been the CEO of Cavalo Capital, Inc. since 2000,
and a Senior Vice President and Chief Financial Officer of R. Steinmetz (U.S.)
Ltd. since November 1998. From June 1997 until October 1998, he was head of
Investment Banking at Israel Discount Bank. From January 1994 until December
1996, he was Managing Director of Foreign Trusts Ltd. He became a director of
Ampal in 1999.

      ELIYAHU WAGNER, 61, has been a private real estate developer for more than
the past five years. He became a director of Ampal in 1999.

      Pursuant to the Rebar-Noy Agreement, Rebar caused the Company to increase
the size of its board of directors by two persons and caused Jack Bigio and Leo
Malamud to be nominated and designated as members of the board of directors of
the Company to fill such vacancies. In addition, the agreement provides that at
the written request of Noy (to be given no later than 20 calendar days prior to
the closing of the agreement), Rebar shall use its best efforts to cause the
directors indicated by Noy to resign from the board of the Company and if
requested by Noy, cause those persons as may be designated in good faith by Noy
to be nominated and designated as members of the board of the Company on or
immediately prior to the closing date of the agreement. Noy has reported to the
Securities and Exchange Commission that, at the Company's next shareholders'
meeting, it intends to replace all of the existing directors of the Company with
directors to be designated by Noy.

             SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

      Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
Ampal's officers and directors, and persons who own more than 10% of a
registered class of Ampal's equity securities, to file reports of ownership and
changes in ownership with the SEC and the NASDAQ. These persons are required by
regulation of the SEC to furnish Ampal with copies of all Section 16(a) forms
they file.

      Based solely on its review of the copies of forms received by it and
written representations received by it, Ampal believes that during 2001 Ampal's
officers, directors and greater than 10% beneficial owners complied with all
applicable Section 16(a) filing requirements.


ITEM 11. EXECUTIVE COMPENSATION

                           SUMMARY COMPENSATION TABLE

      The table below presents information regarding remuneration paid or
accrued for services to Ampal and its subsidiaries by the executive officers
named below during the three fiscal years ended December 31, 2001, 2000 and
1999.

<TABLE>
<CAPTION>
                                                             ANNUAL COMPENSATION
                                                          ---------------------------
 NAME AND PRINCIPAL                                          OTHER         LONG-TERM         ALL
     POSITION                 YEAR    SALARY     BONUS       ANNUAL      COMPENSATION       OTHER
     --------                 ----    ------     -----    COMPENSATION      AWARDS       COMPENSATION
                                                          ------------    NUMBER OF      ------------
                                                                          SECURITIES
                                                                          UNDERLYING
                                                                          OPTIONS(14)
                                                                         ------------
<S>                           <C>    <C>        <C>       <C>            <C>             <C>
Raz Steinmetz(1)              2001   $318,344   $98,459    $ 24,859(2)     30,000        $ 74,997(3)
 (Chief Executive Officer     2000    175,369    49,822    $ 20,555(2)    655,000          51,644(4)
 and President)               1999    176,123                10,097(2)     30,000          41,085(5)

Shlomo Meichor(6)             2001    169,567    53,578      15,205(2)     24,000          51,110(7)
 (Vice President-Finance      2000    156,150    44,056      14,849(2)    374,000          46,281(8)
 and Treasurer)               1999    180,317                 7,701(2)     24,000          37,609(9)

Alla Kanter(10)               2001    133,538    11,105                    15,000          18,138(11)
 (Vice President-Accounting   2000    126,036    10,476                    15,000          17,007(12)
 and Controller)              1999    116,300     9,700                     15,000         15,598(13)
</TABLE>



                                       84
<PAGE>
----------
(1)   Mr. Steinmetz has been employed by Ampal since January 1, 1997, and was
      appointed C.E.O. and President effective July 1, 1999. Pursuant to an
      employment agreement dated January 1, 1997, Mr. Steinmetz is entitled to
      receive a base salary of $250,000 (payable in NIS) per annum (plus
      benefits). His agreement can be terminated by either party upon 30 day
      notice.

(2)   Consists of amounts reimbursed for the payment of taxes.

(3)   Comprised of Ampal (Israel)'s contribution pursuant to: (i) Ampal
      (Israel)'s Pension Plan of $32,323, (ii) Ampal (Israel)'s education fund
      of $17,816 and (iii) use of a car of $24,858.

(4)   Comprised of Ampal (Israel)'s contribution pursuant to: (i) Ampal
      (Israel)'s Pension Plan of $ 27,967 and (ii) Ampal (Israel)'s education
      fund of $13,250 and (iii) use of a car of $10,427.

(5)   Comprised of Ampal (Israel)'s contribution to: (i) Ampal (Israel)'s
      Pension Plan of $27,877 and (ii) Ampal (Israel)'s education fund of
      $13,208.

(6)   Mr. Meichor has been employed by Ampal since March 1, 1998, and was
      appointed Vice President-Finance and Treasurer of Ampal, effective April
      1, 1998. Pursuant to an employment agreement, dated March 5, 1998, Mr.
      Meichor receives a base salary of $164,000 per annum, adjusted annually in
      accordance with the United States consumer price index (payable in NIS)
      plus benefits and use of a car. His agreement can be terminated upon two
      months' notice and after the two months' notice period expires Mr. Meichor
      is entitled to receive his salary for an additional six months. In the
      event of a change of control of the Company, Mr. Meichor is entitled to
      resign and to receive his salary for an additional six months.

(7)   Comprised of Ampal (Israel)'s contribution pursuant to: (i) Ampal
      (Israel)'s Pension Plan of $22,893, (ii) Ampal (Israel)'s education fund
      of $12,247 and (iii) use of a car of $15,970.

(8)   Comprised of Ampal (Israel)'s contribution pursuant to: (i) Ampal
      (Israel)'s Pension Plan of $28,308; (ii) Ampal (Israel)'s education fund
      of $11,809 and (iii) use of a car of $6,163.

(9)   Comprised of Ampal (Israel)'s contribution pursuant to: (i) Ampal
      (Israel)'s Pension Plan of $19,323; (ii) Ampal (Israel)'s education fund
      of $10,818, and (iii) use of a car of $3,958.

(10)  Ms. Kanter has been Vice President-Accounting of Ampal since September
      1995 and Controller of Ampal since August 1990.

(11)  Comprised of Ampal's contribution pursuant to: (i) Ampal's Pension Plan of
      $13,965 and (ii) Ampal's Savings Plan of $4,173.

(12)  Comprised of Ampal's contribution pursuant to: (i) Ampal's Pension Plan of
      $12,927 and (ii) Ampal's Savings Plan of $4,080.

(13)  Comprised of Ampal's contribution pursuant to: (i) Ampal's Pension Plan of
      $11,827 and (ii) Ampal's Savings Plan of $3,771.

(14)  Represents the number of shares of Class A Stock underlying options
      granted to the named executive officers.

                          FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                       NUMBER OF SECURITIES
                             SHARES                    UNDERLYING UNEXERCISED
                          ACQUIRED ON    VALUE     OPTIONS AT FISCAL YEAR-END(1)
                            EXERCISE    REALIZED   -----------------------------
NAME                          (#)         ($)       EXERCISABLE   UNEXERCISABLE
----                          ---         ---       -----------   -------------
<S>                       <C>           <C>        <C>            <C>

Raz Steinmetz..........                               200,000        515,000
Shlomo Meichor.........      2,000      $44,800       128,000        292,000
Alla Kanter............                                37,500          7,500
</TABLE>

----------
(1) This table represents the total number of shares of Class A Stock subject
    to stock options held by each of the named executive officers at December
    31, 2001. None of the outstanding options are in-the-money.


                                       85
<PAGE>
                        OPTION GRANTS IN LAST FISCAL YEAR

      The following table sets forth certain information regarding stock options
granted to purchase our Class A Stock to our named executive officers during
fiscal year 2001:

ANNUAL COMPENSATION

<TABLE>
<CAPTION>
                          NUMBER OF     % OF TOTAL                                           POTENTIAL REALIZABLE VALUE AT
                          SECURITIES      OPTIONS                  MARKET                 ASSUMED ANNUAL RATES OF STOCK PRICE
                          UNDERLYING    GRANTED TO    EXERCISE    PRICE ON                   APPRECIATION FOR OPTION TERM
                 OPTION    OPTION      EMPLOYEES IN   PRICE PER    DATE OF   EXPIRATION   -----------------------------------
     NAME         PLAN     GRANTED      FISCAL YEAR     SHARE       GRANT       DATE         0%         5%            10%
     ----         ----     -------      -----------     -----       -----       ----        ---        ---            ---
<S>              <C>      <C>          <C>            <C>         <C>        <C>          <C>      <C>            <C>
Raz Steinmetz     1998      30,000          15%         $5.94       $5.94     12-15-06       0     $ 49,233.00    $108,793.00

Shlomo Meichor    1998      24,000          12%         $5.94       $5.94     12-15-06       0     $ 39,387.00    $ 87,034.00

Alla Kanter       1998      15,000          7.5%        $5.94       $5.94     12-15-06       0     $ 24,617.00    $ 54,396.00
</TABLE>


OTHER BENEFITS

      Ampal maintains a money purchase pension plan ("Pension Plan") for its
eligible employees. Eligible employees are all full-time employees of Ampal
except non-resident aliens, night-shift employees and employees represented by a
collective bargaining unit. Ampal's contribution is equal to 7% of each
employee's compensation plus 5.7% of the compensation in excess of the Social
Security taxable wage base for that year.

      Employees become vested in amounts contributed by Ampal depending on the
number of years of service, as provided in the following table:

<TABLE>
<CAPTION>
YEARS OF SERVICE                                                  VESTED
----------------                                               PERCENTAGE
                                                               ----------
<S>                                                            <C>
less than 2 years...........................................        0%
2 but less than 3 years.....................................       20%
3 but less than 4 years.....................................       40%
4 but less than 5 years.....................................       60%
5 but less than 6 years.....................................       80%
6 or more years.............................................      100%
</TABLE>

      Benefits under the Pension Plan are paid in a lump sum, in an annuity form
or in installments.

      Ampal maintains a savings plan (the "Savings Plan") for its eligible
employees pursuant to Section 401(k) of the Internal Revenue Code of 1986, as
amended (the "Code"). Eligible employees are all employees of Ampal except
non-resident aliens, night-shift employees and employees represented by a
collective bargaining unit. Participation by employees in the Savings Plan is
voluntary. Participating employees may direct that a specific percentage of
their annual compensation (up to 15%) be contributed to a self-directed 401(k)
savings account. The amount which any employee could contribute to his or her
401(k)savings account in 2000 was limited under the Code to $10,500. Effective
January 1, 1996, the Savings Plan was amended so that Ampal matches 50% of each
employee's contribution up to a maximum of 3% of the employee's compensation.
Employees who were eligible to participate in the Savings Plan as of December
31, 1995, are 100% vested at all times in the account balances maintained in
their 401(k) savings account. Employees who became eligible to participate in
the Savings Plan on or


                                       86
<PAGE>
after January 1, 1996, become vested in amounts contributed by Ampal depending
on the number of years of service, as provided in the following table:

<TABLE>
<CAPTION>
YEARS OF SERVICE                                                  VESTED
----------------                                               PERCENTAGE
                                                               ----------
<S>                                                            <C>
less than 2 years...........................................        0%
2 but less than 3 years.....................................       20%
3 but less than 4 years.....................................       40%
4 but less than 5 years.....................................       60%
5 but less than 6 years.....................................       80%
6 or more years.............................................      100%
</TABLE>

      Benefits under the Savings Plan are required to be paid in a single,
lump-sum distribution. Payment is usually made after termination of employment.

      In 1994, Ampal established a Supplementary Executive Retirement Plan
("SERP") for its eligible employees. Ampal's obligation under the SERP is to pay
to affected employees the amount that would have been paid to them by the
Pension Plan but for the operation of Section 401(a)(17) of the Code.

COMPENSATION OF DIRECTORS

      Directors of Ampal (other than Mr. R. Steinmetz) receive $500 per Board
meeting attended. The Chairman of the Board receives $2,000. Such persons also
receive the same amount for attendance at meetings of committees of the Board,
provided that such committee meetings are on separate days and on a day other
than the day of a regularly scheduled Board meeting. In December 1999 , December
2000 and December 2001, directors were each granted options to purchase 5,000
shares of the Company's Class A Stock. On each of those dates, Mr. Daniel
Steinmetz, Chairman of the Board, received options to purchase 10,000 shares of
the Company's Class A Stock.

STOCK OPTION PLAN

      In March 1998, the Board approved a Long-term Incentive Plan (the "1998
Plan") permitting the granting of options to all employees, officers, directors
and consultants of the Company and its subsidiaries to purchase up to an
aggregate of 400,000 shares of Class A Stock. The 1998 Plan remains in effect
for a period of ten years.

      On February 15, 2000, the Stock Option Plan Committee approved a new
incentive plan, the 2000 Incentive Plan (the "2000 Plan") under which the
Company has reserved 4 million shares of Class A Stock for grants to present and
future employees. The 2000 Plan was approved by the Board of Directors at a
Meeting held on March 27, 2000 and was approved by a majority of the Company's
shareholders at the June 29, 2000 annual meeting of shareholders.

      The options granted under the 1998 Plan and the 2000 Plan (together with
the 1998 Plan, the "Plans") may be either incentive stock options, at exercise
prices to be determined by the Committee, but not less than 100% of the fair
market value of the underlying shares on the date of grant, or non-incentive
stock options, at exercise prices to be determined by the Committee. Under each
of the Plans, the Committee may also grant, at its discretion, "restricted
stock", "dividend equivalent awards", which entitle the recipients to receive
dividends in the form of Class A Stock, cash or a combination of both, and
"stock appreciation rights," which permit the recipients to receive an amount in
the form of Class A Stock, cash or a combination of both, equal to the number of
shares of Class A Stock with respect to which the rights are exercised
multiplied by the excess of the fair market value of the Class A Stock on


                                       87
<PAGE>
the exercise date over the exercise price.

      Under each of the Plans, all granted but unvested options become
immediately exercisable upon the occurrence of a change of control of the
Company. Accordingly, upon the closing of the sale of all of Rebar's shares in
the Company to M.Y Noy Ltd., a company organized by Yosef Maiman, as described
in "Item 12. Security Ownership of Certain Beneficial Owners and Management"
below, all granted but unvested options will become exercisable. Please see
"Item 12. Security Ownership of Certain Beneficial Owners and Management" for
additional information regarding the effect of the proposed stock sale on some
outstanding options.


           COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

      During 2001, members of the Executive Committee of the Board of Directors
which functions as the compensation committee of Ampal included: Mr. Daniel
Steinmetz (Chairman) and Chairman of the Board of Directors of the Company; Mr.
Hillel Peled; President of Inveco International Inc., and Mr. Raz Steinmetz;
Chief Executive Officer and President of the Company.


ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSHIP AND MANAGEMENT

                         PRINCIPAL SHAREHOLDERS OF AMPAL

      The following table sets forth information as of March 8, 2002, as to the
holders known to Ampal who beneficially own more than 5% of the Class A Stock,
the only outstanding series of voting securities of Ampal. For purposes of
computation of the percentage ownership of Class A Stock set forth in the table,
conversion of any 4% Cumulative Convertible Preferred Stock (the "4% Preferred
Stock") and 6 1/2% Cumulative Convertible Preferred Stock (the "6 1/2% Preferred
Stock") owned by such beneficial owner has been assumed, without increasing the
number of shares of Class A Stock outstanding by amounts arising from possible
conversions of convertible securities held by shareholders other than such
beneficial owner. As at March 8, 2002, there were outstanding 19,287,860 (not
including treasury shares) shares of Class A Stock of Ampal. In addition, there
were outstanding 593,291 non-voting shares of 6 1/2% Preferred Stock (each
convertible into 3 shares of Class A Stock) and 141,271 non-voting shares of 4%
Preferred Stock (each convertible into 5 shares of Class A Stock).

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

<TABLE>
<CAPTION>
                                              NUMBER OF SHARES     PERCENT OF
                                                AND NATURE         OUTSTANDING
NAME AND ADDRESS                               OF BENEFICIAL        SHARES OF
OF BENEFICIAL OWNER         TITLE OF CLASS       OWNERSHIP        CLASS A STOCK
-------------------         --------------       ---------        -------------
<S>                         <C>              <C>                  <C>
Daniel Steinmetz........    Class A Stock    11,115,112 shs.(1)       57.6%
Rebar Financial Corp.
c/o Icaza, Gonzalez-Ruiz
& Aleman (BVI) Ltd.
Wickhams Cay, Road Town,
Tortola, British
Virgin Islands

Raz Steinmetz...........    Class A Stock    11,115,112 shs.(1)       57.6%
Rebar Financial Corp.
c/o Icaza, Gonzalez-Ruiz
& Aleman (BVI) Ltd.
Wickhams Cay, Road Town,
Tortola, British
Virgin Islands
</TABLE>


                                       88
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS -- CONTINUED

<TABLE>
<CAPTION>
                                              NUMBER OF SHARES     PERCENT OF
                                                AND NATURE         OUTSTANDING
NAME AND ADDRESS                               OF BENEFICIAL        SHARES OF
OF BENEFICIAL OWNER         TITLE OF CLASS       OWNERSHIP        CLASS A STOCK
-------------------         --------------       ---------        -------------
<S>                         <C>              <C>                  <C>
Rebar Financial Corp....    Class A Stock    11,115,112 shs.(1)       57.6%
c/o Icaza, Gonzalez-Ruiz
& Aleman (BVI) Ltd.
Wickhams Cay, Road Town,
Tortola, British
Virgin Islands
</TABLE>

----------

(1) Consists of 11,115,112 shares of Class A Stock held directly by Rebar, as
    reported by Mr. Daniel Steinmetz, Mr. Raz Steinmetz and Rebar on Amendment
    11 to Form 13D, dated September 12, 1999, filed with the SEC. Mr. Raz
    Steinmetz is the President of Rebar and Mr. Daniel Steinmetz is the Vice
    President. They are the sole directors of Rebar and beneficially own,
    directly and indirectly, 96% and 4% of the outstanding equity of Rebar,
    respectively. Certain of the shares of Class A Stock held by Rebar have been
    pledged to The First International Bank of Israel Ltd.

SECURITY OWNERSHIP OF MANAGEMENT

      The following table sets forth information as of March 11, 2002, as to
      each class of equity securities of Ampal or any of its subsidiaries
      beneficially owned by each director and named executive officer of Ampal
      listed in the Summary Compensation Table and by all directors and named
      executive officers of Ampal as a group. All ownership is direct unless
      otherwise noted. The table does not include directors or named executive
      officers who do not own any such shares:


<TABLE>
<CAPTION>
                                NUMBER OF SHARES AND NATURE    PERCENT OF OUTSTANDING
                                  OF BENEFICIAL OWNERSHIP             SHARES OF
NAME                                 OF CLASS A STOCK               CLASS A STOCK
----                                 ----------------               -------------
<S>                             <C>                            <C>

Daniel Steinmetz...........             11,145,112(1)                    57.8%
Raz Steinmetz..............             11,440,112(1)                    59.3%
Shlomo Meichor.............                198,000(2)                     *
Alla Kanter................                 37,500(2)                     *

Benzion Benbassat..........                 15,000(2)                     *
Michael Arnon..............                 15,000(2)                     *
Yaacov Elinav..............                 15,000(2)                     *
Kenneth Henderson..........                 15,000(2)                     *
Hillel Peled...............                 15,000(2)                     *
Avi Vigder.................                 15,000(2)                     *
Eliyahu Wagner.............                 15,000(2)                     *
All Directors and Executive
 Officers as a Group.......             11,811,612                       61.2%
</TABLE>

----------
 *  Represents less than 1% of the class of securities.

(1) In each case attributable to 11,115,112 shares of Class A Stock held
    directly by Rebar. See "Security Ownership of Certain Beneficial Owners." In
    addition, this represents 30,000 shares underlying options for Daniel
    Steinmetz and 325,000 shares underlying options for Raz Steinmetz, which in
    each case, are presently exercisable.

(2) Represents shares underlying options which are presently exercisable.


                                       89
<PAGE>
      On February 26, 2002, Rebar signed a definitive agreement to sell all of
its stock in the Company to Y.M. Noy Investments Ltd., a company organized by
Yosef Maiman ("Noy") for an aggregate purchase price of approximately $82.9
million. Closing of this sale is subject to the approval of the Israeli
Ministry of Communication and the Israeli Antitrust Commissioner.

     In connection with the closing of this proposed sale, all options
outstanding under the Company's stock option plans will become immediately
exercisable. However, shares issued upon exercise of approximately 300,000 of
these options may be sold to Noy at the same price per share as the shares to be
sold by Rebar.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      The Board of Directors of Ampal maintains a Related Party Transactions
Committee comprised of independent directors which reviews and passes upon the
fairness of any business dealings and arrangements (other than borrowings on
then prevailing market terms or deposits made in the ordinary course of
business) between Ampal and any affiliated party. With certain exceptions, Ampal
may not enter into transactions with any officer, director or principal
shareholder of Ampal, without first obtaining the approval of the Related Party
Transactions Committee or a majority of the disinterested members of the Board
of Directors or the shareholders.

      The management of Ampal believes that all of the following transactions
were done on terms which were no less advantageous to Ampal than could have been
obtained from unaffiliated third parties.

      In March 1998, the Company transferred its interest in MIRS to a limited
partnership (the "Partnership"). A wholly-owned Israeli subsidiary of Ampal (the
"General Partner") is the general partner of the Partnership and owns 75.1% of
the Partnership. The limited partners of the Partnership purchased their
interests in the Partnership from the Partnership and include (i) an entity
owned by Daniel Steinmetz and Raz Steinmetz (directors of Ampal and the
controlling persons of Ampal's principal shareholder), and (ii) an unrelated
third party. The related parties purchased their limited partnership interests
on the same terms as the unrelated third party. These terms were negotiated on
an arm's length basis between the Company and the unrelated third party.

      On December 2000 the Company invested $ 1.1 million in Amethyst Ventures
("Ametyset") which was formerly known as Ampal Cavallo Intervest Fund, for a 20%
equity interest in Amethyst. Among other investors in Amethyst was Cavallo
Capital Inc. ("Cavallo"), which held a 29% equity interest. During 2001, the
Company received $0.4 million from Amethyst as management fees and reimbursed
Cavallo for $0.1 million of expenses. Avi Vigder, a member of Ampal's board of
directors, is the chief executive officer of Cavallo.

      Ampal currently subleases an office at 660 Madison Avenue in New York City
from Cavallo. The sublease is terminable at will. Under the sublease, Ampal is
entitled to full office services. The annual rent for this sublease is $50,000.



                                       90
<PAGE>
                                     PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

  (a) The following documents are filed as a part of this report:

<TABLE>
<CAPTION>
                                                                      PAGE
                                                                    REFERENCE
                                                                    ---------
<S>                                                                 <C>
    (1) Financial Statements and Supplementary Data

        Ampal-American Israel Corporation and Subsidiaries
           Report of Independent Public Accountants............
           Consolidated Statements of Income for the years
             ended December 31, 2001, 2000 and 1999............
           Consolidated Balance Sheets as at December 31,
             2001 and 2000.....................................
           Consolidated Statements of Cash Flows for the
             years ended December 31, 2001, 2000 and 1999......
           Consolidated Statements of Changes in Shareholders'
             Equity for the years ended December 31, 2001,
             2000 and 1999.....................................
           Consolidated Statements of Comprehensive Income
             for the years ended December 31, 2001, 2000
             and 1999..........................................
           Notes to Consolidated Financial Statements..........
        Suplementary Data:
           Selected quarterly financial data for the years
             ended December 31, 2001 and 2000..................
    (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, 2001
             (ii) Consolidated financial statements filed
                  pursuant to Rule 3-09 of Regulation S-X

        Granite Hacarmel Investments Limited and Subsidiaries
           Report of Certified Public Accountants .............
           Consolidated Balance Sheets as at December 31,
             2001 and 2000.....................................
           Consolidated Statements of Income for the years
             ended December 31, 2001, 2000 and 1999
           Consolidated Statements of Shareholders' Equity
             for the years ended December 31, 2001, 2000
             and 1999..........................................
           Consolidated Statements of Cash Flows for the
             years ended December 31, 2001, 2000 and 1999......
           Notes to Consolidated Financial Statements..........

        OphirTech Ltd.
           Report of Certified Public Accountants                        *
           Consolidated Balance Sheets as at December 31,
             2001 and 2000.....................................
           Consolidated Statements of Income for the years
             ended December 31, 2001, 2000 and.................
           Consolidated Statements of Changes in
             Shareholders' Equity for the years ended
             December 31, 2001, 2000 and.......................
</TABLE>


                                       91
<PAGE>
<TABLE>
<CAPTION>
                                                                      PAGE
                                                                    REFERENCE
                                                                    ---------
<S>                                                                 <C>
           Consolidated Statements of Cash Flows for the
             years ended December 31, 2001, 2000 and...........
           Notes to Consolidated Financial Statements..........

         Trinet Venture Capital Ltd.
           Report of Certified Public Accountants .............
           Consolidated Balance Sheets as at December 31,
             2001 and 2000.....................................
           Consolidated Statements of Income for the years
             ended December 31, 2001, 2000 and 1999............
           Consolidated Statements of Shareholders' Equity
             for the years ended December 31, 2001, 2000
             and 1999..........................................
           Consolidated Statements of Cash Flows for the years
             ended December 31, 2001, 2000 and 1999
           Notes to Consolidated Financial Statements

             (iii) Reports of Other Certified Public
                   Accountants filed pursuant to Rule 2-05 of
                   Regulation S-X:
                     AM-HAL Ltd................................
                     Ampal Industries (Israel) Ltd.............
                     Bay Heart Ltd. ...........................
                     Carmel Container Systems Ltd. ............
                     Coral World International Limited.........
                     Country Club Kfar Saba Limited............
                     Epsilon Investment House Ltd..............
                     Hod Hasharon Sport Center Ltd.............
                     Hod Hasharon Sport Center (1992) Limited
                       Partnership.............................
                     Ophir Holdings Ltd........................
                     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........

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.)
</TABLE>



                                       92
<PAGE>
<TABLE>
<CAPTION>
                                                                      PAGE
                                                                    REFERENCE
                                                                    ---------
<S>                                                                 <C>
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

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.  Declaration Establishing a Plan for Condominium Ownership
      of Premises 800 Second Avenue, New York, New York, dated
      December 12, 1996. (Filed as Exhibit A to Exhibit 10m to
      Form 10-K for the fiscal year ended December 31, 1997,
      and incorporated herein by reference File No. 0-538)

10d.  Agreement dated September 9, 1997, between Ampal
      Industries (Israel) Limited and Raz Steinmetz. (Filed as
      Exhibit 10 to Report on Form 10-Q for the quarter ended
      September 30, 1997. File No. 0-538).

10e.  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).

10f.  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).
</TABLE>


                                       93
<PAGE>
<TABLE>
<CAPTION>
                                                                      PAGE
                                                                    REFERENCE
                                                                    ---------
<S>                                                                 <C>
EXHIBIT 10 - MATERIAL CONTRACTS - CONTINUED

10g.  Amendment No. 1, dated June 16, 1998, to a letter
      agreement, dated September 9, 1997, between Ampal
      Industries (Israel) Limited and Raz Steinmetz (Filed as
      Exhibit 10.3 to Report on Form 10-Q for the quarter ended
      June 30, 1998. File No. 0-538).

10h.  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, 2000. File No. 000 - 00538)

</TABLE>




                                       94
<PAGE>
<TABLE>
<S>                                                                  <C>
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE

EXHIBIT 12 - STATEMENT RE COMPUTATION OF RATIOS

EXHIBIT 23 - CONSENTS OF AUDITORS:

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

    (b)   No reports on Form 8-K were filed during 2001.

    Page reference proceeded by the letter "E" refer to the separately bound
volumes of exhibits.


EXHIBIT 99.1 - Letter to Commission pursuant to temporary note 3T.



                                       95
<PAGE>
                        REPRESENTATIVE RATES OF EXCHANGE
               BETWEEN THE U.S. DOLLAR AND THE NEW ISRAELI SHEKEL
                   FOR THE THREE YEARS ENDED DECEMBER 31, 2001

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

<TABLE>
<CAPTION>
                                 2001       2000       1999
                                 ----       ----       ----
<S>                             <C>        <C>        <C>
March 31.....................   4.192      4.026      4.034
June 30......................   4.165      4.084      4.076
September 30.................   4.355      4.024      4.276
December 31..................   4.416      4.041      4.153
</TABLE>







                                       96
<PAGE>

INDEPENDENT AUDITORS' REPORT TO 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, 2001
and 2000, and the related consolidated statements of income, shareholders'
equity and cash flows for each of the three years in the period ended December
31, 2001. 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 subsidiaries, whose assets
constitute 1.7% and 2% of the total consolidated assets as of December 31, 2001
and 2000 respectively, and whose revenues constitute 3.2%, 3.4% and 5.5% of the
total consolidated revenues for the years ended December 31, 2001, 2000 and
1999, respectively. The financial statements of those subsidiaries were audited
by other auditors whose report thereon was furnished to us. Our opinion, insofar
as it relates to amounts emanating from the financial statements of such
subsidiaries, is based solely on the said report of the other auditors.
Furthermore, the data included in the financial statements relating to the net
asset value of the Company's investments in affiliates and to its equity in
their operating results is based on the financial statements of such affiliates,
some of which were audited by 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 auditing standards generally accepted in 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 and the reports of
other auditors provide a reasonable basis for our opinion.
<PAGE>
In our opinion, based upon our audits and the reports of the above mentioned
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, 2001 and 2000, and the consolidated results of their
operations, changes in the shareholders' equity and their cash flows for each of
the three years, the last of which ended December 31, 2001 in conformity with
generally accepted accounting principles in Israel. Furthermore, these
statements have, in our opinion, been prepared in accordance with the Securities
Regulation (Preparation of Annual Financial Statements) 1993.

Accounting principles generally accepted in Israel vary in certain significant
respects from accounting principles generally accepted in the United States.
Application of accounting principles generally accepted in the United States
affected results of operations and shareholders' equity for each of the years in
the three-year period ended December 31, 2001 as included in U.S. Dollars, to
the extent summarized in Note 32 to the consolidated financial statements.

As explained in Note 2, the above mentioned 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.

Without qualifying our opinion, we would like to bring attention to Note 28 in
the financial statements regarding four claims against consolidated companies
which the court has been asked to recognize as class actions and other claims
against a consolidated company claiming that its agreements with its customers
are restrictive trade arrangements and to Note 29 in the financial statements
regarding the fuel market. At this time, it is not possible to estimate the
effect of the above on the fuel market in general and on the Company in
particular.



Somekh Chaikin
Certified Public Accountants (Israel)



Haifa, March 20, 2002
<PAGE>

GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ADJUSTED TO THE INDEX OF DECEMBER 2001

<TABLE>
<CAPTION>
                                                   NOTE        DECEMBER 31,
                                                   ----  ----------------------
                                                           2001         2000
                                                         ---------    ---------
                                                             NIS. (THOUSANDS)
                                                         ----------------------
<S>                                                <C>   <C>          <C>
CURRENT ASSETS

Cash and cash equivalents                           5       34,092       21,057
Marketable securities                                       26,800       13,315
Trade receivables                                   6      876,830      803,563*
Other receivables                                   6       85,074       46,141*
Receivables on account of projects
 in progress                                        6       18,603           --
Inventories                                         7      255,056      295,789*
                                                         ---------    ---------
                                                         1,296,455    1,179,865
                                                         ---------    ---------
NON-CURRENT INVENTORIES                             7      126,200           --
                                                         ---------    ---------
INVESTMENTS, LONG-TERM LOANS AND
 RECEIVABLES

Affiliated companies and others                     8      169,444      153,504
Long-term loans and receivables                     9      122,546      129,428
                                                         ---------    ---------
                                                           291,990      282,932
                                                         ---------    ---------

FIXED ASSETS                                       10

Cost                                                     2,664,623    1,758,608
Less: Accumulated depreciation                           1,490,089      992,800
                                                         ---------    ---------
                                                         1,174,534      765,808
                                                         ---------    ---------
INTANGIBLE ASSETS AND DEFERRED
 CHARGES, NET                                      11      124,246       90,255*
                                                         ---------    ---------
                                                         3,013,425    2,318,860
                                                         =========    =========
</TABLE>

*Reclassified

The accompanying notes are an integral part of the financial statements.


                                                                               1
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

ADJUSTED TO THE INDEX OF DECEMBER 2001

<TABLE>
<CAPTION>
                                                   NOTE        DECEMBER 31,
                                                   ----  ----------------------
                                                           2001         2000
                                                         ---------    ---------
                                                             NIS. (THOUSANDS)
                                                         ----------------------
<S>                                                <C>   <C>          <C>
CURRENT LIABILITIES

Credit from banks and others                       12    1,242,255    1,099,969
Current portion of convertible debentures          15       13,812       12,843
Trade payables                                     13      160,573      130,436
Other payables                                     14      183,432      109,914*
                                                         ---------    ---------
                                                         1,600,072    1,353,162
                                                         ---------    ---------

LONG-TERM LIABILITIES

Long-term loans                                    15      664,924      212,583
Debentures convertible into shares of the
 Company                                           15           --       12,843
Customers' deposits                                16       61,545       59,333
Liabilities for employee rights
 upon retirement, net                              17       30,436       18,310
Capital notes issued by a consolidated
 company                                                       842          218
Deferred taxes                                     26       61,476        2,208*
                                                         ---------    ---------
                                                           819,223      305,495
                                                         ---------    ---------
MINORITY INTEREST                                           12,864        6,480
                                                         ---------    ---------

COLLATERAL, COMMITMENTS AND

  CONTINGENT LIABILITIES                           28

SHAREHOLDERS' EQUITY                                       581,266      653,723
                                                         ---------    ---------
                                                         3,013,425    2,318,860
                                                         =========    =========
</TABLE>

*Reclassified


-----------------------------------------------
Prof. I. Borovich - Chairman of the Board


-----------------------------------------------
R. Steinmetz - Director


-----------------------------------------------
M. Erez - President and Chief Executive Officer

Date:  March 20, 2002

The accompanying notes are an integral part of the financial statements.


                                                                               2
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

ADJUSTED TO THE INDEX OF DECEMBER 2001

<TABLE>
<CAPTION>
                                                                    NOTE             YEAR ENDED DECEMBER 31,
                                                                    ----    ----------------------------------------
                                                                               2001          2000           1999
                                                                            ----------     ----------     ----------
                                                                                        NIS. (THOUSANDS)
                                                                            ----------------------------------------
<S>                                                                 <C>     <C>            <C>            <C>
Sales                                                                        3,860,640     4,105,559*     3,485,263*
Less: Government imposts                                                     1,281,489     1,309,481      1,362,382
                                                                            ----------     ---------      ---------

Net sales                                                             20     2,579,151     2,796,078      2,122,881
Cost of sales                                                         21     1,963,169     2,255,702*     1,551,458*
                                                                            ----------     ---------      ---------

Gross profit                                                                   615,982       540,376        571,423
                                                                            ----------     ---------      ---------

Selling and marketing expenses                                        22       383,603       337,241*       336,519*
General and administrative expenses                                   23        84,456        77,322*        70,816*
                                                                            ----------     ---------      ---------
                                                                               468,059       414,563        407,335
                                                                            ----------     ---------      ---------

Income from operations                                                         147,923       125,813        164,088
                                                                            ----------     ---------      ---------
Financing expenses, net                                               24       (71,811)      (71,794)*      (76,714)*
Other income, net                                                     25         9,403        53,268*         5,477*
                                                                            ----------     ---------      ---------
                                                                               (62,408)      (18,526)       (71,237)
                                                                            ----------     ---------      ---------

Income before taxes on income                                                   85,515       107,287         92,851
Taxes on income                                                       26        36,445        43,572         34,145
                                                                            ----------     ---------      ---------

Income after taxes on income                                                    49,070        63,715         58,706
Company's share in income
 of affiliates, net                                                                  5        10,508          5,072
Minority interest in consolidated
 subsidiaries, net                                                              (1,685)       (2,464)        (2,751)
                                                                            ----------     ---------      ---------

Net income for the year                                                         47,390        71,759         61,027
                                                                            ==========     =========      =========
Earnings  per ordinary share
(in NIS.):                                                            19

Primary                                                                           0.34          0.52           0.44
                                                                            ==========     =========      =========

Fully diluted                                                                     0.34          0.51           0.43
                                                                            ==========     =========      =========
</TABLE>

*Reclassified

The accompanying notes are an integral part of the financial statements.


                                                                               3
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

ADJUSTED TO THE INDEX OF DECEMBER 2001

<TABLE>
<CAPTION>
                                                                       COMPANY'S
                                                                       SHARES HELD BY
                                                                       A CONSOLIDATED    RETAINED
                                          CAPITAL        PREMIUM       COMPANY           EARNINGS         TOTAL
                                         ----------     ----------     --------------   ----------      ----------
                                                                    NIS. (THOUSANDS)
                                         -------------------------------------------------------------------------
<S>                                      <C>            <C>            <C>              <C>             <C>
Balance as at January 1, 1999               257,328        259,450             --           67,961         584,739

CHANGES IN 1999:

Net income for the year                          --             --             --           61,027          61,027
Dividend paid                                    --             --             54          (63,888)        (63,834)
Acquisition of the Company's shares
 by a consolidated company                       --             --           (654)              --            (654)
                                         ----------     ----------     ----------       ----------      ----------

Balance as at December 31, 1999             257,328        259,450           (600)          65,100         581,278

CHANGES IN 2000:

Net income for the year                          --             --             --           71,759          71,759
Conversion of debentures into shares            403          3,132             --               --           3,535
Acquisition of the Company's shares
 by a consolidated company                       --             --         (2,849)              --          (2,849)
                                         ----------     ----------     ----------       ----------      ----------

Balance as at December 31, 2000             257,731        262,582         (3,449)         136,859         653,723

CHANGES IN 2001:

Net income for the year                          --             --             --           47,390          47,390
Dividend paid                                    --             --             --         (119,579)       (119,579)
Acquisition of the company's shares
 by a consolidated company                       --             --           (268)              --            (268)
                                         ----------     ----------     ----------       ----------      ----------

Balance as at December 31, 2001             257,731        262,582         (3,717)          64,670         581,266
                                         ==========     ==========     ==========       ==========      ==========
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                                                               4
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

ADJUSTED TO THE INDEX OF DECEMBER 2001

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                        ------------------------------------
                                                          2001          2000          1999
                                                        --------      --------      --------
                                                                  NIS. (THOUSANDS)
                                                        ------------------------------------
<S>                                                     <C>           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES

Net income                                                47,390        71,759        61,027
Adjustments to reconcile net income to operating
 cash flows (A):                                         118,053       (20,184)      (47,125)
                                                        --------      --------      --------

Net cash provided by  operating activities               165,443        51,575        13,902
                                                        --------      --------      --------

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of fixed assets                              (95,322)     (104,289)     (121,757)
Proceeds from sale of fixed assets                         4,541        14,876        16,390
Proceeds from the sale of investments in affiliated
 companies                                                    --        58,618            --
Dividend received from affiliated companies
 from prior years' income                                     --           418           995
Investment in long-term loans                             (9,341)      (11,392)      (19,322)
Collection of long-term loans                             21,243        16,312        25,909
Investment in intangible and deferred charges            (35,402)      (21,799)      (12,362)
Acquisition of shares of an affiliated company           (10,527)       (1,993)          (21)
Proceeds from (Investments in)
 marketable securities, net                                  873         2,404          (225)
Investment in companies carried on the cost basis             --        (1,607)       (3,020)
Acquisition of shares in a consolidated company          (68,475)       (1,067)      (10,406)
Realization of investment in capital notes                    --         8,104           992
Acquisition of initially consolidated
 companies (B)                                          (408,400)          (14)       (4,286)
Proceeds from the sale of a previously consolidated
 company (C)                                                  (5)        5,884            --
                                                        --------      --------      --------

Net cash used for investing activities                  (600,815)      (35,545)     (127,113)
                                                        --------      --------      --------
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                                                               5
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

ADJUSTED TO THE INDEX OF DECEMBER 2001

<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31,
                                                         ------------------------------------
                                                           2001          2000          1999
                                                         --------      --------      --------
                                                                    NIS. (THOUSANDS)
                                                         ------------------------------------
<S>                                                      <C>           <C>           <C>
CASH FLOWS FROM FINANCING ACTIVITIES

Dividend paid                                            (119,579)           --       (63,834)
Dividend paid to minority shareholders in
 consolidated subsidiaries                                 (1,544)       (1,531)       (1,366)
Short-term credit from banks and others,  net              59,314       (80,834)      182,958
Long-term loans received                                  525,398        50,657       154,482
Long-term loans repaid                                     (2,923)       (1,109)     (101,341)
Customers' deposits received                                2,410         2,368         2,024
Customers' deposits repaid                                   (983)       (2,240)         (798)
Redemption of debentures                                  (14,042)      (13,046)      (14,679)
Acquisition of Company's shares by a
  consolidated company                                       (268)       (2,849)         (654)
Proceeds from the issuance of capital notes                   624            --            --
                                                         --------      --------      --------

Net cash provided (used for) by financing activities      448,407       (48,584)      156,792
                                                         --------      --------      --------

Increase (decrease) in cash and cash equivalents           13,035       (32,554)       43,581
Cash and cash equivalents at beginning of year             21,057        53,611        10,030
                                                         --------      --------      --------

Cash and cash equivalents at end of year                   34,092        21,057        53,611
                                                         ========      ========      ========
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                                                               6
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

ADJUSTED TO THE INDEX OF DECEMBER 2001

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                         ----------------------------------
                                                           2001        2000          1999
                                                         --------    --------      --------
                                                                  NIS. (THOUSANDS)
                                                         ----------------------------------
<S>                                                      <C>         <C>           <C>
(A) ADJUSTMENTS TO RECONCILE NET INCOME TO
      OPERATING CASH FLOWS:

INCOME AND EXPENSES NOT REQUIRING CASH FLOWS:

Depreciation and amortization, net                       96,474       87,370         95,010
Deferred taxes, net                                      10,448       (1,274)        (3,683)
Increase in liabilities for employee rights upon
  retirement, net                                        13,544        5,230            870
Minority interest in income of consolidated
  Companies                                               1,685        2,464          2,751
Company's share in (profits)/losses (less
  undistributed income) of affiliates, net                2,038       (2,223)         1,772
Capital losses (gains)                                      409       (2,062)          (337)
Erosion of investments in capital notes, net                 --         (493)          (385)
Erosion of long-term loans, debentures and
  capital notes issued                                    1,901         (947)           (55)
Erosion of loans granted                                 (3,469)        (919)           855
Increase in value of marketable
  securities, net                                        (7,721)      (4,915)        (1,523)
Erosion of customers' deposits                              786       (5,505)        (1,620)
Decrease  in other investments                            5,599          706             --
Write-off of loan to an affiliated company                   --        1,505             --
Profit from the realization of investments in
 Companies carried on equity basis                           --      (50,254)            --
Loss from decrease in percent
 ownership of an affiliated company                          --           --            529
Loss from sale of investment consolidated company          (145)       1,642             --
CHANGES IN ASSETS AND LIABILITIES:
Decrease (Increase) in trade receivables                105,354      (62,792)      (166,717)
(Increase) Decrease in other receivables                (35,324)        (687)*      118,018*
(Increase) Decrease in inventories
  and in non-current inventories                         (2,717)      33,962*      (234,535)*
(Decrease) Increase in trade payables                   (43,842)      15,493         30,194
(Decrease) Increase in other payables                   (26,967)     (36,485)*      111,731*
                                                       --------      -------       --------
                                                        118,053      (20,184)       (47,125)
                                                       ========      =======       ========
</TABLE>

* Reclassified

The accompanying notes are an integral part of the financial statements.


                                                                               7
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

ADJUSTED TO THE INDEX OF DECEMBER 2001

<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31,
                                                            ---------------------------------
                                                              2001        2000        1999
                                                            --------    --------    --------
                                                                    NIS. (THOUSANDS)
                                                            ---------------------------------
<S>                                                         <C>         <C>         <C>
(B)ACQUISITION OF INITIALLY CONSOLIDATED COMPANIES:

Working capital (not including cash and cash
  equivalents)                                               135,180      (3,365)     (1,947)
Fixed assets and intangible, net                             387,068         599      30,012
Long-term debt, net                                          (60,240)         92     (10,817)
Investment in loans to affiliated companies                       --          --     (15,206)
Goodwill created at acquisition                                  843       2,438       2,244
Minority interests as of the acquisition date                (54,451)        250          --
                                                            --------    --------    --------
                                                             408,400          14       4,286
                                                            ========    ========    ========

(C)PROCEEDS FROM THE REALIZATION OF AN INVESTMENT
         IN A PREVIOUSLY CONSOLIDATED COMPANY:
                                                                2001        2000        1999
                                                            --------    --------    --------

Working capital (not including cash and cash equivalents)     (1,314)     16,947          --
Fixed and intangible assets                                      412      36,617          --
Long-term receivables, net                                       112      (3,279)         --
Investment in an affiliated company                               --     (10,299)         --
Goodwill                                                         255       1,106          --
Minority interests on date of sale                               385        (729)         --
Capital gain (loss) from the realization of
  investment in a consolidated company                           145      (1,642)         --
                                                            --------    --------    --------
Proceeds from sale of consolidated company                        (5)     38,721          --
Less proceeds not yet received                                    --     (32,837)         --
                                                            --------    --------    --------
                                                                  (5)      5,884          --
                                                            ========    ========    ========
(D) ACTIVITIES NOT REQUIRING CASH FLOW:

                                                              2001        2000        1999
                                                            --------    --------    --------
Conversion of customers debt into long-term loans              2,608      23,490       4,008
                                                            --------    --------    --------
Conversion of debentures to shares                                --       3,535          --
                                                            --------    --------    --------
Fixed assets acquired with suppliers credit                    1,261          --          --
                                                            --------    --------    --------
Other assets acquired on credit                                8,660          --          --
                                                            --------    --------    --------
Minority interest in dividend declared by a
 consolidated company                                            348          --          --
                                                            --------    --------    --------
</TABLE>

The accompanying notes are an integral part of the financial statements.


                                                                               8
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 1 - GENERAL

      A.    Granite Hacarmel Investments Ltd. ("the Company" and/or "Granite"
            (P.C.520037177) has initiated a restructuring of companies within
            the group, with the intention of creating a suitable commercial
            framework for its consolidated companies which will distinguish
            between current and future areas of operations. The restructuring
            will allow for the possibility of the subsidiary companies raising
            capital from the public or enlisting a strategic investor for the
            separate operations of the specific assets of a given company.

            In 1999, within the framework of the restructuring of the Granite
            group and after appropriate discussions in the authorized forums
            within the Company and its subsidiary, Sonol Israel Ltd. ( "Sonol"),
            it was decided to split the subsidiary, Sonol, into two
            corporations:

            1.    Sonol Israel Ltd. ("Sonol") - which will continue its
                  commercial activities and marketing operations of products to
                  its customers.

            2.    Sonol Trading Ltd. ("Sonol Trading") - which will engage in
                  other activities, which do not include the marketing of fuel
                  products, including developing new business in filling
                  stations, new business ventures, providing infrastructure
                  services and land development.

            Both of the above mentioned companies are wholly owned and
            controlled by the Company.

            As part of the division, Sonol will transfer to Sonol Trading assets
            and rights as determined by the division, including land and
            shareholdings. Concurrently, Sonol Trading will assume a portion of
            Sonol's liabilities to be split from Sonol in proportion to the book
            value of the assets to be transferred to Sonol Trading under the
            division.

            Within the framework of the restructuring arrangement and after
            deliberations by the authorized forums of the Company and its
            subsidiaries, Sonol, Supergas Israel Gas Distribution Company Ltd.
            ("Supergas") and Granite Hacarmel Holdings (1993) Ltd. ("Granite
            Holdings"), it was decided that Sonol will transfer, without
            consideration, its shares in Supergas (50%) to the Company and, in
            addition, certain real assets will be transferred without payment
            from Sonol and Supergas to Granite Holdings.

            The division and reorganization being made under the provisions of
            paragraphs 104B(1), 104C and 105 of the Israel Income Tax Code are
            subject to the approval of the income tax authorities, Sonol's main
            creditors and the district court. As of the balance sheet date the
            reorganization has not yet been completed.

      B.    In 2001, the Company acquired all the shares of Tambour Ltd., the
            leading manufacturer and distributor of paints in Israel. (see note
            3)


                                                                               9
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES

A.    PRINCIPLES OF ADJUSTMENT AND CONSOLIDATION IN THE FINANCIAL STATEMENTS

      1.    FINANCIAL STATEMENTS IN ADJUSTED VALUES

            a.    The Company and the other companies in the group have prepared
                  their financial statements on the basis of historical cost
                  which was adjusted to the changes in the general purchasing
                  power of the shekel.

            b.    The adjusted values presented do not necessarily reflect
                  realizable value or current economic value, but rather the
                  cost, adjusted for the changes in the general purchasing power
                  of the shekel.

            c.    The term "cost" used in the adjusted statements means cost in
                  adjusted shekels unless otherwise stated.

            d.    The comparative figures (including the monetary items) are
                  stated in shekels adjusted to the December 2001 Index.

            e.    The adjusted amounts are expressed in New Israel Shekels, the
                  purchasing power of which reflects the average price level of
                  the month of December 2001, based on the consumer price index
                  published by the Central Bureau of Statistics ("Index"), on
                  January 15, 2002 (see note 2.G.).

      2.    BALANCE SHEET

            a.    The non-monetary items were adjusted for the changes in the
                  Index since their acquisition or creation and until the
                  balance sheet date. The following items are the main items
                  that were treated as non-monetary items: fixed assets and
                  related accumulated depreciation, investments carried at cost,
                  inventories, except for inventories of crude oil and refined
                  products, (see note 2.C.2) deferred charges and the related
                  accumulated amortization, and shareholders' equity.

            b.    The value of the investments in affiliated companies carried
                  on the equity basis was computed on the basis of the adjusted
                  statements of the affiliated companies.

            c.    Deferred taxes, net were computed on the basis of the adjusted
                  data.

            d.    Monetary items are stated in the adjusted statements at their
                  nominal value.


                                                                              10
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)

A.    PRINCIPLES OF ADJUSTMENTS AND CONSOLIDATION IN THE FINANCIAL STATEMENTS
      (CONTINUED)

      3.    STATEMENT OF INCOME

            The items of the statement of income were adjusted in accordance
            with the changes in the Index as follows:

            a.    Amounts relating to non-monetary items in the balance sheet
                  (e.g. depreciation and amortization), or provisions included
                  in the balance sheet (e.g. severance indemnities, vacation
                  pay) were adjusted in accordance with the changes in the
                  corresponding balance sheet items.

            b.    Other amounts in the statement of income (e.g. sales,
                  purchases, other current expenses), except for the components
                  financing expenses net, are stated at their adjusted amounts
                  based on the index for the month of the related transactions.

            c.    The net financing item reflects financing income and expenses
                  in real terms, erosion of monetary items during the year,
                  profit and loss arising from realization and valuation of
                  marketable securities and profit and loss from financial
                  instruments.

            d.    The Company's equity in the operating results of the
                  affiliated companies and the minority interest in the results
                  of consolidated subsidiaries were determined on the basis of
                  the adjusted statements of the investee companies.

            e.    Current taxes are comprised of payments on account during the
                  year, in addition to amounts payable as of the balance sheet
                  date (or net of refunds claimed). The payments on account were
                  adjusted based on the prevailing Index on the date of each
                  payment, while the amounts payable (or claimed as refund) are
                  included without adjustment. Accordingly, the current taxes
                  include the expenses arising from the erosion of the payments
                  on account of taxes from the date of such payments to the
                  balance sheet date. Deferred taxes - see note 2.J.

      4.    STATEMENT OF SHAREHOLDERS' EQUITY

            Dividend declared and paid during the year has been adjusted on the
            basis of the Index at the time of payment. Dividend declared but not
            yet paid at the balance sheet date is included without adjustment.

      5.    PRINCIPLES OF CONSOLIDATION

            a.    The consolidated financial statements of the Company include
                  the consolidated financial statements of the Company and its
                  subsidiaries. A list of subsidiaries, whose financial
                  statements are included in the consolidated financial
                  statements and the percent ownership and control therein, are
                  included in a separate schedule to the financial statements .

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001


                                                                              11
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)

      5.    PRINCIPLES OF CONSOLIDATION (CONTINUED)

                  Regarding initially consolidated companies and those
                  consolidated in the past, which are not included in the
                  current year's financial statements - see note 3.

            b.    Intercompany balances and transactions of consolidated
                  companies and unrealized gains on sales among companies in the
                  group have been eliminated.

            c.    Shares of the Company, acquired by a consolidated company,
                  have been recorded using the "treasury stock" method.

B.    INVESTMENTS IN SUBSIDIARY AND AFFILIATED COMPANIES

      1.    The investments in subsidiaries and affiliated companies are
            reflected in the financial statements in accordance with their
            equity adjusted to the balance sheet date together with the balance
            of the excess cost or net of the balance of deferred credits. Other
            investments are stated at cost or under cost which does not exceed
            the equity as of the balance sheet date. Subsidiary companies own
            several other inactive and/or insignificant subsidiaries that are
            not consolidated and are carried at cost, which does not exceed
            equity as of the balance sheet date.

      2.    a.    The excess of cost of the Company's investments in
                  consolidated subsidiaries which is not related to identifiable
                  assets and liabilities ("Goodwill"), is included in
                  "Intangible assets and deferred charges, net" and is amortized
                  by the straight-line method over a period of ten years.

                  The excess net value of net assets acquired over cost of
                  investments in affiliated companies, is first netted against
                  identifiable assets of the acquired company, and the balance
                  is netted against "Intangible assets and deferred charges,
                  net" and is amortized by the straight line method over a
                  period of ten years.

            b.    The excess of cost of investments allocated was apportioned to
                  assets and liabilities, to relevant items in the balance
                  sheet.

      3.    The investments of the Company in capital notes of affiliated
            companies are presented in the financial statements of the Company
            in accordance with the requirements of the Israel Securities
            Authority regarding transactions between the Company and its
            interested parties.

      4.    A list of affiliated companies is included in a schedule attached to
            the financial statements.


                                                                              12
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)

C.    VALUATION OF INVENTORIES

      1.    Inventories of crude oil and refined products

            The major part of the crude oil and refined product inventories
            consists of Security and Civilian Inventories (previously Emergency
            Inventories). The Security Inventories, stored in separate sealed
            tanks, are stated as Non-current inventories. The Security and
            Civilian inventories are valued at cost in accordance with the
            exchange rate of the dollar (current rate) or, at the dollar
            exchange rate as determined by the Fuel Authority, when such rate is
            less than the current rate, on the balance of inventories against
            which there are no dollar liabilities. Regardless, the recovery of
            the value of the inventories is guaranteed by the State by
            determining its recovery value based on the Fuel Authority rate.

            Commercial inventories are stated at the lower of cost or market.
            The cost is determined by the first-in, first-out method.

      2.    Other inventories

            a.    The inventories of luboils, spare parts and others are stated
                  at the lower of cost or market. Cost is determined by the
                  moving average method.

            b.    Inventories of paints are stated at the lower of cost or
                  market. Cost is mainly determined as follows: Raw and
                  Packaging materials - moving average method.
                  Finished products - based on standard production
                                      costs which include raw materials,
                                      packaging materials, salaries and
                                      related expenses and other production
                                      costs.
                  Work in progress - on the basis of raw materials and actual
                                      production costs.

D.    FIXED ASSETS

      Fixed assets are carried at cost, or at cost together with the addition of
      excess of cost related to specific assets. Improvements are charged to
      assets while maintenance and repair expenses are charged as incurred to
      the statement of income.

      Depreciation is computed by the straight-line method at annual rates
      considered to be sufficient for depreciating the assets over their
      estimated useful lives. The annual rates of depreciation are as follows:

<TABLE>
<CAPTION>
                                                                                  %
                                                                                  -
<S>                                                                             <C>
      Buildings (including temporary and rental buildings)                       2-10
      Machinery and equipment                                                    5-33 (mainly 10-15)
      Vehicles                                                                  15-20
      Computers                                                                 20-33
      Furniture, office equipment  and computers                                 6-20
      Leasehold improvements                                                     6-10
</TABLE>


                                                                              13
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)

D.    FIXED ASSETS (CONTINUED)

      The excess of cost related to specific assets is depreciated over the
      remaining useful life as determined at the time the excess of cost was
      related to those assets. Leasehold rights are amortized over the term of
      their leases. Buildings on leased land are depreciated over the terms of
      their leases.

E.    INTANGIBLE ASSETS AND DEFERRED CHARGES, NET

      1.    Intangible assets

            Intangible assets are stated at cost and are depreciated in equal
            annual rates beginning with their implementation as follows:

            Deferred rents - over the rental term, at equal annual rates
            Goodwill - see note 2.B.2
            Oil and gas exploration rights - based on output
            Distribution rights and others-over a period of 10 years or in
            accordance with the period stated in the agreement.

      2.    Deferred charges

            Expenses related to the issuance of debentures are amortized using
            the straight-line method over the period of the debentures.

F.    DEBENTURES CONVERTIBLE INTO SHARES

      Convertible debentures are presented in accordance with the Opinion No.53
      of the Institute of Certified Public Accountants in Israel on the basis of
      the probability of their conversion into shares. Debentures are reflected
      in the financial statements at their liability value.

G.    FOREIGN CURRENCY AND LINKAGE BASIS

      Assets (other than securities) and liabilities in foreign currencies or
      linked thereto are stated at the exchange rates in effect on the balance
      sheet date. Assets (other than securities) and liabilities linked to the
      Index, are stated according to the linkage conditions applying to each
      balance. The Index, the exchange rates and the rate of changes therein
      were as follows:

<TABLE>
<CAPTION>
                                 DECEMBER 31                      CHANGES IN %
                         ----------------------------     -----------------------------
                          2001       2000       1999       2001       2000        1999
                         ------     ------     ------     ------     ------      ------
<S>                      <C>        <C>        <C>        <C>        <C>         <C>
Index                     108.1      106.6      106.6        1.4          0         1.3
Exchange rate of the
  U.S. dollar             4.416      4.041      4.153        9.3       (2.7)       (0.2)
</TABLE>


                                                                              14
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)

H.    MARKETABLE SECURITIES

      Marketable securities, which are not permanent investments, are carried at
      their market value on the balance sheet date. The changes in the value of
      the securities are reflected in the statement of income.


I.    PROVISION FOR DOUBTFUL RECEIVABLES

      The financial statements include provisions for doubtful receivables
      which, in the opinion of the Company's management, adequately provide for
      the loss on receivables whose collection is doubtful. In the fuel and gas,
      and other segments, the amount of the provision includes specific
      provisions. In the paint and chemical segment, the amount of the provision
      is calculated mainly at the rate of 8.5% of receivables and in part on a
      specific basis where, in the opinion of management, the collection of such
      receivables is doubtful.

J.    DEFERRED TAXES

      The companies in the group apportion taxes as a result of temporary
      differences between the values of assets and liabilities for book and tax
      purposes. 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 is calculated according to the liability
      method at tax rates which will be in effect when the deferred taxes will
      be utilized, using tax rates that are known at the time of publication of
      the financial statements (36%).

      The main factors in respect of which deferred taxes have not been
      computed:

      a.    Amounts of adjustment for the change in the purchasing power of the
            New Israel Shekel relating primarily to buildings and automobiles,
            in accordance with rules determined by the Institute of Certified
            Public Accounts in Israel. ("the Institute").

      b.    Investments in subsidiaries and affiliates, where it is the
            Company's intention to hold these investments rather than to sell
            them.

      c.    Tax benefit receivable on account of timing differences where
            realization of the benefit is uncertain.

K.    RECOGNITION OF INCOME

      1.    Product sales - Income from the sale of products is recorded upon
            receipt of the products by the customer.

      2.    Rental income - Rental income is recorded upon receipt of payment,
            proportionately to the relevant period.


                                                                              15
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)

K.    RECOGNITION OF INCOME (CONTINUED)

      3.    Income from projects in progress - In accordance with Standard 4,
            income from projects in progress is recognized using the percentage
            of completion method. The periodic reporting of income and expenses
            from building projects covers all the projects, including those
            which have not yet reached the 25% completion stage, and for which
            the company is unable to estimate the expected profit, but for which
            it is possible to determine the anticipated repayment of the costs
            already incurred. In such instances, the full amount of such costs,
            and income, to the extent of those costs, are reflected in the
            statement of income ("zero profit margin").

            If there is an expected loss on a project, a provision is recorded
            for the full amount of the loss expected until the project's
            completion.

L.    PROVISION FOR LINKAGE INCREMENTS ON CUSTOMERS' DEPOSITS

      Supergas a consolidated company, is obligated under a Government decree to
      pay customers terminating their gas purchasing agreement an amount equal
      to the latest approved deposit authorized by the Ministry of Trade and
      Industry, linked to the change in the Index from the date of the last
      approval to the date of payment. The computation of the liability is based
      on the actual liability as mentioned above. In prior years, the liability
      was calculated based on estimates of the next expected update. Supergas
      provides for the liability on a discounted present value basis.

M.    EARNINGS PER SHARE

      The earnings per share are computed in accordance with Opinion No.55 of
      the Institute.

      In computing primary earnings per share, consideration is given to whether
      there is a reasonable chance of conversion or realization of convertible
      securities in accordance with the tests prescribed by the Opinion.

      The computation of diluted earnings per share takes into account
      convertible securities issued by the Company that were not included in the
      calculation of primary earnings per share, provided that their conversion
      or realization does not result in an increase in earnings per share
      (anti-dilutive effect).

N.    USE OF ESTIMATES

      The preparation of financial statements in accordance with generally
      accepted accounting principles requires management to use estimates and
      valuations 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.


                                                                              16
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)

O.    PRESENTATION OF TRANSACTIONS BETWEEN THE COMPANY AND A CONTROLLING PARTY

      Transactions between the Company and a controlling party are presented in
      accordance with the Securities Regulations (Presentation of Transactions
      between the Company and a Controlling Party in the Financial Statements) -
      1996.

P.    FAIR VALUE OF FINANCIAL INSTRUMENTS

      With the exception of convertible debentures (see note 15.B.) there are no
      material differences between the fair value of the financial instruments
      of the Company and their value in the financial statements. Currency
      futures transaction - Transactions not for hedging purposes are stated at
      their fair value. Changes in the fair value are recorded in the statement
      of income in the period incurred.

Q.    IMPLEMENTATION OF RECENTLY ISSUED ACCOUNTING STANDARDS

      In May 2001, the Israeli Accounting Standards Board published Accounting
      Standard No. 7 - Subsequent Events. The new standard determines when a
      company must make an adjustment in its financial statements for events
      occurring after the balance sheet date, and the disclosure required for a
      company with respect to the date on which the financial statements are
      approved for publication and regarding events occurring after the balance
      sheet date. This standard supersedes Sections 1, 2(1) and 3-7 of Opinion
      No. 11 of the Institute of Certified Public Accountants in Israel. This
      accounting standard applies to financial statements for periods ending on
      or after December 31, 2001.

      In July 2001, the Israeli Accounting Standards Board published Accounting
      Standard No.11 - Segment Reporting. The new standard applies to companies
      whose securities are registered or in the process of being registered for
      trading on any stock exchange, or where a full set of their financial
      statements is published to the public under any law. The standard requires
      the inclusion of data with respect to business segments and geographic
      segments, and also provides detailed guidance for identifying business and
      geographic segments. This accounting standard applies to financial
      statements for periods beginning on or after January 1, 2002. The Company
      has applied this standard in its financial statements as of December 31,
      2001.

R.    EFFECT OF NEW ACCOUNTING STANDARDS NOT YET IMPLEMENTED

      During 2001, the Israel Accounting Standards Board published Accounting
      Standard No. 12 - Discontinuance of Adjustment of Financial Statements.
      Pursuant to this standard, the adjustment of financial statements will be
      discontinued as of January 1, 2003. Until December 31, 2002, the Company
      will continue to prepare financial statements adjusted in accordance with
      Opinion 36 of the Institute of Certified Public Accountants in Israel. The
      adjusted amounts included in the financial statements as at December 31,
      2002 will constitute the starting point for the nominal financial
      statements as of January 1, 2003. Implementation of this standard may have
      a significant negative effect on the reported results of the Company. The
      extent of the effect will depend on the rate of inflation and the


                                                                              17
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 2 - SIGNIFICANT REPORTING AND ACCOUNTING POLICIES (CONTINUED)

R.    EFFECT OF NEW ACCOUNTING STANDARDS NOT YET IMPLEMENTED (CONTINUED)

      Company's sources of financing.

      In 2001, the Israel Accounting Standards Board published Accounting
      Standard No.13 - Effect of Changes in the Rates of Exchange of Foreign
      Currency. This standard deals with translation of transactions in foreign
      currency and translation of financial statements of outside activities for
      the purpose of their inclusion in the financial statements of the
      reporting entity, and supersedes the provisions of Clarifications 8 and 9
      to Opinion 36 of the Institute of Certified Public Accountants in Israel,
      which will be discontinued upon the entry into effect of Accounting
      Standard No. 12 - Discontinuance of Adjustment of Financial Statements.
      This standard will apply to financial statements for periods commencing
      after December 31, 2002. At this time, it not possible to estimate the
      effects of this standard on the financial statements.

NOTE 3 - THE CONSOLIDATED FINANCIAL STATEMENTS

      A.    INITIALLY CONSOLIDATED COMPANIES

            1.    At the end of the second quarter, the Company acquired 87% of
                  Tambour's shares for approximately NIS. 458 million and in the
                  third quarter acquired the remaining shares through a public
                  tender offer for an amount of approximately NIS. 69 million.
                  As a result of the acquisition, Tambour's shares were
                  de-listed from the Tel-Aviv Stock Exchange. The acquisition
                  was financed by long-term index linked and unlinked bank
                  loans. The acquired shares were collateralized to the bank 80%
                  of the loans are non-recourse. The consolidated financial
                  statements include for the first time the financial statements
                  of Tambour.*

            2.    Following are the amounts included in the consolidated
                  financial statements:

<TABLE>
<CAPTION>
                                                                                  AT DECEMBER 31, 2001
                                                                  AT              AND FOR THE PERIOD FROM
                                                                  ACQUISITION     THE ACQUISITION DATE
            BALANCE SHEET                                         DATE            UNTIL THE ABOVE DATE
                                                                  -----------     --------------------
<S>                                                               <C>             <C>
            Cash and cash equivalents                                49,685               19,461
            Working capital (not including cash and
              cash equivalents)                                     135,180              185,135
            Fixed assets, net of accumulated
              depreciation                                          371,989              401,989
            Intangible assets and deferred charges, net
              of amortization                                        15,079                  172
            Goodwill resulting from acquisition                         843                  780
            Minority interest at acquisition date                   (54,451)              (6,079)
            Long-term debt, net of current portion                  (60,240)             (79,847)
            STATEMENTS OF INCOME
            Sales                                                                        223,311
            Net income                                                                    13,318
            Net income consolidated companies                                             13,000
</TABLE>

*Include also initial consolidation of After Holdings Ltd. which is not
significant.


                                                                              18
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 3 - THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

            3.    The amount of goodwill created as a result of the initially
                  consolidated companies is NIS. 843 thousand.

      B.    PREVIOUSLY CONSOLIDATED COMPANY NOT INCLUDED IN THE CURRENT YEAR'S
            CONSOLIDATION:

            As of April 1, 2001 the consolidated financial statements do not
            include the financial statements of N.M.R. 1998 - Mechanization and
            Automotive Equipment Ltd. which was sold and whose amounts are
            insignificant.


NOTE 4 - ACCOUNTING WITH THE FUEL AUTHORITY AND THE CONTROLS IN THE ENERGY
         SECTOR - SONOL

      1.    Amounts due to or from the Fuel Authority, to the extent still
            provisional, are included each year in the accounts according to
            estimates prepared by Sonol based on past experience. Differences
            which subsequently arise are reflected in the results of the year in
            which such differences are determined.

      2.    All costs and expenses related to the holding of Security
            Inventories are fully recoverable from the government while the
            costs of holding the Civilian and Commercial inventories are on
            account of Sonol, with all the attending risks.

      3.    The prices of 95 and 96 octane gasoline continue to be subject to
            government price controls.

      4.    See Note 29.

NOTE 5 - CASH AND CASH EQUIVALENTS

Consist of:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                             -------------------
                                                              2001         2000
                                                             ------       ------
                                                                 NIS THOUSANDS
                                                             -------------------
<S>                                                          <C>          <C>
In local currency                                            14,989        6,067
In foreign currency                                          19,103       14,990
                                                             ------       ------
                                                             34,092       21,057
                                                             ======       ======
</TABLE>

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


                                                                              19
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 6 - TRADE RECEIVABLES AND OTHER RECEIVABLES

      A.    TRADE RECEIVABLES:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                              -------------------------
                                                                2001              2000
                                                              --------         --------
                                                                   NIS. (THOUSANDS)
                                                              -------------------------
<S>                                                            <C>              <C>
                Customers - open accounts                      726,083          625,238*
                Checks and notes receivable                     97,413           85,837
                Credit cards companies                          83,234           99,716
                Current portion of long-term
                  loans granted                                 18,044           16,356
                Less - provision for doubtful
                  receivables**                                (47,944)         (23,584)
                                                              --------         --------
                                                               876,830          803,563
                                                              ========         ========
</TABLE>

      B.    OTHER RECEIVABLES:

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                               -------------------------
                                                                 2001             2000
                                                               --------         --------
                                                                    NIS. (THOUSANDS)
                                                               -------------------------
<S>                                                             <C>              <C>
                 Fuel Authority                                   5,833            3,025*
                 Government institutions                          1,669              623
                 Income receivable                                1,285               47*
                 Income tax receivable                           16,844            4,340
                 Employees                                          851              705
                 Prepaid expenses                                19,224           11,125
                 Future tax benefits, net***                     17,026            8,132
                 Current portion of long-term loans
                   granted                                        1,081               --
                 Others                                          21,261           18,144
                                                               --------         --------
                                                                 85,074           46,141
                                                               ========         ========
</TABLE>

      C.    RECEIVABLES ON ACCOUNT OF PROJECTS
             IN PROGRESS:

<TABLE>
<CAPTION>
                                                                      DECEMBER 31,
                                                               -------------------------
                                                                 2001             2000
                                                               --------         --------
                                                                    NIS. (THOUSANDS)
                                                               -------------------------
<S>                                                             <C>              <C>
                 Income receivable                               45,612               --
                 Less payments on account of
                   projects in progress                          27,009               --
                                                               --------         --------
                                                                 18,603               --
                                                               ========         ========
</TABLE>

      D.    REGARDING CREDIT RISKS SEE NOTE 28.E

             *    Reclassified
             **   See note 2.I.
             ***  See note 26


                                                                              20
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 7 - INVENTORIES

<TABLE>
<CAPTION>
                                                            DECEMBER 31,
                                                     -------------------------
                                                       2001             2000
                                                     --------         --------
                                                          NIS. (THOUSANDS)
                                                     -------------------------
<S>                                                  <C>              <C>
              Consist of:

              Crude oil and raw materials              56,755           34,885*
              Finished products                       304,243          250,427*
              Materials and supplies                   14,958           10,477
              Work in process                           5,300               --
              Projects in progress(1)                      --               --
                                                     --------         --------
                                                      381,256          295,789

              Less non-current inventories(2)         126,200               --
                                                     --------         --------

                                                      255,056          295,789
                                                     ========         ========

              (1) Projects in progress                 35,006               --
                  Less the amount reflected in
                  the statement of income             (35,006)              --
                                                     --------         --------

                                                           --               --
                                                     ========         ========
              (2) See note 2.C
</TABLE>

             * Reclassified


                                                                              21
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 8 - AFFILIATED COMPANIES AND OTHERS

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                   -----------------------
                                                                     2001           2000
                                                                   --------       --------
                                                                       NIS. (THOUSANDS)
                                                                   -----------------------
<S>                                                                <C>            <C>
      Investments in affiliated companies*:

      Balance as at December 31,1991                                 12,214             --

      Changes, beginning January 1, 1992:
      Cost of shares acquired**                                     140,978        109,786
      Accumulated losses, net                                       (24,665)        (1,620)
      Other changes                                                     335           (529)
                                                                   --------       --------
                                                                    128,862        107,637
      Other investments:

      Long-term loans less accumulated losses(1)                      7,035          6,721
      Investments in shares at cost less decrease in
        value not of a temporary nature (2)(3)                       33,547         39,146
                                                                   --------       --------
                                                                    169,444        153,504
                                                                   ========       ========

      * Per schedule at end of financial statements
      **Includes unamortized goodwill                                 4,714          5,489
                                                                   ========       ========

      SECURITIES REGISTERED FOR TRADING ON THE TEL-AVIV STOCK
      EXCHANGE:

      Affiliated companies:
      Book value                                                     95,174         93,602
                                                                   ========       ========

      Market value                                                   44,991         45,380
                                                                   ========       ========

      Companies at cost:
      Book value                                                      6,686          9,593
                                                                   ========       ========

      Market value                                                   17,253         17,496
                                                                   ========       ========
</TABLE>


                                                                              22
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001
--------------------------------------------------------------------------------

NOTE 8 - AFFILIATED COMPANIES AND OTHERS (CONTINUED)

            (1)   The loans were granted by the Company and consolidated
                  companies to affiliated companies or partnerships. The amount
                  of NIS. 7,412 thousand (2000 - NIS. 6,599 thousand) is index
                  linked and bears interest at the rate of 10% p.a. The loans
                  are repayable at a time to be determined by the parties.

            (2)   On May 24, 2000 an agreement between the Company and Focus
                  Capital Net Ltd. ("Focus Capital") and a group of private
                  investors was finalized. Under the terms of the agreement, the
                  Company sold 11,903,166 shares representing approximately
                  78.51% of the issued and outstanding shares of Vulcan. After
                  the sale, the Company continues to hold 20% of Vulcan's
                  shares. The investment is stated at cost in the company's
                  accounts.

            (3)   The Company, through one of its subsidiaries, invested in two
                  venture capital funds, Jerusalem Venture Partners (Israel) LP
                  and Eucalyptus Ventures LP, both of whom invested in shares of
                  Chromatis Networks Ltd. ("Chromatis"). Lucent Technologies
                  Inc.("Lucent"), an American company, acquired the remaining
                  unowned balance of Chromatis' shares, in exchange for Lucent
                  shares. The closing took place on June 29, 2000. The gain on
                  the transaction was recorded 2001, upon receipt of the shares.

            CHANGES IN INVESTMENTS IN AFFILIATED COMPANIES AND OTHERS:

<TABLE>
<CAPTION>
                                                                 NIS.(THOUSANDS)
                                                                 ---------------
<S>                                                              <C>
              Balance as at January 1, 2001                          153,504
              Changes during the year:
              Investment in shares                                    10,527
              Investment in affiliated company by
               an initially consolidated company                      11,407
              Equity income, net                                           5
              Dividend receivable and received                        (2,043)
              Amortization of companies carried at cost               (5,599)
              Other changes                                            1,643
                                                                     -------

              Balance as at December 31, 2001                        169,444
                                                                     =======
</TABLE>


                                                                              23
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001
--------------------------------------------------------------------------------

NOTE 9 -LONG-TERM LOANS AND RECEIVABLES

<TABLE>
<CAPTION>
                                                                  DECEMBER 31,
                                                           -------------------------
                                                             2001             2000
                                                           --------         --------
                                                                NIS. (THOUSANDS)
                                                           -------------------------
<S>                                                        <C>              <C>
      a.  CONSIST OF:
         Loans to customers                                 105,949          111,672
         Loans to employees                                     143              131
                                                           --------         --------
                                                            106,092          111,803
         Less: current portion                               19,125           16,356
                                                           --------         --------
                                                             86,967           95,447
         Other receivables (1)                               35,579           33,981
                                                           --------         --------
                                                            122,546          129,428
                                                           ========         ========

         The years of maturity of the loans:
         First year - current portion                        19,125           16,356
         Second year                                         14,390           18,764
         Third year                                          11,735            9,236
         Fourth year                                         11,340            9,203
         Fifth year                                          11,907           13,596
         Sixth year and thereafter and without
          maturity date                                      37,595           44,648
                                                           --------         --------
                                                            106,092          111,803
                                                           ========         ========
</TABLE>

      (1)   Includes an amount of NIS. 34,565 thousand long term receivable from
            the sale of a previously consolidated company. (2000 - NIS. 33,981
            thousand).

            See also Note 8.(2). In accordance with the sale agreement, the
            balance due is index linked, will be paid no later than April 22,
            2003, and is secured by bank guarantees. The loan balance has been
            discounted at the rate of 6%.


                                                                              24
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 9 -LONG-TERM LOANS AND RECEIVABLES (CONTINUED)

b.    BREAKDOWN OF LOANS BY LEVEL OF BORROWERS' BALANCES:

<TABLE>
<CAPTION>
                              DECEMBER 31, 2001                     DECEMBER 31, 2000
                              ------------------------------        -------------------------------
BORROWERS' BALANCES           NUMBER OF       TOTAL                 NUMBER OF        TOTAL
NIS THOUSANDS                 LOANS           NIS(THOUSANDS)        LOANS            NIS(THOUSANDS)
-----------------------       ---------       --------------        ---------        ---------------
<S>                           <C>             <C>                   <C>              <C>
Less than 100                       95              2,296                 87              3,343
100 - 500                           41             10,780                 37             11,599
500 - 1,000                         10              8,171                  9              6,874
Above 1,000                         30             84,845                 30             89,987
                               -------            -------            -------            -------
                                   176            106,092                163            111,803
                               =======            =======            =======            =======
</TABLE>

c.    LINKAGE TERMS AND INTEREST RATES:

<TABLE>
<CAPTION>
                                                      DECEMBER 31, 2001
                     ---------------------------------------------------------------------------------
                                                                       LINKED TO FOREIGN
INTEREST RATES:            UNLINKED             LINKED TO INDEX            CURRENCY             TOTAL
                     -------------------      ------------------      -------------------      -------
                                                            OVER                     OVER
                         0%       10-20%        0-4%       4-10%        0-3%         3-5%
                     ------       ------      ------      ------      ------      -------      -------
                                                     NIS. (THOUSANDS)
                     ---------------------------------------------------------------------------------
<S>                  <C>          <C>         <C>         <C>         <C>         <C>          <C>
Loans to:
Customers             2,877          302      33,493      45,605      19,297        4,375      105,959
Employees                --           --         143          --          --           --          143
                     ------       ------      ------      ------      ------      -------      -------
                      2,877          302      33,636      45,605      19,297        4,375      106,092
                     ======       ======      ======      ======      ======      =======
Less:
Current portion                                                                                 19,125
                                                                                               -------
                                                                                                86,967
                                                                                               =======
</TABLE>

<TABLE>
<CAPTION>
                                                      DECEMBER 31, 2001
                     ---------------------------------------------------------------------------------
                                                                       LINKED TO FOREIGN
INTEREST RATES:            UNLINKED             LINKED TO INDEX            CURRENCY             TOTAL
                     -------------------      ------------------      -------------------      -------
                                                            OVER
                         0%       10-20%        0-4%       4-10%        0-2%         5-9%
                     ------       ------      ------      ------      ------      -------      -------
                                                     NIS. (THOUSANDS)
                     ---------------------------------------------------------------------------------
<S>                  <C>          <C>         <C>         <C>         <C>         <C>          <C>
Loans to:
Customers               330       17,681      46,711      34,377       6,551        6,022      111,672
Employees                --                   -     131       --          --           --          131
                     ------       ------      ------      ------      ------      -------      -------
                        330       17,681      46,842      34,377       6,551        6,022      111,803
                     ======       ======      ======      ======      ======      =======
Less:                                                                                           16,356
Current portion                                                                                -------
                                                                                                95,447
                                                                                               =======
</TABLE>

d.    REGARDING CREDIT RISKS SEE NOTE 28.E.


                                                                              25
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 10 - FIXED ASSETS

A. Consist of:

<TABLE>
<CAPTION>
                                                                           FURNITURE,
                                                           MACHINERY       OFFICE EQUIP-
                                          LAND AND         AND             MENT AND
                                          BUILDINGS**      EQUIPMENT       COMPUTERS         VEHICLES         TOTAL
                                          -----------      ----------      -------------     ----------       ----------
                                                                         NIS. (THOUSANDS)
                                          ------------------------------------------------------------------------------
<S>                                       <C>              <C>             <C>               <C>              <C>
Cost:
Balance at beginning of year                 713,874          907,985           78,283           58,466        1,758,608
Additions*                                   429,578          398,997           62,106           28,374          919,055
Disposals                                     (2,078)          (1,775)            (603)          (8,584)         (13,040)
                                          ----------       ----------       ----------       ----------       ----------
Balance at end of year                     1,141,374        1,305,207          139,786           78,256        2,664,623
                                          ----------       ----------       ----------       ----------       ----------

Accumulated depreciation:
Balance at beginning of year                 252,021          655,825           47,416           37,538          992,800
Depreciation charged*                        159,814          282,944           44,827           18,855          506,440
Depreciation in respect of disposals          (1,970)          (1,179)            (261)          (5,741)          (9,151)
                                          ----------       ----------       ----------       ----------       ----------
Balance at end of year                       409,865          937,590           91,982           50,652        1,490,089
                                          ----------       ----------       ----------       ----------       ----------

Depreciated balance as of
December 31, 2001                            731,509          367,617           47,804           27,604        1,174,534
                                          ==========       ==========       ==========       ==========       ==========

Depreciated balance as of
December 31, 2000                            461,853          252,160           30,867           20,928          765,808
                                          ==========       ==========       ==========       ==========       ==========
</TABLE>

 * Includes initial consolidation of Tambour. (see note 3)
** Includes leasehold improvements.

B.    Land and buildings include buildings on lease-hold lands, the cost of
      which is NIS. 243,976 thousand, leased for various original periods of
      49-98 years, ending in the years 2002-2072. Land and buildings costing of
      NIS. 243,101 thousand have not yet been registered in the name of the
      Company or the consolidated subsidiaries in the Land Registry Office. The
      main reason for the lack of registration is that the land settlement and
      sub-division process has not yet been completed.

      Land and buildings, include building and lease-hold improvements on leased
      land in the original cost of NIS 16,002 thousand, and depreciated cost of
      NIS. 9,011 thousand, leased for various original periods from 4 to 25
      years.

C.    Commitments and contingent liabilities - see note 28.


                                                                              26
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 11 - INTANGIBLE ASSETS AND DEFERRED CHARGES, NET

<TABLE>
<CAPTION>
      Consist of:                                              BALANCE TO BE AMORTIZED
                                                               -----------------------
                                                                  AS OF DECEMBER 31,
                                                               -----------------------
                                                                 2001          2000
                                                               --------      ---------
                                                                  NIS. (THOUSANDS)
                                                               -----------------------
<S>                                                            <C>            <C>
      Intangible assets:
      Deferred rent                                              34,912         35,956
      Goodwill in consolidated companies (1)                      7,855          8,354
      Distribution rights and others                              9,287             --
      Oil and gas exploration licenses                           59,109         34,858
                                                               --------       --------
                                                                111,163         79,168
      Deferred charges:
      Expenses incurred in the issuance of
       debentures by the Company (2)                                102            312
                                                               --------       --------
                                                                111,265         79,480


      Long-term deferred taxes, net
       (see note  26)                                            12,981         10,775*
                                                               --------       --------
                                                                124,246         90,255
                                                               ========       ========
</TABLE>

(1)   For amortization see note 2.B.2
(2)   For amortization see note 2.E.2

*Reclassified


                                                                              27
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 12 - CREDIT FROM BANKS AND OTHERS

      Linkage terms and interest rates:

<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 2001
                                              ----------------------------------------------------------
                                                                              Linked to
                                                              Linked to       Foreign
                                              Unlinked        Index           Currency
      Interest rates:                         4.2-9.2%        4-7.1%          2.3-3.4%        Total
                                              ----------      ----------      ----------      ----------
                                                                   NIS. (THOUSANDS)
                                              ----------------------------------------------------------
<S>                                           <C>             <C>             <C>             <C>
      Overdrafts                                   1,775              --              --           1,775
      Short-term loans                           987,285              --         167,808       1,155,093
      Current portion of long-term loans          50,052          33,470             816          84,338
                                              ----------      ----------      ----------      ----------

      Total credit from banks                  1,039,112          33,470         168,624       1,241,206

      Credit from others                              --           1,049              --           1,049
                                              ----------      ----------      ----------      ----------
                                               1,039,112          34,519         168,624       1,242,255
                                              ==========      ==========      ==========      ==========
</TABLE>

<TABLE>
<CAPTION>
                                                                 DECEMBER 31, 2001
                                              ----------------------------------------------------------
                                                                              Linked to
                                                              Linked to       Foreign
                                              Unlinked        Index           Currency
      Interest rates:                         8.2-12.4%       5.2-7.5%        6.8-7.5%        Total
                                              ----------      ----------      ----------      ----------
                                                                   NIS. (THOUSANDS)
                                              ----------------------------------------------------------
<S>                                           <C>             <C>             <C>             <C>
      Overdrafts                                   3,855              --              --           3,855
      Short-term loans                           999,867              --          94,253       1,094,120
      Current portion of long-term loans              --             963              --             963
                                              ----------      ----------      ----------      ----------

      Total credit from banks                  1,003,722             963          94,253       1,098,938

      Credit from others                              --           1,031              --           1,031
                                              ----------      ----------      ----------      ----------
                                               1,003,722           1,994          94,253       1,099,969
                                              ==========      ==========      ==========      ==========
</TABLE>

NOTE 13- TRADE PAYABLES

      The liabilities include NIS 29,620 thousand (2000 - NIS. 40,471 thousand)
      balances of related and interested parties.

      Linkage terms - See note 18


                                                                              28
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 14 - OTHER PAYABLES

      Consist of:

<TABLE>
<CAPTION>
                                                               AS OF DECEMBER 31,
                                                           -------------------------
                                                             2001             2000
                                                           --------         --------
                                                                NIS. (THOUSANDS)
                                                           -------------------------
<S>                                                        <C>              <C>
      Liabilities to employees and other
        salary related liabilities                           50,826           25,843
      Institutions                                           54,931           50,948
      Accrued expenses                                       38,591           13,653
      Income tax payable                                      4,861               --
      Deferred taxes                                          3,087               --
      Others                                                 31,136           19,470
                                                           --------         --------
                                                            183,432          109,914
                                                           ========         ========
</TABLE>

NOTE 15 - LONG-TERM LIABILITIES

      A. (1) LONG-TERM LOANS

<TABLE>
<CAPTION>
                                                 RATE OF     DECEMBER 31,  DECEMBER 31
                                                 --------    ------------  -----------
            Consist of                           INTEREST        2001          2000
                                                 --------    ------------  -----------
                                                    %             NIS. (THOUSANDS)
                                                 --------    -------------------------
<S>                                              <C>         <C>           <C>
      Index linked loans from banks              4.8-7.1        463,290       159,619
      Unlinked loans from banks                  7.6-9.2        277,521        50,705
      Customers' deposit -  Index linked         --               3,055         3,061
      Customers' deposit - linked to
       foreign currency                          --                  80            70
      U.S. dollar loans from banks               2.8              4,995            91
      Other loans - Index linked                 4.5                321            --
                                                               --------      --------
                                                                749,262       213,546
      Less: current portion                                      84,338           963
                                                               --------      --------
                                                                664,924       212,583
                                                               ========      ========
</TABLE>


                                                                              29
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 15 - LONG-TERM LIABILITIES (CONTINUED)

            A. (1) LONG-TERM LOANS (CONTINUED)

            Yearly Installments:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                               -----------------------
                                                                 2001           2000
                                                               --------       --------
                                                                   NIS. (THOUSANDS)
                                                               -----------------------
<S>                                                            <C>            <C>
      First year - current portion                               84,338            963
                                                               --------       --------
      Second year                                                37,643         82,535
      Third year                                                 86,012         31,869
      Fourth year                                                85,736         31,690
      Fifth year                                                 84,101         31,539
      Sixth year and thereafter                                 367,976         31,537
      Without maturity date                                       3,456          3,413
                                                               --------       --------
                                                                664,924        212,583
                                                               --------       --------
                                                                749,262        213,546
                                                               ========       ========
</TABLE>

            Accrued interest is included in "Accounts payable" in current
            liabilities.

            A.(2) In accordance with understandings reached by the Company with
                  banking institutions regarding long-term loans to the Company
                  and Sonol (Sonol's loans are guaranteed by the Company). The
                  Company agreed to fulfill certain conditions as follows:

                  (1)   Shareholders' equity, together with customer deposits,
                        will exceed NIS 450 million.

                  (2)   The ratio of shareholders' equity, together with
                        customer deposits divided by total assets, net of
                        Security and Civilian Inventories, will exceed 20%.

                  (3)   The level of consolidated liabilities to banks and other
                        financial institutions (net of liabilities on account of
                        the Security and Civilian Inventories) will not exceed
                        10 times EBITDA (earnings before interest, taxes,
                        depreciation and amortization), at any time.

                  (4)   Not to create specific charge on the Company's
                        assets(with the exception of a specific existing
                        collateral and with the exception of collateral to
                        finance, acquire and develop those assets).


                                                                              30
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 15 - LONG-TERM LIABILITIES (CONTINUED)

            B.    DEBENTURES CONVERTIBLE INTO SHARES OF THE COMPANY

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                               -----------------------
                                                                 2001           2000
                                                               --------       --------
                                                                  NIS. (THOUSANDS)
                                                               -----------------------
<S>                                                            <C>            <C>
      Debentures (series 1) (*)                                  11,477         21,346
      Debentures (series 2) (**)                                  2,335          4,340
                                                               --------       --------
                                                                 13,812         25,686
      Less - current portion                                     13,812         12,843
                                                               --------       --------
                                                                     --         12,843
                                                               ========       ========
</TABLE>

             Yearly installments:

<TABLE>
<CAPTION>
                                           DECEMBER 31, 2001           DECEMBER 31,2000
                                           -----------------           ----------------
                                        SERIES 1      SERIES 2      SERIES 1      SERIES 2
                                        --------      --------      --------      --------
                                                         NIS. (THOUSANDS)
                                        --------------------------------------------------
<S>                                     <C>          <C>            <C>          <C>
      First year - current portion         2,335        10,673         2,170        11,477
                                        --------      --------      --------      --------

      Second year                             --            --        10,673         2,170
                                        --------      --------      --------      --------
                                          11,477         2,335        21,346         4,340
                                        ========      ========      ========      ========
</TABLE>

            *     Registered debentures (Series 1) NIS. 1.- par value each.
                  Every NIS. 55.- par value of debentures are convertible into
                  10 ordinary shares NIS. 1.- par value each. The debentures
                  bear interest at an annual rate of 0.1%. The principal,
                  interest and the price for conversion into ordinary shares are
                  linked to the representative rate of exchange of the U.S.
                  dollar and are redeemable on November 30, 2002. As of the
                  balance sheet date, there were 5,984,411 outstanding
                  debentures. The market value of the debentures, at the balance
                  sheet date was NIS. 11,071 thousand.

            **    Registered debentures (Series 2) NIS. 1.- par value each.
                  Every NIS. 5.- par value of debentures are convertible into an
                  ordinary shares NIS. 1.- par value each. The debentures bear
                  interest at an annual rate of 2.5%. The principal, interest
                  and the price for conversion into ordinary shares are linked
                  to the representative rate of exchange of the U.S. dollar and
                  are redeemable on November 30, 2002. As of the balance sheet
                  date, there were 1,325,855 outstanding debentures. The market
                  value of the debentures, at the balance sheet date was NIS.
                  2,282 thousand.


                                                                              31
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 15 - LONG-TERM LIABILITIES (CONTINUED)

            B.    DEBENTURES CONVERTIBLE INTO SHARES OF THE COMPANY (CONTINUED)

                  Accrued interest is included in "Accounts payable" in Current
                  liabilities.

                  Regarding collaterals see Note 28.

                  The above debentures are traded on the Tel-Aviv Stock
                  Exchange.


NOTE 16 - CUSTOMERS' DEPOSITS

            a.    Calculation of customers' deposits - see note 2.L.

            b.    The deposits are calculated on the basis of their present
                  value at an annual discount rate of 4% (2000 - 3.75%).

            c.    Customers' deposits include NIS. 36,167 thousand (2000 - NIS
                  34,558 thousand) of linkage increments accrued on the
                  deposits.

NOTE 17 - LIABILITIES FOR EMPLOYEE RIGHTS UPON RETIREMENT, NET

<TABLE>
<CAPTION>
            Consist of:                                                      DECEMBER 31,
                                                                          ----------------------
                                                                            2001          2000
                                                                          --------      --------
                                                                             NIS. (THOUSANDS)
                                                                          ----------------------
<S>                                                                       <C>           <C>
            Provision for severance pay (a)*                                16,884         9,871
            Less: deposits in approved funds**                               5,239         2,297
                                                                          --------      --------
                                                                            11,645         7,574
            Provision for early retirement pension**(b)                     16,756         8,866
            Provision for redemption of unutilized sick leave (c)            2,035         1,870
                                                                          --------      --------
                                                                            30,436        18,310
                                                                          ========      ========
</TABLE>

             *    Not including NIS. 14,011 thousand (2000 - NIS. 2,664
                  thousand) current portion of liabilities for employee rights
                  upon retirement, net which is included in "Accounts payable".

            **    The deposits can be withdrawn subject to law. Accrued income
                  on the deposits is included in the statements of income.


            (a)   The liabilities of the Company and its subsidiaries in respect
                  of pension and severance indemnities are fully covered by
                  provisions for severance indemnities, by deposits in approved
                  funds and in managers' insurance policies. The deposits in
                  approved funds and in managers' insurance plans are not
                  included in the financial statements as they are not under the
                  control of the Company.


                                                                              32
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 17 - LIABILITIES FOR EMPLOYEE RIGHTS UPON RETIREMENT, NET (CONTINUED)

            (b)   The provision for pension benefits in case of early retirement
                  of employees is computed at the discounted present value of
                  the future liabilities of the Company for such retired
                  employees. The Company's liability for early retirement is
                  generally up to the time when the employee reaches retirement
                  age and is measured as a fixed percentage of the maximum
                  amount due to the employee from the pension fund. The rate of
                  capitalization for computing the provision is 4% per annum,
                  (previous year 7%).

            (c)   In accordance with the labor agreements between subsidiaries
                  and their employees, (men at age 65 and women at age 60-65)
                  are entitled to receive a partial redemption of unutilized
                  sick leave, subject to a ceiling of working days. A provision
                  based on an actuarial calculation has been made in the
                  financial statements for covering the aforesaid liability. The
                  provision is partly based on an actuarial calculation and
                  partly on past experience based inter-alia, on a net
                  capitalization rate of 3%.

NOTE 18 - LINKAGE OF MONETARY BALANCES

<TABLE>
<CAPTION>
                                           DECEMBER 31, 2001                              DECEMBER 31, 2000
                             ------------------------------------------      ------------------------------------------
                                             LINKED TO                                       LINKED TO
                               LINKED         FOREIGN         UNLINKED       LINKED TO        FOREIGN         UNLINKED
                              TO INDEX        CURRENCY           **            INDEX          CURRENCY           **
                             ----------      ----------      ----------      ----------      ----------      ----------
                                          NIS. (THOUSANDS)                                NIS. (THOUSANDS)
                             ------------------------------------------      ------------------------------------------
<S>                          <C>             <C>             <C>             <C>             <C>             <C>
ASSETS:
  Cash and cash
    equivalents                      --          19,103          14,989              --          14,990           6,067
  Marketable securities             587          10,195          16,018              --              --          13,315
  Trade receivables              13,470          57,352         824,611           8,661          82,482         712,420*
  Accounts receivable             1,093           3,386          44,347           5,935              --          20,949*
  Investment in capital
    notes and loans               6,870              --              --           6,887              --              --
  Long-term loans                98,514          20,143           3,889          91,012           9,061          29,355
                             ----------      ----------      ----------      ----------      ----------      ----------
                                120,534         110,179         903,854         112,495         106,533         782,106
                             ==========      ==========      ==========      ==========      ==========      ==========
LIABILITIES:
  Credit from banks
    and others                    1,049         167,809         989,060           1,031          94,253       1,003,722
  Trade payables                     --          68,460          92,113              --          93,003          37,433
  Accounts payable               28,904             846         150,595          30,993         131,169          78,178*
  Long-term liabilities
    and debentures
    (including current
    portion)                    466,321          18,784         277,968         162,219          25,847          51,166
  Customers' deposits            61,545              --              --              --          59,333              --
  Capital notes                      --              --             842              --              --             218
                             ----------      ----------      ----------      ----------      ----------      ----------
                                557,819         255,899       1,510,578         194,243         403,605       1,170,717
                             ==========      ==========      ==========      ==========      ==========      ==========
</TABLE>

*  Reclassified
** Partly bearing interest


                                                                              33
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 18 - LINKAGE OF MONETARY BALANCES (CONTINUED)

Against the excess of foreign currency linked liabilities over assets in the
amount of NIS. 145,720 thousand, Sonol holds fuel and refined products
inventories amounting to NIS. 241,731 thousand, which are mainly Security and
Civilian Inventories valued according to the changes in the rate of exchange of
the US dollar as explained in Note 2.C.1.

NOTE 19 - CAPITAL

      a.    NOMINAL VALUES

<TABLE>
<CAPTION>
      Consist of:                                          AUTHORIZED               ISSUED AND PAID *
                                                           DECEMBER 31,               DECEMBER 31,
                                                      ----------------------      --------------------
                                                        2001          2000          2001        2000
                                                      ---------    ---------      --------    --------
                                                          NIS (THOUSANDS)             NIS (THOUSANDS)
                                                      ----------------------      --------------------
<S>                                                   <C>          <C>            <C>         <C>
       225,000,000 Ordinary shares of
                   NIS 1.- each                       225,000        225,000      139,336      139,336
</TABLE>

*139,335,657 ordinary shares.

            As of December 31, 2001 a consolidated company holds 626,912
            ordinary shares of the Company - see note 2.A.5.

      b.    EARNINGS PER SHARE

            1.    The adjusted net income used in computing earnings per NIS 1.-
                  par value of shares:

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                          -------------------------------------
                                                            2001          2000           1999
                                                          --------      --------       --------
                                                                     NIS. (THOUSANDS)
                                                          -------------------------------------
<S>                                                       <C>           <C>            <C>
      Net income per statement of income                    47,390        71,759         61,027
      Less loss resulting from conversion
        of debentures  (series 1 and 2)                         --           (42)            --
                                                          --------      --------       --------
      Net income used in computing
        primary earnings per share                          47,390        71,717         61,027
      Add (Deduct) theoretical income deriving From:
      Conversion of debentures (series 1)                       --          (216)           100
      Conversion of debentures (series 2)                       --            21            180
                                                          --------      --------       --------
      Net income used in computing
        the Diluted earnings per share                      47,390        71,522         61,307
                                                          ========      ========       ========
</TABLE>


                                                                              34
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 19 - CAPITAL (CONTINUED)

b.    EARNINGS PER SHARE (CONTINUED)

      2.    The par value of shares used in computing earnings per NIS 1.- par
            value share:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
                                                      2001            2000            1999
                                                   ----------      ----------      ----------
                                                           NIS. (THOUSANDS) PAR VALUE
                                                   ------------------------------------------
<S>                                                <C>             <C>             <C>
      Share capital used in computing primary
       earnings per share                             138,720         139,017         138,943
      Add - theoretical share capital
       that may derive from:
      Conversion of debentures (series 1)                  --           2,176           3,445
      Conversion of debentures (series 2)                  --             530           1,008
                                                   ----------      ----------      ----------
      The share capital used in computing the
       diluted earnings per share                     138,720         141,723         143,396
                                                   ==========      ==========      ==========
</TABLE>

      3.    For examining the probability of conversion or exercise of
            convertible securities, the present value was computed using a
            discount rate of 2.5% (2000-6%, 1999-6%) for securities linked to
            the exchange rate of the U.S. dollar.

NOTE 20 - NET SALES

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
                                                      2001            2000            1999
                                                   ----------      ----------      ----------
                                                                NIS. (THOUSANDS)
                                                   ------------------------------------------
<S>                                                <C>             <C>             <C>
      Commercial activities                         2,295,489       2,694,147       2,020,162
      Manufacturing activities                        273,702          91,806          92,725
      Other activities                                  9,960          10,125           9,994
                                                   ----------      ----------      ----------
                                                    2,579,151       2,796,078       2,122,881
                                                   ==========      ==========      ==========
</TABLE>

NOTE 21 - COST OF SALES

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
            A.   Consists of:                         2001            2000            1999
                                                   ----------      ----------      ----------
                                                                NIS. (THOUSANDS)
                                                   ------------------------------------------
<S>                                                <C>             <C>             <C>
      Petroleum products and other
        Materials used**                            1,825,545       2,144,293       1,412,374
      Labor and sub-contract work                      24,491           6,670*         16,091*
      Production costs                                103,782          97,525*        103,808*
      Depreciation                                      9,351           4,311*          6,708*
      Batteries                                            --           2,903          12,477
                                                   ----------      ----------      ----------
      Total cost of sales                           1,963,169       2,255,702       1,551,458
                                                   ==========      ==========      ==========
      (Decrease) Increase in inventories               (2,717)        (33,962)        194,622
                                                   ==========      ==========      ==========
</TABLE>

 * Reclassified
** Financing income (expenses) deriving from the erosion of dollar linked
   credit used as a source for financing purchases of oil inventories is
   included in Cost of sales. (see also note 2.C.)


                                                                              35
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 21 - COST OF SALES (CONTINUED)

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
      B. Per income categories                        2001            2000            1999
                                                   ----------      ----------      ----------
                                                                NIS. (THOUSANDS)
                                                   ------------------------------------------
<S>                                                <C>             <C>             <C>
      Commercial activities                         1,799,483       2,211,757*      1,509,332*
      Manufacturing activities                        159,352          39,527          37,537
      Other activities                                  4,334           4,418           4,589
                                                   ----------      ----------      ----------
                                                    1,963,169       2,255,702       1,551,458
                                                   ==========      ==========      ==========
</TABLE>

NOTE 22 - SELLING AND MARKETING EXPENSES

      Consist of:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
                                                      2001            2000            1999
                                                   ----------      ----------      ----------
                                                                NIS. (THOUSANDS)
                                                   ------------------------------------------
<S>                                                <C>             <C>             <C>
      Salaries                                        120,143          97,443*         97,686*
      Advertising and promotion                        16,403          15,514          13,833
      Depreciation and amortization                    74,885          73,491          80,087
      Maintenance of buildings, plants and
        filling stations                               27,106          27,088          25,662
      Rent and taxes                                   72,055          60,626          51,301
      Other expenses                                   73,011          63,079*         67,950*
                                                   ----------      ----------      ----------
                                                      383,603         337,241         336,519
                                                   ==========      ==========      ==========
</TABLE>

NOTE 23 - GENERAL AND ADMINISTRATIVE EXPENSES

      (1) Consist of:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
                                                      2001            2000            1999
                                                   ----------      ----------      ----------
                                                                NIS. (THOUSANDS)
                                                   ------------------------------------------
<S>                                                <C>             <C>             <C>
      Salaries                                         43,379          41,150*         40,269*
      Depreciation and amortization                    11,793           8,242*          6,328*
      Consulting, legal and audit                       8,862           7,792           4,965
      Provision for doubtful accounts and
      Bad debts                                        10,598           8,251           4,041
      Other expenses                                    9,824          11,887*         15,213*
                                                   ----------      ----------      ----------
                                                       84,456          77,322          70,816
                                                   ==========      ==========      ==========
</TABLE>

*Reclassified


                                                                              36
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 24 - FINANCING EXPENSES, NET

      Income (Expenses) are derived from:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
                                                      2001            2000            1999
                                                   ----------      ----------      ----------
                                                                NIS. (THOUSANDS)
                                                   ------------------------------------------
<S>                                                <C>             <C>             <C>
      Long-term debt                                  (32,308)         (6,641)         (4,978)
      Negotiable securities, net                         (195)          5,375           7,211
      Other receivables and payables                   10,347          16,015          14,628
      Short term loans received                       (66,379)        (94,134)        (93,789)
      Dollar linked convertible debentures                (46)            445            (186)
      Others, including erosion of other monetary
       assets and  liabilities, net                    16,770           7,146*            400*
                                                   ----------      ----------      ----------
                                                      (71,811)        (71,794)        (76,714)
                                                   ==========      ==========      ==========
</TABLE>

NOTE 25 - OTHER INCOME, NET

      Consists of:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
                                                      2001            2000            1999
                                                   ----------      ----------      ----------
                                                                NIS. (THOUSANDS)
                                                   ------------------------------------------
<S>                                                <C>             <C>             <C>
      Gain on sale of investment in affiliated
       Companies                                          145          50,254              --
      Rent                                              1,176           1,195*            205*
      Dividends and shares received                    12,104           2,057             572
      Management fees                                     489           1,819           6,188
      Write off investments and loans to
        affiliated companies and others (1)            (5,599)         (2,211)             --
                                                   ----------      ----------      ----------
      Others                                            1,088             154*         (1,488)*
                                                        9,403          53,268           5,477
                                                   ==========      ==========      ==========
</TABLE>

*Reclassified


                                                                              37
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 25 - OTHER INCOME, NET (CONTINUED)

            (1)   a.    Decrease in the value of investments carried at cost in
                        the amount of NIS. 5,599 thousand (2000 - NIS. 706
                        thousand).

                  b.    In the year 2000, provision for the decrease in the
                        value of loans and investments in affiliated companies
                        in an amount of NIS. 1,505 thousand.

NOTE 26 - TAXES ON INCOME

            a.    The Company and most of its subsidiaries are taxed under the
                  Income Tax Law (Inflationary Adjustments) - 1985, effective as
                  of the tax year 1985, which introduced the measurement of
                  results for income tax purposes in real terms. The various
                  adjustments required by the above mentioned law are made in
                  order to align taxation to a real income basis. Nevertheless,
                  the adjustments of the nominal income according to the Income
                  Tax Law are not always identical to the inflationary
                  adjustments made in the financial statements in accordance
                  with the opinion of the Institute of Certified Public
                  Accountants in Israel. As a result, differences arise between
                  the adjusted income in the statement of income and the
                  adjusted income for income tax purposes. Regarding deferred
                  taxes for these differences, see Note. 2.J.


                                                                              38
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 26 - TAXES ON INCOME (CONTINUED)

      b.    Deferred taxes

            The deferred taxes are regarding:

<TABLE>
<CAPTION>
                                                        DEDUCTIONS
                                                        AND LOSSES     LIABILITIES FOR
                                                        CARRIED FOR-   EMPLOYEE
                                          DEPRECIABLE   WARD FOR TAX   RIGHTS UPON
                                          FIXED ASSETS  PURPOSES       RETIREMENT          OTHERS      TOTAL
                                          ------------  ------------   ----------------    ----------  --------------
                                                                       NIS. (THOUSANDS)
                                          ---------------------------------------------------------------------------
<S>                                       <C>           <C>            <C>                 <C>         <C>
      Balance as of January 1, 2000         (10,152)           287            11,311         12,289         13,735

      CHANGES IN 2000:
       Current                                  983            256             1,114           (570)         1,783
      Reduction on account of
         a company no longer
         consolidated                         3,031             --              (868)          (691)         1,472
      Addition on account of
         investment in a consolidated
          company on account of
          prior years                          (509)            --                --             --           (509)
      Addition on account of
         investment in a consolidated
         company                                 --             --               218             --            218
                                           --------       --------          --------       --------       --------
      Balance as of
        December 31, 2000                    (6,647)           543            11,775         11,028         16,699

      CHANGES IN 2001:
       Current                               (1,193)          (196)           (1,602)        (7,457)       (10,448)
       Reduction on account of
        a company no longer
        consolidated                             --           (255)               (3)           (86)          (344)
      Addition for investment in a
        consolidated company                (58,543)           192            13,478          4,410        (40,463)
                                           --------       --------          --------       --------       --------
       Balance as of
        December 31, 2001                   (66,383)           284            23,648          7,895        (34,556)
                                           ========       ========          ========       ========       ========
</TABLE>


                                                                              39
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 26 - TAXES ON INCOME (CONTINUED)

      THE DEFERRED TAXES ARE PRESENTED IN THE BALANCE SHEET AS FOLLOWS:

<TABLE>
<CAPTION>
                                                                     DECEMBER 31,
                                                               -----------------------
                                                                 2001           2000
                                                               --------       --------
                                                                  NIS. (THOUSANDS)
                                                               -----------------------
<S>                                                            <C>            <C>
      In current assets                                          17,026          8,132
      In current liabilities                                     (3,087)            --
      In intangible assets and deferred charges, net             12,981         10,775*
      In long-term liabilities                                  (61,476)        (2,208)
                                                               --------       --------
                                                                (34,556)        16,699
                                                               ========       ========
</TABLE>

      c.    THE PROVISION FOR TAXES ON INCOME IN THE STATEMENTS OF INCOME
            CONSISTS OF:

<TABLE>
<CAPTION>
                                                            YEAR ENDED DECEMBER 31,
                                                   ------------------------------------------
                                                      2001            2000            1999
                                                   ----------      ----------      ----------
                                                                NIS. (THOUSANDS)
                                                   ------------------------------------------
<S>                                                <C>             <C>             <C>
      Current taxes, including erosion
      Erosion of advance tax payments                  26,153          45,577          37,851
      Deferred taxes, net                              10,448          (1,783)         (3,683)
                                                   ----------      ----------      ----------
                                                       36,601          43,794          34,168
      Taxes on account of prior years                    (156)           (222)            (23)
                                                   ----------      ----------      ----------
                                                       36,445          43,572          34,145
                                                   ==========      ==========      ==========
</TABLE>

      d.    FINAL TAX ASSESSMENTS:

            Sonol received final tax assessments through the year 1990. Supergas
            received final tax assessments through the year 1994. Sprints Motors
            received final tax assessments through the year 1996. The Company,
            Aloc and Sonapco received final tax assessments through the year
            1991.

            The Company and Sonol received tax assessments based on the tax
            assessor's judgement for the years 1997-1999. The main point of
            disagreement with the tax assessor focuses on his allocating
            interest and linkage differences to dividend income, the
            non-recognition of financing expenses allocated by him to a dividend
            paid and to the timing regarding the recognition of various
            expenses. The Company disagrees with the assessor's position and has
            appealed the assessment.

            Supergas received assessments based on the tax assessor's judgement
            for the year 1995-1999 with a request for additional tax resulting
            from the disallowance of expenses related to the revaluation of its
            liability for customer deposits for those years and from the
            non-recognition of financing expenses claimed to have been incurred
            for the payment of a dividend.

*Reclassified


                                                                              40
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 26 - TAXES ON INCOME (CONTINUED)

            The taxation of linkage differences on the deposits is a timing
            difference and, therefore, has no effect on Supergas' operating
            results. Supergas is of the opinion that the financing expenses
            related to the payment of the dividend are recognized expenses and
            that there is no basis for the claim of the income tax authorities.
            Supergas has appealed the assessments.

            The additional tax resulting to the companies from the above
            assessments amounts to approximately NIS. 12 million, not including
            interest and linkage differences.

      e.    RECONCILIATION BETWEEN THE THEORETICAL TAX ON THE REPORTED INCOME
            AND THE TAX ON INCOME INCLUDED IN THE STATEMENTS OF INCOME:

<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31,
                                                       ------------------------------------------
                                                          2001            2000            1999
                                                       ----------      ----------      ----------
                                                                    NIS. (THOUSANDS)
                                                       ------------------------------------------
<S>                                                    <C>             <C>             <C>

      Statutory rate of tax                                    36%             36%             36%
                                                       ==========      ==========      ==========

      The theoretical tax at the applicable tax rat        30,785          38,623          33,426
      Erosion of advanced tax payments                         59              20             267
      Differences in the definition of capital and
       assets for tax purposes, and others, net             5,757           5,151             475
      Provision in respect of prior years                    (156)           (222)            (23)
                                                       ----------      ----------      ----------

                                                           36,445          43,572          34,145
                                                       ==========      ==========      ==========
</TABLE>


                                                                              41
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 27 - SEGMENT REPORTING

      SEGMENT REPORTING BY PRODUCTS AND SERVICES:

      The accounting principles applied in the Segment reporting are in
      accordance with those used on preparing the consolidated financial
      statements of the Company.

<TABLE>
<CAPTION>
                                                 YEAR ENDED DECEMBER 31,2001*
                                     ----------------------------------------------------
                                      FUEL AND    PAINTS AND
                                        GAS        CHEMICALS      OTHERS    CONSOLIDATED
                                     ----------   -----------   ----------  ------------
<S>                                  <C>          <C>           <C>         <C>
Profit and loss data:

INCOME
External sales                        2,344,746       179,365       55,040    2,579,151
Sales within segments                        --            --           --           --
                                     ----------    ----------   ----------   ----------

Net Sales                             2,344,746       179,365       55,040    2,579,151
                                     ----------    ----------   ----------   ----------

RESULTS
Segment results                         133,781        13,429        9,681      156,891
Unallocated expenses                                                             (8,968)
                                                                             ----------

Income from operations                                                          147,923
Financing expenses                                                              (74,691)
Financing income                                                                  2,880
Taxes on income                                                                 (36,445)
Minority interests in consolidated
 companies                                                                       (1,685)
Equity income (loss) of affiliated
 Companies                                 (888)           --          893            5
Other income, net                                                                 9,403
                                                                             ----------
Net income                                                                       47,390
                                                                             ----------
ADDITIONAL INFORMATION
Segment assets                        1,960,239       600,035      165,986    2,726,260
Investments on equity basis              11,915        11,407      105,540      128,862
Unallocated assets                                                              158,303
                                                                             ----------
Total consolidated assets                                                     3,013,425

Segment liabilities                     229,820        94,980       31,467      356,267
Unallocated liabilities                                                       2,063,028
                                                                             ----------
Total consolidated liabilities                                                2,419,295
                                                                             ----------
Capital investments                     121,329        10,350        1,330
Depreciation                             72,423         8,690        3,658
Non cash expenses (not
  including depreciation)                    --         2,214          310
</TABLE>

* The results of Tambour and its consolidated subsidiaries have been included
  from their acquisition date.


                                                                              42
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      A.    FLOATING AND FIXED CHARGES

<TABLE>
<CAPTION>
                                    December 31, 2001    Collateralized by
                                     NIS.(thousands)
                                    -----------------    ------------------------------------------------
<S>                                 <C>                  <C>
Bank overdrafts                                1,775     Floating charges on current assets of the main
                                                         subsidiaries.

Short-term loans from                      1,155,093     Floating charges on the assets of the
 banks                                                   Company and its main subsidiaries

Accounts payable and                                     Floating charges on the assets of the
 credit balances, including                    5,027     Company and of the main subsidiaries
 accrued interest on
 short-term bank loans

Long-term bank loans                         749,262     A charge on the shares of a subsidiary
                                                         company and floating charges on the
                                                         assets of the main subsidiaries and
                                                         fixed charges on portions of the fixed
                                                         assets of some of the Company's main
                                                         subsidiaries.
                                                         (see note 15.A.2 and note 3)

Convertible debentures                        13,818     Floating charges subordinated to other
(including interest)                                     floating charges on all the assets of the
                                                         Company

Investment grants                              2,294     Floating charges on part of the
                                                         fixed assets of consolidated companies
</TABLE>

      B.    LIABILITIES AND CONTINGENCIES

            1.    INDEMNIFICATION AND INSURANCE OF DIRECTORS AND SENIOR OFFICERS

                  The Articles of Association of the Company enable the
                  indemnification and insurance of directors and senior officers
                  according to the law. The Company insures, subject to
                  provisions of the law, the directors' and senior officers'
                  liability.

            2.    PENDING LITIGATION

                  a.    Claims (mostly legal claims) arising in the normal
                        course of business have been lodged against consolidated
                        and affiliated companies. In the opinion of the
                        companies' managements, based on the opinions of the
                        legal counsel, the provisions made for the expected
                        costs are adequate.


                                                                              43
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      B.    LIABILITIES AND CONTINGENCIES (CONTINUED)

            2.    PENDING LITIGATION (CONTINUED)

                  b.    As a result of arbitration proceedings between the Fuel
                        Authority and the agents' and station owners
                        organization, to which Sonol was not a party, the
                        arbitrator ruled that the Fuel Authority is to reimburse
                        the station owners for the depreciation on their
                        investments in stations. The arbitrator's award was
                        confirmed by the district court. The Fuel Authority, in
                        turn, demanded that the oil marketing companies
                        reimburse the station owners for the depreciation (to
                        the extent payable) since it claims that the
                        depreciation component was previously recognized by the
                        Fuel Authority within the framework of the Price
                        Structure. In the opinion of Sonol's legal counsel,
                        there is no basis for the fuel Authority's demand. By
                        virtue of the award, twenty five third party proceedings
                        have been filed by the Government against Sonol
                        regarding claims filed against the Government by station
                        owners for the reimbursement of the investment in the
                        construction of stations. The total of these proceedings
                        amounts to NIS. 40 million and, in the opinion of the
                        company's legal counsel, there is no basis for these
                        claims as far as they relate to Sonol.

                  c.    Three claims were lodged against a formerly affiliated
                        company and against its shareholders, which included
                        Sonol. The total amount of the claims is approximately
                        NIS 61 million relating to the sale of fuel products
                        pursuant to restrictive trade practices (as the
                        plaintiff alleges) among the fuel companies. In the
                        opinion of Sonol's and the formerly affiliated company's
                        legal counsels, the companies have a sound defense
                        against the claims.

                  d.    In 1999, a filling station operator, who received
                        operating rights within the framework of an agreement
                        between war invalids and the rehabilitation department
                        of the Ministry of Defense, the Israel Land Authority
                        and the fuel marketing companies, filed an action in the
                        district court for a ruling declaring the cancellation
                        of agreements between him and Sonol, claiming them to be
                        illegal restrictive trade agreements in accordance with
                        the Law for Restrictive Trade Practices. The operator's
                        claim was rejected by the Court. The rejection of the
                        claim has ramifications on the other claims filed
                        against Sonol claiming illegal restrictive trade
                        agreements, and thus, improves Sonol's defense prospects
                        against such claims. Subsequently, the operator filed an
                        appeal to the Supreme Court contesting the facts of the
                        case and the court's conclusions. The appeal was
                        referred to mediation which was unsuccessful. As a
                        result, the appeal will be heard in court.


                                                                              44
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28- COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      B.    LIABILITIES AND CONTINGENCIES (CONTINUED)

            2.    PENDING LITIGATION (CONTINUED)

                  Another war invalid operating a different filling station has
                  also submitted a claim to the court for a declarative
                  judgement claiming that agreements between him and Sonol are
                  restrictive trade arrangements and, therefore, void. In
                  addition, the claimant is asking for a declaration that the
                  operating agreement includes discriminatory provisions in a
                  standard contract, and that Sonol be ordered to pay him
                  approximately NIS. 2 million as a result of inflated prices
                  which he claims Sonol charged him over the years. The case is
                  at the hearing stage. In view of the above mentioned
                  judgement, Sonol's legal counsel is of the opinion that the
                  defense prospects in this case regarding the claims of
                  restrictive arrangements are favorable. If the arguments for
                  the nullification of the agreements, as a result of their
                  being restrictive arrangements, will be rejected by the court,
                  Sonol's defenses against the station operators' financial
                  claims have a reasonable to good chance of succeeding.

            e.    In 1999, the operators of one of Sonol's filling stations,
                  against whom Sonol filed a claim in the district court in
                  Tel-Aviv, instituted legal proceedings against Sonol. In one
                  proceeding, they requested a declarative judgement stating
                  that inasmuch as a filling station operated by them was to be
                  "freed" under the terms of the arrangement reached between the
                  fuel companies and the Controller of Restrictive Trade
                  Practices, the contractual relationships between them and
                  Sonol should be related to as an arrangement and, therefore,
                  has also terminated. It was also claimed that all agreements
                  between the plaintiffs and Sonol be considered restrictive
                  agreements and, thereby, cancelled. In another proceeding, the
                  above operators are claiming an amount of approximately NIS 15
                  million, alleging having paid exorbitant prices on account of
                  the fuel products they purchased from Sonol, and maintaining
                  that inasmuch as the contractual arrangements between them and
                  Sonol have been terminated as claimed in the other proceeding,
                  Sonol had no right to charge such prices. In the opinion of
                  Sonol's legal counsel defense prospects are good, even though
                  they are unable to determine the defense prospects regarding
                  the claim of a restrictive agreement. It should be noted that
                  the prospects have improved as a result of the court judgement
                  mentioned in sub-paragraph d above. If this claim is accepted
                  there is a risk that the financial claim against Sonol will
                  also be accepted (even though, in such a case, the amount of
                  the claim is exaggerated). Should the above claim regarding a
                  restrictive agreement not be accepted, the prospects of the
                  financial claim against Sonol will be weak.


                                                                              45
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      B.    LIABILITIES AND CONTINGENCIES (CONTINUED)

            2.    PENDING LITIGATION (CONTINUED)

                  f.    In the year 2000, former operators of a filling station
                        filed a monetary claim against Sonol in the amount of
                        approximately NIS 4.2 million on account of alleged
                        exorbitant prices paid for of fuel products purchased
                        from Sonol, maintaining that the contractual
                        arrangements between them and Sonol have been cancelled
                        and/or terminated, being restrictive arrangements. At
                        this time, Sonol's legal counsel are of the opinion that
                        Sonol's defense claims, although difficult to assess,
                        are not insignificant. The matter has been referred to
                        mediation.

                  g.    Sonol filed a claim against one of its agencies for
                        approximately NIS 38 million in the Tel Aviv district
                        court on account of an unpaid balance and damages caused
                        to the Company, alleging that the agency violated the
                        terms of the agency agreement by dealing with one of
                        Sonol's competitors. The agency, in turn, filed a
                        counterclaim in the amount of approximately NIS 58
                        million, stating various causes, including a claim that
                        the contractual agreement between it and Sonol is a
                        restrictive agreement.

                        In the opinion of Sonol's management, based on opinion
                        of the company's legal counsel, the prospects of Sonol's
                        claim against the agency relating to amounts owed to
                        Sonol are good and, regarding the amount claimed for
                        compensation on account of the violation of the agency
                        agreement, such amount is subject to deliberation by the
                        court. Regarding the prospects of the agency's
                        counterclaim, Sonol's legal counsel are unable, at this
                        time, to estimate its prospects, insofar as it relates
                        to the claim of a restrictive agreement. Should the
                        claim of a restrictive arrangement be rejected by the
                        court, the prospects of the counterclaim will not be
                        favorable. At this time, the dispute has been referred
                        to mediation.

                  h.    In 1999, an agency of Sonol, which also operates
                        stations on Sonol's behalf, filed a claim against Sonol
                        asking for declarative and monetary relief. The agency
                        claims that the agreement in effect with Sonol, in
                        regard to one of the stations is a restrictive trade
                        arrangement, and is also a uniform contract with
                        discriminatory provisions and is thus void. In addition
                        the agency is asking that the station be "freed" under
                        the terms of the arrangement with the Controller of
                        Restrictive Trade Practices, and is, therefore,
                        requesting declaratory relief from the court regarding
                        the cancellation of rights granted Sonol to the land on
                        which the station is located, including leasehold and
                        other proprietary rights. The agency is also asking that
                        Sonol be required to pay approximately NIS. 16 million
                        on account of the inflated prices which Sonol is alleged
                        to have charged over the years. It should be noted that
                        Sonol filed a monetary counterclaim against the same
                        agency in the amount of approximately NIS. 19 million on
                        account of amounts due from the agency from the purchase
                        of fuel products from Sonol. A date has been set for
                        pre-trial deliberations.


                                                                              46
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      B.    LIABILITIES AND CONTINGENCIES (CONTINUED)

            2.    PENDING LITIGATION (CONTINUED)

                        At this time, although prospects have improved as a
                        result of the district court's ruling mentioned in
                        sub-paragraph d. above, legal counsel is unable to
                        assess the defense prospects in regard to the alleged
                        restrictive agreement. Should the district court rule in
                        favor of this claim, there is also a risk that the court
                        will accept the monetary claim against Sonol (which,
                        even in such case, the amount of claim is by all
                        accounts exaggerated). If the agency's claim of a
                        restrictive agreement is not accepted by the court, the
                        prospects of the monetary claim against Sonol, are weak.

                  i.    A filling station owner filed a claim against Sonol in
                        the amount of approximately NIS.6 million, claiming that
                        the company owes him commission differentials on account
                        of prior years. In addition, the station owner is asking
                        the court to declare the contracts signed between him
                        and Sonol as void, claiming, inter-alia, that they are a
                        restrictive arrangement. In the opinion of the company's
                        legal counsel, if the claim regarding a restrictive
                        agreement is not accepted, Sonol's prospects for a
                        favorable decision are reasonable.

                        Two additional claims were submitted by two filling
                        station operators in the amount of approximately NIS 4
                        million, for commission differentials they claim, are
                        due them. These were submitted subsequent to Sonol's
                        demand that the station operators relinquish the
                        operation of Sonol's stations. In the opinion of Sonol's
                        legal counsel, the claims' prospects against Sonol are
                        weak.

                  j.    In April 2001 Sonol filed legal claims in a summary
                        procedure against four of its station operators for the
                        recovery of a debt in the amount of NIS. 9 million and
                        also, for their eviction from all four stations. On May
                        20, 2001 the defendants requested the right of defense
                        from the court which has not yet been considered and
                        simultaneously filed a claim for the enforcement of an
                        agreement which they claim was signed on behalf of Sonol
                        giving them the rights to continue operating the
                        stations or alternatively, to receive payment of damages
                        amounting to approximately NIS 9.5 million. In the
                        opinion of the Company's management, the chances of the
                        operators claims are weak. On the other hand, management
                        believes it has a sound basis for its claims against the
                        station operators.

                  k.    On December 31, 2001 filling station operators filed a
                        claim in court against Sonol asking for declarative
                        relief, by granting them rights in the station,
                        preventing Sonol from terminating the agreement
                        appointing them as the station operators and integrally
                        connecting theirs and Sonol's rights to the station.
                        Furthermore, they asked the court to be recognized as
                        protected tenants regarding the station. In addition,
                        they asked the court to declare the agreements


                                                                              47
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      B.    LIABILITIES AND CONTINGENCIES (CONTINUED)

            2.    PENDING LITIGATION (CONTINUED)

                  between them and Sonol to be a restrictive trade arrangement
                  and to order Sonol to sell them fuel products at "free market"
                  conditions and prices. The station operators are also claiming
                  an amount of approximately NIS. 4.4 million, claiming that as
                  a result of a restrictive trade arrangement, Sonol charged
                  them prices in excess of those they would have paid under
                  "free market" conditions, and, also, claiming that Sonol acted
                  in a prejudiced way against them by charging them higher
                  prices than those which Sonol sells to other operators and
                  agents.

                  If the claim to nulify the agreements on the grounds that they
                  are a restrictive trade arrangement is not accepted, then
                  according to the estimate of the company's legal counsel, on
                  the basis of the facts submitted to them stating, inter-alia,
                  that the station and agency in question purchase fuel products
                  at similar prices as those paid by other filling stations of
                  the same type within the Sonol network of stations and other
                  agencies, then Sonol's defense prospects as they relate to the
                  financial claim are reasonable.

            l.    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 fixing of the price of gasoil to
                  consumers. This claim, after being updated and if allowed as a
                  class action, will amount to approximately NIS. 234.4 million
                  against all the companies, of which Sonol's share is
                  approximately to NIS. 55 million, Sonol denies the claim and,
                  according to its legal counsel, chances are good that it will
                  not be allowed as a class action.

            m.    On May 16, 2001 a motion was filed in the Jerusalem district
                  court against Sonol and its subsidiary company, Sprint Motors
                  Ltd. ("Sprint") and four additional companies by customers who
                  purchased fuel products in filling stations, contending that
                  the defendants charged an illegal "service charge" from their
                  customers over a period of many years. The plaintiffs have
                  asked the court to recognize their claim as a class action.
                  The amount of the claim is NIS. 5.30 and, should the court
                  allow a class action, it will total approximately NIS. 379
                  million. From the claim, it is not clear as to what is Sonol's
                  and Sprint's share of this amount. In the opinion of the
                  Company's management and its legal counsel, the chances of the
                  claim to be recognized as a class action are weak.


                                                                              48
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      B.    LIABILITIES AND CONTINGENCIES (CONTINUED)

            2.    PENDING LITIGATION (CONTINUED)

                  n.    In April 1999, a claim in the amount of approximately
                        NIS 8 thousand was filed in the Tel-Aviv district court
                        against Supergas and four other gas companies by several
                        consumers claiming non performance of periodic
                        inspection of gas systems used by the consumers, the
                        sale of a product by deception causing damages, loss of
                        comfort and damage to their safety, thus endangering the
                        lives of consumers. The claim was subsequently amended
                        to NIS. 4.9 thousand. The plaintiffs have asked that the
                        court order the gas companies to make the periodic
                        inspections, to pay damages in the amount mentioned
                        above of approximately NIS 0.8 thousand per plaintiff,
                        and/or issue a declarative order stating that the
                        plaintiffs are entitled to a refund of the amount paid
                        to the defendants from the time agreements were entered
                        into and, also, other orders. Concurrently, the
                        plaintiffs asked that the court consider the claim as a
                        class action.

                        The court ruled only partially in favor of the class
                        action, allowing the claim to be submitted as a class
                        action for declaratory relief only, in accordance with
                        the Consumer Protection Law, regarding the gas
                        companies' obligation to refund to their customers
                        amounts actually paid for periodic inspections which did
                        not take place, retroactive to the date of agreements
                        entered into with each customer. The court rejected the
                        claim for financial and other remedies against the gas
                        companies. Supergas has requested permission from the
                        Supreme Court to appeal the above ruling and, in the
                        opinion of its legal counsel, has valid causes for
                        appeal, both factually and legally. In the opinion of
                        the Company's management, Supergas has recorded an
                        adequate provision in its books for any potential
                        exposure.

                  o.    On June 27, 2001, a claim was filed in the Tel Aviv
                        district court against Supergas, together with a request
                        that the claim be recognized as a class action, in the
                        amount of NIS. 125 million. In addition, Supergas was
                        informed of two additional claims filed against two
                        other gas companies and to which Supergas was included
                        on a formal basis only. The plaintiffs claim to be
                        Supergas' customers of central gas and contend,
                        inter-alia, that Supergas and other gas companies
                        unlawfully charge their customers a periodic fixed
                        charge which was not agreed upon in contracts signed
                        between them and Supergas. Therefore, they contend that
                        Supergas should refund the amounts paid and, in
                        addition, should make an "appropriate" compensatory
                        payment in a manner as to be determined by the court. In
                        the opinion of Supergas's legal counsel, based on the
                        data presently available, Supergas' prospects of success
                        are greater than those of the plaintiffs.


                                                                              49
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      B.    LIABILITIES AND CONTINGENCIES (CONTINUED)

            2.    PENDING LITIGATION (CONTINUED)

                  p.    On August 30, 2001 Petroleum and Energy Infrastructures
                        Ltd. and Oil Products Pipeline Ltd. ("plaintiffs") filed
                        a claim in the amount of NIS. 6.3 million against Sonol
                        and two other fuel companies. According to the
                        plaintiffs, who are engaged in the pumpover of fuel
                        products through a network of pipelines, they also serve
                        as a "clearing house" for the defendants whereby the
                        defendants sell and buy through the plaintiffs the
                        excess/shortage of amounts of fuel that have
                        accumulated. The plaintiffs claim that Sonol and others
                        unlawfully netted amounts from payments due to them,
                        thus causing financial losses to the plaintiffs. The
                        amount claimed from Sonol is approximately NIS. 1.2
                        million. Sonol has not yet submitted its defense.
                        However, in the opinion of its legal counsel, inasmuch
                        as the claim is at an early stage, it is difficult to
                        assess its prospects. Nevertheless Sonol has good
                        defense claims.

                  q.    A group of greenhouse owners, claiming damage caused to
                        them in the amount of approximately NIS. 7.8 million as
                        a result of the use of defective light fuel oil produced
                        by Oil Refineries Ltd. and sold to them by the oil
                        marketing companies, has filed a claim against, Sonol,
                        Oil Refineries Ltd., Paz Oil company Ltd., "Delek" the
                        Israel Fuel Corporation Ltd. and Alon Israel Fuel
                        Company Ltd. Sonol's share of this claim amounts to
                        approximately NIS. 2.3 million. In the opinion of
                        Sonol's management, Sonol has a sound defense against
                        this claim and, in addition, has insurance coverage
                        included in a product liability policy.

                  r.    Pi-Gliloth Petroleum Terminals and Pipeline Ltd. filed a
                        financial claim against Petroleum Products Pipeline Ltd.
                        and the fuel marketing companies "Sonol" "Paz" "Delek"
                        and "Dor" in the amount of approximately NIS. 7.6
                        million. The plaintiff claims that it was entitled by
                        law to payment from the defendants on account of storage
                        of fuel products in storage transfer tanks it owns in
                        its Ashdod installation. The amount claimed from Sonol
                        is approximately NIS. 1.1 million. The claim has been
                        forwarded to arbitration. At this time, Sonol is unable
                        to estimate the prospects of the claim.


                                                                              50
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      B.    LIABILITIES AND CONTINGENCIES (CONTINUED)

            2.    PENDING LITIGATION (CONTINUED)

                  s.    Petroleum Infrastructures Ltd. filed a financial claim
                        in a summary procedure in the amount of approximately
                        NIS. 2.6 million against "Sonol" "Paz", and "Delek" on
                        account of the netting of the said amount by the
                        defendants from payments, under the pretext that gasoil
                        stored by the plaintiff on their behalf was deleted, at
                        some stage, from its records. The amount claimed from
                        Sonol is NIS. 0.7 million. On October 31, 2001 the
                        defendants requested that the claim be transferred from
                        summary procedure to regular procedure. To date, no
                        reply has been received. The prospects of Sonol's
                        defense claims are good.

                  t.    In the period preceding the Company's acquisition of
                        Tambour, an indictment was submitted to the Jerusalem
                        district court against Tambour and several of its former
                        employees who worked for Tambour in the relevant period
                        on account of a violation of the Law of Restrictive
                        Business Practices - 1998. Within the framework of a
                        plea bargain, Tambour was fined NIS. 2.25 million. The
                        Company recorded a provision for the fine when it
                        calculated the purchase price of Tambour. Tambour signed
                        a two year commitment to refrain from violating the Law
                        for Restrictive Practices, and should it not do so, to
                        pay an amount of NIS. 1 million.

                  u.    Two investigations have been instituted by the Israel
                        Police and the Ministry of Energy against Supergas
                        regarding two instances of deaths of customers from
                        leaks of poisonous gas from gas heaters. To date, no
                        recommendation has been received from the police or the
                        district attorney regarding filing for criminal
                        indictment in connection with these deaths.

                  v.    In August 2000, Bank Hapoalim filed a claim against
                        Supergas for the payment of an amount of NIS. 3.4
                        million they claim is owed to the bank by Etzion Gas
                        Products (1998) Ltd. (50% ownership). No date has yet
                        been set for deliberations. Supergas filed for the total
                        cancellation of this claim inasmuch as it did not
                        provide any guarantees for amounts owed by Etzion Gas
                        Products (1998) Ltd. Supergas' request was denied and it
                        has appealed the decision.

                        In the opinion of the Company's management and its legal
                        counsel, Supergas' defense prospects are good.


                                                                              51
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERALS, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      C.    THE CONSOLIDATED COMPANIES ARE COMMITTED AS OF BALANCE SHEET DATE AS
            FOLLOWS:

<TABLE>
<CAPTION>
        (1) COMMITMENTS:                                                NIS.
                                                                    (THOUSANDS)
                                                                    -----------
<S>                                                                 <C>
        Acquisition of fixed assets                                     162,367

        Suppliers of fuel, luboils and equipment
        (delivery January 2002)                                         100,681

        Completion of projects                                           68,963

        Rental leases and obligations in accordance with signed
        agreements with agencies for the use of their outlets for
        marketing the Company's products over various periods(*)      1,077,833

        Lease  obligation for a computer and other equipment for
        various periods for a period of up to five years                  2,084

        (*) The rental liability for each of the years following
        December 31, 2001 is as follows:
             2002                                                        81,300
             2003                                                        76,903
             2004                                                        73,466
             2005                                                        61,730
             2006                                                        57,434
             2007 and thereafter                                        727,000
                                                                    -----------

                                                                      1,077,833
                                                                    ===========
</TABLE>

      (2)   COMMITMENTS FOR INVESTMENTS:

            a.    In 1996, a consolidated company signed an agreement for its
                  participation in a limited partnership to establish a tourist
                  attraction. The investment by the consolidated subsidiary
                  (including loans and guarantees) is expected to reach an
                  amount of up to NIS. 35.7 million linked to the representative
                  rate of the U.S. dollar, for which it will obtain a 35% share
                  in the limited partnership. As of the balance sheet date, the
                  company invested approximately NIS. 7.2 million. see note
                  28.D.5


                                                                              52
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      C.    (2)   COMMITMENTS FOR INVESTMENTS: (CONTINUED)

                  b.    In 1998, a consolidated company entered into a joint
                        venture to construct a building project on jointly owned
                        land. The project will include a 23 story office
                        building covering an area of approximately 23,000 sq. m.
                        and underground parking facilities. In addition, the
                        company signed a conditional agreement whereby it agreed
                        to pay the city of Tel Aviv an amount of NIS. 11.5
                        million, linked to the Index for betterment taxes. As of
                        the balance sheet date, the balance of the liability
                        payable amounted to NIS. 8.6 million.

                        The partners in the joint venture, also entered into an
                        agreement with a bank whereby the bank will provide
                        construction financing throughout the construction
                        period. In return, the consolidated company
                        collateralized its rights to the land and future
                        payments from the project to the bank.

                  c.    Should the restructuring of the companies in the group
                        be realized (see note 1), it is expected that the
                        Company will incur costs, primarily professional fees,
                        taxes on the transfer of assets between companies and
                        other fees. At this time, the extent of these costs
                        is not known.

                  d.    In the year 2000, The Controller of Oil Interests in the
                        Ministry of National Infrastructures ("Controller")
                        granted a license to Granite - Sonol Oil Drilling and
                        Gas Limited Partnership for oil exploration on a tract
                        of land of over 400,000 dunam located between Or Yehuda
                        in the north, Kiryat Malachi in the south and Mishmar
                        Ayalon in the east and known as License No.
                        302/"Modiin". Under the terms of the license, the
                        Limited Partnership was obligated to carry out certain
                        preliminary activities by October 1, 2001. A dispute has
                        arisen between the Controller and the Partnership in
                        regard to carrying out the preliminary activities. On
                        January 9, 2002 the Controller issued a warning to the
                        Company informing it of his intention to revoke its
                        license, due to the non-fulfillment by the company of
                        the agreed upon work plan, with a recommendation that
                        the Company make all the necessary corrections within 60
                        days in order to prevent the revocation of the rights
                        granted to the Limited Partnership under the terms of
                        the license. The Company has appealed the decision.
                        Subsequently, on March 3, 2002, the Company received a
                        notice in accordance with Paragraph 55(a) of Oil Law,
                        stating that the license will not be revoked prior to a
                        ruling by the Minister.


                                                                              53
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      C.    (2)   COMMITMENTS FOR INVESTMENTS: (CONTINUED)

            e.    On September 30, 2001 an agreement was signed between the
                  Company and Naspen Ltd. of the Baran group, whereby the
                  parties to the agreement will invest in equal shares in Oganim
                  Beyarok Ltd. which has been assigned to deal in the country
                  and abroad with leasing land and masts for constructing
                  antennas for communication equipment (TM-Tower Management).
                  According to agreement, the maximum investment of the Company
                  will amount to approximately 5 million U.S. dollars. The
                  agreement is conditional to the endorsement of the agreement
                  by the authorized members of the parties and if necessary the
                  Controller of Restrictive Trade Practices. As of the date of
                  the financial statements, the required approvals have not yet
                  been received, and share capital has not been issued by Oganim
                  Beyarok Ltd. to the Company.

      D.    THE CONSOLIDATED COMPANIES HAVE CONTINGENT LIABILITIES AS OF THE
            BALANCE SHEET DATE AS FOLLOWS:

<TABLE>
<CAPTION>
                                                                            NIS.
                                                                         (THOUSANDS)
                                                                         -----------
<S>                                                                      <C>
            1. Bank guarantees in respect of customers                         4,664

            2. Performance guarantees to customers and others                 17,187

            3. Guarantees to municipalities and tax authorities               12,343

            4. Other guarantees                                                4,315

            5. Guarantees to a bank for the financing of a tourism         Unlimited
               project currently under construction                           Amount

            6. Guarantees given to Customs and Excise Department for
               payment of customs duty, purchase and other taxes by        Unlimited
               the company and consolidated companies                         Amount

            7. Guarantees given to a government agency  account of
               the liabilities of a consolidated company regarding its     Unlimited
               share of oil and gas exploration agreement                     Amount
</TABLE>

      E.    CREDIT RISKS

            1.    The maximum credit risks of the Company regarding its
                  financial assets do not exceed the book value of the financial
                  assets less the existing collateral held by the Company.


                                                                              54
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 28 - COLLATERAL, COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)

      E.    CREDIT RISKS (CONTINUED)

            2.    Concentration of credit risks is created by the fact, that the
                  consolidated company's customers and long-term receivables
                  (long-term loans granted) are of similar character
                  (independent fuel agencies). The highest balance is that of an
                  agent whose current balance (included in trade receivables)
                  and whose long-term balance (included in long-term loans)
                  total approximately NIS. 31.8 million. Against a portion of
                  amounts due from customers, the Company has collateral as is
                  acceptable in the industry. The financial statements include
                  specific provisions for receivables, whose the collection in
                  the opinion of the management, is questionable.

      F.    CURRENCY FUTURE TRANSACTIONS

            As of the balance sheet date, the Company, through a consolidated
            company carried out future currency transactions as follows:

            4 futures contracts for the purchase of dollars in the amount of $
            1.5 million and 5 future contracts in the amount of Euro 2.2 million
            for payment during the months of January - February 2002. The fair
            value of these contracts in the amount of NIS. 454 thousand is
            included in Accounts receivable.


                                                                              55
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 29 - EVENTS IN THE FUEL SECTOR

      In accordance with the Law for Arrangements in the State Economy (2001)
      and the regulations thereto, changes have been enacted regarding the
      holding the Emergency stocks of fuel products. The new regulations have
      established two categories of Emergency stocks: Security Inventories and
      Civilian Inventories (see note 2.C.1). The Security Inventories are stored
      in separate tanks at specified locations and are designated to be used in
      case of an emergency. The Security stocks are therefore included in the
      financial statements as Non-current inventories. The government will
      continue to finance and guarantee the value of inventories defined as
      Security Inventories.

      Regarding the Civilian Inventories, fuel companies selling gasoil to the
      civilian market are required to hold gasoil stocks as determined by the
      Law for Arrangements in the State Economy (2001) and its regulations. The
      government guarantees the value of the Civilian gasoil inventories so that
      the Company does not incur any gains or losses from price fluctuations of
      gasoil. The government does not cover costs incurred from holding these
      inventories. As a result of the above, the inventories whose holding costs
      the Company fully absorbs increased. The price of benzine, which is under
      government price control has been updated in order to enable the companies
      to recover the additional costs resulting from the above changes regarding
      benzine. Other products sold are not subject to price controls. All the
      above changes were effective as of August 1, 2001. The increase in
      commercial stocks, increases the exposure of the Company to fluctuations
      in the value of its inventories, due to fluctuations of market prices of
      petroleum products. Price fluctuations of petroleum products may
      materially affect the periodic operating results of the Company. The
      Company is exploring ways to minimize those effects. It is not possible to
      predict the effects of these changes on the Company's financial results.


                                                                              56
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 30 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES

      a.    INCOME AND EXPENSES FROM INTERESTED AND RELATED PARTIES.

            1.    Consist of:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                             --------------------------------------------------------------------------------------
                                        2001                          2000                         1999
                             --------------------------------------------------------------------------------------
                                                                NIS. (THOUSANDS)
                             --------------------------------------------------------------------------------------
                             Interested       Related      Interested      Related      Interested       Related
                               parties        parties        parties        Parties       parties        parties
                             -----------    -----------    -----------   ------------   -----------   -------------
<S>                          <C>            <C>            <C>           <C>            <C>           <C>
      Financing expenses              --             --             --             --            --            145
      Financing income                --            809             --          1,059            27            724
      Income from
      Management services             --            438             --          1,566            --          6,284
      Purchases                  383,772             --        426,324             --       210,275             --
      Services purchased             658             --            797             --            --             --
</TABLE>

            2.    The decision as to the price at which purchases are made from
                  an interested party is determined by comparison to the price
                  at the gate of the Oil Refineries and the prices charged by
                  other competing suppliers a that time. The price paid by Sonol
                  at any given time was lower than any other alternative
                  available at that time. Credit terms were not less than those
                  available from the Oil Refineries in Haifa or from any other
                  supplier.

            3.    Other transactions with interested and related parties are
                  conducted in the normal course of business and according to
                  normal credit terms and do not exceed 10% of the Company's
                  transactions. The Company has been granted an exemption in
                  accordance with paragraph 64(3) D of the Securities
                  Regulations (Preparation of Annual Financial Statements
                  (correction) - 1995) from the requirement to disclose
                  transactions with interested parties and affiliated companies
                  made during the normal course of business of the Company.

            4.    Sonol purchases most of its fuel products from Oil Refineries
                  Ltd. which is obligated to supply its products to the oil
                  marketing companies at the refinery gate price which is under
                  government control.

      b.    BENEFITS TO INTERESTED PARTIES

<TABLE>
<CAPTION>
                                                                     YEAR ENDED DECEMBER 31,
                                                        -------------------------------------------------
                                              NUMBER          2001           2000               1999
                                                OF      --------------   -------------    ---------------
                                              PERSONS                   NIS. (THOUSANDS)
                                              -------   -------------------------------------------------
      <S>                                     <C>       <C>              <C>              <C>
             1. Interested party employed
                by the Company                   1            3,035          3,184             4,661

             2. Directors                       13            1,026            965             1,144
</TABLE>


                                                                              57
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 30 - TRANSACTIONS AND BALANCES WITH INTERESTED AND RELATED PARTIES
(CONTINUED)

      c.    BALANCES WITH INTERESTED AND RELATED PARTIES

<TABLE>
<CAPTION>
                                                     YEAR ENDED DECEMBER 31,
                                      -----------------------------------------------------
                                                 2001                       2000
                                      -------------------------   -------------------------
                                                        NIS. (THOUSANDS)
                                      -----------------------------------------------------
                                      Interested      Related     Interested      Related
                                        Parties       Parties       Parties       parties
                                      -----------   -----------   -----------   -----------
<S>                                   <C>           <C>           <C>           <C>
CURRENT ASSETS:
Trade receivables                           1,056        25,952         1,965        28,322
Other receivables                              --           203            --           206
                                      -----------   -----------   -----------   -----------
                                            1,056        26,155         1,965        28,528
                                      ===========   ===========   ===========   ===========
Loans and capital notes
 to subsidiary companies                                  9,464                       9,754
                                                    ===========                 ===========

The highest balance with
 interested parties during the year         2,802                       4,707
                                      ===========                 ===========

CURRENT LIABILITIES:
Trade payables                             22,815         6,805        35,953         4,518
Other payables                                 --           506            --           114
                                      -----------   -----------   -----------   -----------
                                           22,815         7,311        35,953         4,632
                                      ===========   ===========   ===========   ===========
The highest balance with
 interested parties during the year        43,849                      54,044
                                      ===========                 ===========

Commitment to purchase fuel
 products  from an interested party        18,831                      30,473
                                      ===========                 ===========
</TABLE>

NOTE 31 - SUBSEQUENT EVENTS

            a.    The Company signed an agreement in principle to participate in
                  a tender published by the Ministry of National Infrastructures
                  for the construction of a salt water desalination plant having
                  a yearly capacity of 15-30 million cubic meters ("Tender").
                  Participation in the Tender will be within the framework of a
                  consortium comprised as follows: Tahal Consulting Engineers
                  Ltd., Ossif Investments and Development Ltd., Middle East
                  Pipelines Ltd., and Ocean Advanced Industries Ltd.
                  ("Group").The Company's share in the Group will be 26.5%. The
                  consortium will operate through a company established
                  especially for this purpose named Via Maris Desalination Ltd.
                  The tender was submitted on January 24, 2002.

            b.    Granite-Sonol Oil and Gas Drilling Limited Partnership
                  ("Partnership"), fully controlled by the Company acquired all
                  the rights of BG International Ltd. ("Sellor") consisting of
                  35% in the site area, in accordance with the Oil Law (1952),
                  known as site 1/9 "Med Ashdod" opposite the Ashdod coastline,
                  for a period of thirty years.


                                                                              58
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 31 - SUBSEQUENT EVENTS (CONTINUED)

                  The acquisition was made at a price of $ 500,000 which was
                  paid on January 25, 2002, at the time of the signing of the
                  agreement. In addition, the Partnership agreed to take the
                  Sellor's place and to be a party to the Joint Operating
                  Agreement (JOA) and also, to continue investing in the license
                  site according to the work plan of the consortium owning the
                  license. The acquisition is subject to the approval of the
                  Controller of Restrictive Trade Practices and the Controller
                  of Oil Matters.

            c.    Tambour, through a consolidated company, is participating in
                  an international tender published by Mekorot Water Corporation
                  Ltd. for the planning, delivery, construction and the initial
                  operation of a water desalination plant having a yearly
                  capacity of 45 million cubic meters. Tambour's participation
                  is through a joint enterprise whose partners, in addition to
                  Tambour, are Aviv Partners, Gaon Agro Ltd., Tahal Engineers
                  and Consultants Ltd., Oceana Advanced Industries Ltd. and
                  Tedagua (a Spanish company specializing in water
                  desalination). Tambour has a 25% share in the joint venture.

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.


                                                                              59
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 32 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)

                           CONSOLIDATED BALANCE SHEETS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             TRANSLATED TO U.S. DOLLARS
                                             --------------------------
                                                    DECEMBER 31,
                                             --------------------------
                                                  2001       2000
                                             --------------------------
<S>                                          <C>           <C>
CURRENT ASSETS
 Cash and cash equivalents                         7,717      5,139
  Marketable securities                            6,070      3,250
  Trade receivables                              198,560    196,065*
  Other receivables                               19,438     10,748*
  Receivables on account of projects
    in progress                                    4,213         --
  Inventories                                     58,620     74,489*
                                                --------   --------
                                                 294,618    289,691
                                                --------   --------

NON-CURRENT INVENTORIES                           28,578         --
                                                --------   --------

INVESTMENTS, LONG-TERM LOANS AND
  RECEIVABLES
 Affiliated companies
   and others                                     40,377     35,310
  Long-term loans                                 27,750     31,584
  Deferred taxes, net                              3,259      1,741
                                                --------   --------
                                                  71,386     68,635
                                                --------   --------

FIXED ASSETS NET OF ACCUMULATED
DEPRECIATION                                     253,309    156,765
                                                --------   --------

INTANGIBLE ASSETS AND DEFERRED
 CHARGES, NET                                     27,406     19,043

                                                --------   --------

                                                 675,297    534,134

                                                ========   ========
</TABLE>

*Reclassified


                                                                              60
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 32 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)

                           CONSOLIDATED BALANCE SHEETS

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                               TRANSLATED TO U.S. DOLLARS
                                               --------------------------
                                                      DECEMBER 31,
                                               --------------------------
                                                  2001          2000
                                               -----------   ------------
<S>                                            <C>           <C>
CURRENT LIABILITIES
Credit from banks and others                     281,311        268,418
Current portion of convertible
 debentures                                        3,047          2,981
Trade payables                                    36,390         31,836
Other payables                                    41,512         29,074*
                                                --------       --------
                                                 362,260        332,309
                                                --------       --------

LONG-TERM LIABILITIES
Long-term loans                                  150,571         51,876
Debentures convertible into shares
 of the Company                                                   3,053
Customers' deposits                               13,936         14,478
Liabilities for employee rights upon
 retirement, net                                   6,892          4,468
Deferred taxes                                    16,161             --
Capital notes issued by a consolidated
 company                                             191             53
                                                --------       --------
                                                 187,751         73,928
                                                --------       --------

MINORITY INTEREST                                  2,938          1,531
                                                --------       --------

SHAREHOLDERS' EQUITY                             122,348        126,366
                                                --------       --------

                                                 675,297        534,134
                                                ========       ========
</TABLE>

*Reclassified


                                                                              61
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 32 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)

                        CONSOLIDATED STATEMENT OF INCOME

                                 (IN THOUSANDS)

<TABLE>
<CAPTION>
                                             TRANSLATED TO U.S. DOLLARS
                                       ---------------------------------------
                                               YEAR ENDED DECEMBER 31,
                                       ---------------------------------------
                                         2001           2000            1999
                                       --------       --------        --------
<S>                                    <C>            <C>             <C>
Sales                                   907,181        981,345*        810,175*
Less: Government imposts               (301,286)      (313,010)       (316,707)
                                       --------       --------        --------

Net sales                               605,895        668,335         493,468
Cost of sales                           462,737        538,749*        360,196*
                                       --------       --------        --------
Gross profit                            143,158        129,586         133,272
                                       --------       --------        --------

Selling, general and
 administrative expenses                 88,953         80,073*         74,892*
Depreciation and amortization            18,653         19,115*         17,654*
                                       --------       --------        --------
                                        107,606         99,188          92,546
                                       --------       --------        --------

Income from operations                   35,552         30,398          40,726
                                       --------       --------        --------

Financing expenses, net                  (8,937)       (20,751)*       (21,232)*
Other income, net                         2,011         13,383*          1,620*
                                       --------       --------        --------
                                         (6,926)        (7,368)        (19,612)
                                       --------       --------        --------

Income before taxes on income            28,626         23,030          21,114
Taxes on income                           6,506          9,791           8,147
                                       --------       --------        --------

Income after taxes on income             22,120         13,239          12,967
Company's share in income
 of affiliates, net                       2,687          2,375             367
Minority interest in consolidated
subsidiaries, net                          (476)          (605)           (701)
                                       --------       --------        --------

Net income for the year                  24,331         15,009          12,633
                                       ========       ========        ========

Earnings per ordinary share
(in U.S. dollars):

Primary and fully diluted                  0.18           0.11            0.09
                                       ========       ========        ========
</TABLE>

*Reclassified


                                                                              62
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

NOTE 32 - FINANCIAL STATEMENTS TRANSLATED INTO U.S. DOLLARS (CONTINUED)

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                                 (IN THOUSANDS)

                           TRANSLATED TO U.S. DOLLARS

<TABLE>
<CAPTION>
                                                                    Company's
                                                                   shares held                        Other
                                                                       by a                        Accumulated
                                        Common        Capital      consolidated      Retained     Comprehensive
                                        stock         Reserves       company         Earnings        Income *         Total
                                       --------       --------     ------------      --------     -------------      --------
<S>                                    <C>            <C>          <C>               <C>          <C>                <C>
Balance as at January 1, 1999            59,599         64,328             --         (11,246)            (16)        112,665
 Changes in 1999:
 Net income for the year                     --             --             --          12,633              --          12,633
 Dividend paid                               --             --             13         (14,823)             --         (14,810)
 Acquisition of the Company's
   shares held by a consolidated
   company                                   --             --           (154)             --              --            (154)
 Unrealized gains on securities              --             --             --              --             630             630
 Reclassification adjustment for
   gains included in net income              --             --             --              --             (29)            (29)
                                       --------       --------       --------        --------        --------        --------
 Balance as December 31, 1999            59,599         64,328           (141)        (13,436)            585         110,935
                                       --------       --------       --------        --------        --------        --------

 Changes in 2000:
 Net income for the year                     --             --             --          15,009              --          15,009
 Acquisition of the Company's
   shares held by a consolidated
   company                                   --             --           (669)             --              --            (669)
 Conversion of debentures to
   shares                                    97            714             --              --              --             811
 Reclassification adjustment for
   gains included in net income              --             --             --              --             280             280
                                       --------       --------       --------        --------        --------        --------
 Balance as December 31, 2000            59,696         65,042           (810)          1,573             865         126,366
                                       ========       ========       ========        ========        ========        ========
 Changes in 2001:
 Net income for the year                     --             --             --          24,331              --          24,331
 Dividend paid                               --             --             --         (27,934)             --         (27,934)
 Acquisition of the Company's
   Shares held by a consolidated
   Company                                   --             --            (62)             --              --             (62)
 Reclassification adjustment for
   Gains included in net income              --             --             --              --            (353)           (353)
                                       --------       --------       --------        --------        --------        --------

Balance as December 31, 2001             59,696         65,042           (872)         (2,030)            512         122,348
                                       ========       ========       ========        ========        ========        ========
</TABLE>

*     Deriving from unrealized gains (losses) on marketable securities. Tax
      effect is immaterial.


                                                                              63
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

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)    DEFERRED TAXES IN RESPECT OF DIFFERENCES IN MEASURING
                  NON-MONETARY ITEMS:

                  Deferred taxes in respect of differences in the measuring of
                  non-monetary items (mainly fixed assets and inventories) for
                  accounting purposes (U.S. dollar) and for tax purposes
                  (Adjusted NIS).

                  IN ACCORDANCE WITH ISRAELI GAAP:

                  Companies record deferred taxes in respect of all such
                  differences.

                  IN ACCORDANCE WITH U.S. GAAP:

                  According to paragraph 9(f) of FAS No. 109, deferred taxes
                  should not be provided in respect of such differences.

            b)    MARKETABLE SECURITIES

                  IN ACCORDANCE WITH ISRAELI GAAP:

                  Israeli GAAP divides marketable securities into two
                  categories: Marketable securities that constitute a "current
                  investment" are stated at market value.

                  Marketable securities, that constitute a "permanent
                  investment" are stated at cost (and in respect to debentures -
                  include accumulated interest), except where their market value
                  is lower, and the decline in value is not considered to be
                  temporary. Changes in value are charged to the statement of
                  income. See also note 2F above.

                  IN ACCORDANCE WITH U.S. GAAP:

                  FAS No. 115 divides marketable securities into three
                  categories:

                  (1)   Marketable securities that are acquired and held
                        principally for the purpose of selling them in the near
                        future, are classified as "trading securities" and are
                        reported at their fair value. Unrealized gains and
                        losses are included in the statement of income.

                  (2)   Debt securities that the company intends hold to
                        maturity are classified as "held-to-maturity" securities
                        are reported at their amortized cost.

                  (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.


                                                                              64
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

<TABLE>
<CAPTION>
LIST OF THE MAIN SUBSIDIARIES AND AFFILIATES                               HOLDINGS AND
--------------------------------------------                              CONTROL AS OF
                                                                         DECEMBER 31,2001
                                                                         ----------------
                                                                                 %
                                                                                ---
<S>                                                                      <C>
         Consolidated Subsidiaries:
         Sonol Israel Ltd.                                                      100
         Tambour Ltd.                                                           100
         Sprint Motors Ltd.                                                     100
         Sprint Motors Agencies (1995) Ltd.                                     100
         Sprint Motors Transport (1999) Ltd.                                    100
         Milchen Sonol Agency Ltd.                                               66.67
         Sonol J-M Ltd.                                                          70
         Sonol Dan (1992) Ltd.                                                  100
         Sonol Agencies Shuvas (1996) Ltd.                                      100
         Sonol Darom Ltd.                                                       100
         Sonol Cnaan Ltd                                                         51
         Sonol Shani Agencies Ltd.                                               51
         Sonokal (1999) Limited Partnership                                      51
         Allied Oils and Chemicals Ltd.                                         100
         Sonapco Bank Street Corporation                                        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
         Supergas Etzion Holdings (1997) Ltd.                                   100
         Rav Gas Ltd.                                                            55
         Granite Hacarmel Holdings (1993) Ltd.                                  100
         Granite Hacarmel Properties (1993) Ltd.                                100
         Granite Hacarmel O.Y. Holdings Ltd.                                    100
         Granite Hacarmel Development Holdings Ltd.                             100
         Sonol Granite Oil Exploration - Limited Partnership                    100
         Granite Hacarmel Development Ltd.                                      100
         Sonol Granite Oil Exploration - Limited Partrnership                   100
         Granite Hacarmel Industries Holdings Ltd                               100
         Granite Hacarmel Industries Ltd.                                       100
         Granite Hacarmel Y.A. Holdings Ltd.                                    100
         Granite Hacarmel NZV Holdings Ltd.                                     100
         Granite Hacarmel Motorika Holdings Ltd.                                100
         Granite Hacarmel Energy Holdings Ltd.                                  100
         Granite Hacarmel Energy (1997) Ltd.                                    100
         Granite Hacarmel Tourism Ltd.                                          100
         Otzem Promotion and Investments (1991) Ltd.                            100
         Sonor Ltd.                                                             100
         After Holdings Ltd.                                                    100
</TABLE>


                                                                              65
<PAGE>
GRANITE HACARMEL INVESTMENTS LIMITED AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

<TABLE>
<CAPTION>
LIST OF THE MAIN SUBSIDIARIES AND  AFFILIATES (CONT.)                       HOLDINGS AND
---------------------------------------------                              CONTROL AS OF
                                                                         DECEMBER 31, 2001
                                                                         -----------------
                                                                                 %
                                                                                ---
<S>                                                                       <C>
         Consolidated Subsidiaries: (cont.):
         R.R.E. Rotem Engineering Ltd.                                           77
         S.D.L. Technology (sol) Ltd.                                            55.46
         Gil - the Israeli Marketing Paint Company                              100
         Tambour Ecology Ltd.                                                    77
         Tambour Investments 1996 Ltd.                                          100
         Tambourechev 1997 Ltd.                                                 100
         Safety Kleen (Israel) Ltd.                                              77
         Tzevah Paint Industries Ltd.                                           100
         Tzah-Israeli Printing Inks Ltd.                                        100
         Serafon Resinous Chemicals Corp. Ltd.                                  100
         Serafon Trading 1997 Ltd.                                              100
         Tovalah Ltd.                                                           100
         Cotachem Farben G.M.B.H                                                100
         Tambour Distribution Ltd.                                              100
         Askar Ltd.                                                             100

         Affiliated Companies (accounted for by the equity
           method):
         Texma Chemicals Ltd.                                                    50
         Yarok Az Ltd.                                                           22.9
         Etzion Gas Products (1999) Ltd.                                         50
         Lev Magor Management and Services Ltd.                                  50
         Park Cible Management and Holdings Ltd.                                 50
         Nitzba Holdings (1995) Ltd.                                             10.66
         Orpak Industries (1983)Ltd                                              10.1
         Park Mini Israel Ltd.                                                   35
         Kleesson Holdings (1999)  Ltd.                                          50
         Park Mini Israel - Limited Partnership                                  35
         International Ilios Cotachem S.A                                        43
         L.D.I.-Leasing Dynamics International Ltd.                              25.1
</TABLE>

The above list does not include inactive and/or immaterial affiliated companies
and others


                                                                              66
<PAGE>




                                 OPHIRTECH LTD.
                            (An Israeli Corporation)
                               2001 ANNUAL REPORT
<PAGE>
                                 OPHIRTECH LTD.
                               2001 ANNUAL REPORT




                                TABLE OF CONTENTS




<TABLE>
<CAPTION>
                                                           PAGE

<S>                                                        <C>
REPORT OF INDEPENDENT AUDITORS                               2
FINANCIAL STATEMENTS - IN ADJUSTED
   NEW ISRAELI SHEKELS (NIS):
   Balance sheets                                            3
   Statements of operations                                  4
   Statements of changes in shareholders' equity             5
   Statements of cash flows                                  6
   Notes to financial statements                           7-27
</TABLE>
<PAGE>
                         REPORT OF INDEPENDENT AUDITORS


To the shareholders of
OPHIRTECH LTD.


We have audited the balance sheets of Ophirtech Ltd. (the "Company") as of
December 31, 2001 and 2000 and the statements of operations, changes in
shareholders' equity and cash flows for the year ended December 31, 2001 and for
the period from March 29, 2000 (date of incorporation, see note 1a(1)) to
December 31, 2000. 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 generally accepted
in Israel and in the United States, including those prescribed by the Israeli
Auditors (Mode of Performance) Regulations, 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 the Company's Board of
Directors and 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 financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of December 31,
2001 and 2000 and the results of its operations, the changes in its
shareholders' equity and its cash flows for the year ended December 31, 2001 and
for the period from March 29, 2000 to December 31, 2000, in conformity with
accounting principles generally accepted in Israel. Furthermore, in our opinion,
the financial statements referred to above are prepared in accordance with the
Israeli Securities (Preparation of Annual Financial Statements) Regulations,
1993.

As explained in note 1b, the financial statements referred to above are
presented in values adjusted for the changes in the general purchasing power of
Israeli currency, in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel.

Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of nominal
historical loss and shareholders' equity to the extent summarized in note 11.

The special condensed financial statements which are presented in note 10 have
been translated into U.S. dollars for the convenience of one of the Company's
shareholders, in accordance with the principles set forth in Statement of
Financial Accounting Standards No. 52 of the Financial Accounting Standards
Board of the United States. In our opinion, the translation has been properly
made.


Tel-Aviv, Israel                                    Kesselman & Kesselman
   February 20, 2002                         Certified Public Accountants (Isr.)


                                       2
<PAGE>
                                 OPHIRTECH LTD.
                                 BALANCE SHEETS
                         IN ADJUSTED NEW ISRAELI SHEKELS


<TABLE>
<CAPTION>
                                                               DECEMBER 31
                                                          ----------------------
                                                             2001       2000
                                                          ---------    ---------
                                                   NOTE       IN THOUSANDS
                                                   -----  ----------------------
                                                    5b

                     A S S E T S
<S>                                                 <C>    <C>        <C>
CURRENT ASSETS:
   Cash and cash equivalents                                   989          1
   Short-term loan to a company which is an
     interested party                               9a                 12,045
   Accountants receivable                           9b       1,033         12
                                                           -------    -------
        Total  current assets                                2,022     12,058
                                                           -------    -------
INVESTMENTS IN COMPANIES                             2      70,326     98,573
                                                           -------    -------
FIXED ASSETS:                                        3
   Cost                                                        374        276
   L e s s - accumulated depreciation                           66          3
                                                           -------    -------
                                                               308        273
                                                           -------    -------
                                                            72,656    110,904
                                                           =======    =======
         LIABILITIES AND SHAREHOLDERS' EQUITY       5b
CURRENT LIABILITIES :
   Short-term bank credit                           9c        2000
   Short-term loan from a company which is an
     interested party                               9a       4,713
   Accounts payable and accruals                    9d         615        164
                                                           -------    -------
        Total  current liabilities                           7,328        164
LIABILITY FOR EMPLOYEE RIGHTS UPON RETIREMENT,
   net of amount funded                              4          67
COMMITMENT                                          5a
                                                           -------    -------
        Total  liabilities                                   7,395        164
SHAREHOLDERS' EQUITY                                 6      65,261    110,740
                                                           -------    -------
                                                            72,656    110,904
                                                           =======    =======
</TABLE>



                                        ) RAZ STEINMETZ
                    --------------------
                                        ) CHAIRMAN OF THE BOARD OF
                                          DIRECTORS

                                        ) YERMIYAHU KAPLAN
                    --------------------
                                        ) MANAGING DIRECTOR


   Date of approval of the financial statements: February 20, 2002


    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.



                                       3
<PAGE>
                                 OPHIRTECH LTD.
                            STATEMENTS OF OPERATIONS
                         IN ADJUSTED NEW ISRAELI SHEKELS




<TABLE>
<CAPTION>
                                                                        PERIOD FROM
                                                                      MARCH 29, 2000
                                                                          (DATE OF
                                                                      INCORPORATION, SEE
                                                         YEAR ENDED    NOTE 1a(1)) TO
                                                        DECEMBER 31,     DECEMBER 31,
                                                 NOTE       2001             2000
                                                 ----   -----------   -----------------
<S>                                              <C>    <C>           <C>
    WRITE-DOWN OF INVESTMENTS IN
       COMPANIES                                   2         44,809        2,535
    GENERAL AND ADMINISTRATIVE EXPENSES           9g            990          217
    FINANCIAL INCOME - net                                     (320)        (833)
                                                            -------      -------
    LOSS FOR THE PERIOD                                      45,479        1,919
                                                            =======      =======
</TABLE>











    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.



                                        4
<PAGE>
                                 OPHIRTECH LTD.
                  STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                         IN ADJUSTED NEW ISRAELI SHEKELS



<TABLE>
<CAPTION>
                                                      RECEIPTS ON
                                                        ACCOUNT
                                              SHARE    OF SHARES   ACCUMULATED
                                             CAPITAL     TO BE       DEFICIT      TOTAL
                                                        ALLOTTED
                                            --------  ------------  -----------   ------
                                                             IN THOUSANDS
                                            --------------------------------------------
<S>                                          <C>       <C>          <C>          <C>
PERIOD FROM MARCH 29, 2000 (DATE OF
   INCORPORATION, SEE NOTE 1a(1) TO
   DECEMBER 31, 2000:
   Issuance of share capital                 *                                         *
   Receipts on account of shares to be
     allotted, see note 6b                             131,711                   131,711
   Difference between cost of acquisition
     of investments in companies from a
     company under common control and
     the carrying value of those
     investments on the books of that
     company, see note 1a(1)                                        (19,052)     (19,052)
   Loss                                                              (1,919)      (1,919)
                                             -------   -------      -------      -------
BALANCE AT DECEMBER 31, 2000                           131,711      (20,971)     110,740
CHANGES DURING 2001 - loss                                          (45,479)     (45,479)
                                             -------   -------      -------      -------
BALANCE AT DECEMBER 31, 2001                 *         131,711      (66,450)      65,261
                                             =======   =======      =======      =======
</TABLE>


               * Represents an amount less than adjusted NIS 1,000





    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.



                                        5
<PAGE>
                                 OPHIRTECH LTD.
                            STATEMENTS OF CASH FLOWS
                         IN ADJUSTED NEW ISRAELI SHEKELS

<TABLE>
<CAPTION>
                                                                         PERIOD FROM
                                                                          MARCH 29,
                                                                        2000 (DATE OF
                                                                        INCORPORATION,
                                                                          SEE NOTE
                                                           YEAR ENDED     1a(1)) to
                                                          DECEMBER 31,   DECEMBER 31,
                                                              2001           2000
                                                          ------------   ------------
                                                                  IN THOUSANDS
                                                          ---------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                       <C>           <C>
   Loss for the period                                       (45,479)       (1,919)
   Adjustments required to reflect the cash flows from
     operating activities*                                    44,312         1,857
                                                             -------       -------
   Net cash used in operating activities                      (1,167)          (62)
                                                             -------       -------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of fixed assets                                      (98)         (276)
   Investment in companies (including acquisition from a
     company which is an interested party)                   (16,562)     (125,672)
   Decrease (increase) in short-term loan to a company
   which is an interested party - net                         16,815        (5,700)
                                                             -------       -------
   Net cash provided by (used in) investing activities           155      (131,648)
                                                             -------       -------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Receipts on account of shares to be allotted                            131,711
   Short-term bank credit                                      2,000
                                                             -------       -------
   Net cash provided by financing activities                   2,000       131,711
                                                             -------       -------
INCREASE IN CASH AND CASH EQUIVALENTS                            988             1
BALANCE OF CASH AND CASH EQUIVALENTS AT
   BEGINNING OF PERIOD                                             1
                                                             -------       -------
BALANCE OF CASH AND CASH EQUIVALENTS AT
   END OF PERIOD                                                 989             1
                                                             =======       =======
*  ADJUSTMENTS REQUIRED TO REFLECT CASH FLOWS
   FROM OPERATING ACTIVITIES:
   Expenses not involving cash flows:
     Depreciation                                                 63             3
     Write down of investments in companies                   44,809         2,535
     Liability for employee rights upon retirement - net          67
     Linkage differences on a loan from a company which
      is an interested party                                     (57)         (833)
                                                             -------       -------
                                                              44,882         1,705
                                                             -------       -------
   Changes in operating asset and liability items:
     Increase in accounts receivable                          (1,021)          (12)
     Increase in accounts payable and accruals                   451           164
                                                             -------       -------
                                                                (570)          152
                                                             -------       -------
                                                              44,312         1,857
                                                             =======       =======
</TABLE>


    THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.



                                        6
<PAGE>
                                 OPHIRTECH LTD.
                          NOTES TO FINANCIAL STATEMENTS


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

         The significant accounting policies, applied on a consistent basis, are
         as follows:

         a. GENERAL:

            1)  Ophirtech Ltd. (the "Company"), which is owned by Polar
                Investments Ltd. (42.5%), Ampal (Israel) Ltd. and Ampal
                Industries (Israel) Ltd. (42.5%) and Gmul Investment Company
                Ltd. (15%), was incorporated on March 29, 2000. The Company
                invests in start-up companies in various stages of
                development, from newly established enterprises to companies
                that have reached advanced development stage.

                On March 30, 2000, the Company purchased investments in
                high-tech companies engaged in various fields of activity
                (communications, software, security, etc.) from Ophir Holdings
                Ltd. ("Ophir Holdings"), a company under common control, for
                approximately adjusted NIS 72.7 million, an amount representing
                the fair value of the said investments. The difference between
                the proceeds and the carrying value of those investments on the
                books of Ophir Holdings was carried to the Company's accumulated
                deficit, in accordance with the Israeli Securities (Presentation
                in Financial Reports of Acts between Body Corporate and its
                Controlling Member) Regulations, 1996.

                On January 1, 2001, the employees of Ophir Holdings and one of
                its subsidiaries were transferred to the Company. Ophir Holdings
                and its subsidiary participate in the employees' payroll costs,
                as well as the Company's general and administrative expenses -
                see note 9g.

            2)  Interested parties - as defined in the Israeli Securities
                (Preparation of Annual Financial Statements) Regulations, 1993.

         b. ADJUSTED FINANCIAL STATEMENTS:

            1)  The financial statements have been prepared on the basis of
                historical cost adjusted for the changes in the general
                purchasing power of Israeli currency, in accordance with
                pronouncements of the Institute of Certified Public Accountants
                in Israel (the "Israeli Institute"). All figures in the
                financial statements are presented in adjusted new Israeli
                shekels (NIS) which have a uniform purchasing power (December
                2001 adjusted NIS) - based upon the changes in the Israeli
                consumer price index (the "Israeli CPI", see also h. below).

                The adjustment of the financial statements is based on the
                accounts of the Company, maintained in nominal NIS. Condensed
                nominal Israeli currency data, on the basis of which the
                adjusted financial statements were prepared, are presented in
                note 10.

                The components of the statements of operations were, for the
                most part, adjusted as follows: the components relating to
                transactions carried out during the period were adjusted on the
                basis of the index for the month in which the transaction was
                carried out, while those relating to non-monetary balance sheet
                items (mainly depreciation and write-down) were adjusted on the
                same basis as the related balance sheet item. The financing
                component represents financial income and expenses in real terms
                and the erosion of balances of monetary items during the period.



                                       7
<PAGE>
                                OPHIRTECH LTD.
                  NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

            2)  The adjusted amounts of non-monetary assets do not necessarily
                represent realization value or current economic value, but only
                the original historical values, adjusted to reflect the changes
                in the general purchasing power of Israeli currency. In these
                financial statements, the term "cost" signifies cost in adjusted
                Israeli currency.

            3)  In October 2001, the Israeli Accounting Standards Board issued
                Accounting Standard No. 12, "Discontinuance of Adjusting
                Financial Statements for Inflation". Standard 12 provides for
                the discontinuance of inflation-adjusted financial statements
                and the return to the nominal-historical financial reporting as
                it generally practiced in the world, due to the significant
                decrease in recent years in the inflation rates, and the less
                common usage of linkage in the Israeli economy.

                The date for the transition to nominal-historical reporting will
                be January 1, 2003.

                According to this Standard, the adjustment of financial
                statements for inflation will be discontinued commencing January
                1, 2003. Through December 31, 2002, the Company will continue to
                draw up financial statements, adjusted to inflation in
                accordance with Opinion No. 36 of the Israeli Institute. The
                inflation-adjusted amounts as of December 31, 2002, will be the
                base for the nominal-historical financial reporting in the
                following periods.

                The implementation of Standard No. 12 will mainly effect the
                financial expenses item.

         c. INVESTMENTS IN COMPANIES

            The investments in the shares of these companies are presented at
            cost.

            The Company revenues for impairment its investments in these
            companies from time to time. Impairment losses, not of a temporary
            nature, that are revealed by such revenues are included in the
            Company's accounts.

            As to the investments transferred from Ophir Holdings, see a(1)
            above.

         d. FIXED ASSETS:

            1)  These assets are stated at cost.

            2)  The assets are depreciated by the straight-line method, on basis
                of their estimated useful life.

                Annual rates of depreciation are as follows:

<TABLE>
<CAPTION>
                                    %
<S>                               <C>
Vehicles                            15
Office furniture and
equipment(including computers
 and peripheral equipment)         7-33
</TABLE>



                                       8
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued):

         e. CASH EQUIVALENTS

            The Company considers all highly liquid investments, which include
            short-term bank deposits (up to three months from date of deposit)
            that are not restricted as to withdrawal or use, to be cash
            equivalents.

         f. LOSS PER NIS 1 OF PAR VALUE OF SHARES

            The financial statements do not include data regarding loss per NIS
            1 of par value of shares, since the data would not provide
            significant additional information to that otherwise provided by the
            financial statements.

         g. LINKAGE BASIS

            Balances the linkage arrangements in respect of which stipulate
            linkage to the last index published prior to date of payment are
            stated on basis of the last index published prior to balance sheet
            date (the index for November).

         h. DATA REGARDING THE EXCHANGE RATE AND THE ISRAELI CPI:

<TABLE>
<CAPTION>
                                              EXCHANGE
                                              RATE OF ONE    ISRAELI
                                              U.S. DOLLAR     CPI*
<S>                                           <C>        <C>
         At end of year:
            2001                               NIS 4.416  170.9 points
            2000                               NIS 4.041  168.5 points
         At March 29, 2000                     NIS 4.008  166.5 points
         Increase (decrease)
          during:
            Year ended December 31,2001          9.3%        1.4%
            Period from March 29, 2000
            (date of incorporation) to
            December 31, 2000                    0.8%        1.2%

</TABLE>

                  *Based on the index for the month ending on each balance
                   sheet date, on the basis of 1993 average = 100.



                                       9
<PAGE>
                                 OPHIRTECH LTD.
                  NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 2 - INVESTMENTS IN COMPANIES:

         a. As stated in Note 1a(1), on March 30, 2000, the Company purchased
            investments in high-tech companies from Ophir Holdings.

            The fair value of the investments upon acquisition was adjusted NIS
            72,761,000 and their book value as recorded in the accounts of Ophir
            Holdings was adjusted NIS 53,709,000.

         b. The rate of shareholding in the companies (fully diluted) at
            December 31, 2001 is as follows:

<TABLE>
<CAPTION>
                                                                           PERCENTAGE
                                                                           OF CONTROL
                                                               PERCENTAGE    (FULLY
                                                               OF CONTROL   DILUTED)
                                                                   %           %
<S>                                                            <C>         <C>
         StoreAge Networking Technologies Ltd. - "StoreAge"(a)     11.0        8.6
         Celvibe Ltd. - "Celvibe" (b)                              14.4       11.2
         Trans4u Ltd. - "Trans4u" (c)                              10.2        9.1
         Electrochemical Light Switch Inc. - "Electro" (d)         15.0       15.0
         Indocs Online Ltd. - "Indocs" (e)                         14.4       13.7
         Expand Networks Ltd. - "Expand" (f)                       11.2        9.2
         Netformx Ltd. - "Netformx" (g)                             5.9        4.9
         Interlink Computer Communications Ltd. - "Interlink"(h)   13.2       12.0
         Carmel Biosensors Ltd. - "Carmel" (i)                     13.7        9.4
         Camelot Information Technologies Ltd. - "Camelot" (j)     13.1       11.8
         Pelican Security Ltd. - "Pelican" (k)                     17.0       13.1
         Praxell Inc. - "Praxell" (l)                               5.9        5.3
         Viola Networks Ltd. (formerly - Omegon Networks
           Ltd.) - "Viola" (m)                                     15.5       13.0
         Mainsoft Corporation - "Mainsoft" (n)                      1.8        1.7
         Romidot Ltd. - "Romidot" (o)                              10.6        7.8
         Iradius.Com, Inc. - "Iradius" (p)                          9.5        8.6
         Elpas Electro-Optic Systems Ltd. - "Elpas" (q)            16.3       14.3
         Techimage Ltd. - "Techimage" (r)                           0.8        0.6
         RealM Technologies Ltd. - "RealM" (s)
         Cipheractive Ltd. - "Cipheractive" (t)                    32.5       29.0
</TABLE>





     (a)  StoreAge is engaged in the development of a software solution and
          innovative data storage solutions for communications networks.

          In December 2000, The Company exercised its right and invested $ 2
          million (adjusted NIS 8,239,000) in StoreAge, as part of the $ 14
          million that StoreAge raised from its shareholders, based on a company
          value of $ 40 million before the money.

          In this financing round the Company acquired 591,324 B preferred
          shares of NIS 0.01 par value and 177,397 warrants exercisable over
          three years to purchase B preferred shares at the exercise price of
          $ 5.0734 per share. After this round of financing, the Company held
          13.8% of the share capital of StoreAge (11.21% on a fully-diluted
          basis).

          In January 2001, StorAge completed a financing round and raised
          approximately $ 11 million (bringing the total amount raised to that
          date to $ 25 million) from various investors (including a strategic
          investor) based on a company value of $ 40 million before the money.



                                       10
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 2 - INVESTMENTS IN COMPANIES (continued):

          StoreAge is partly held by an interested party.

          As of December 31, 2001, the book value of the investment in StoreAge
          is adjusted NIS 12,721,000.

     (b)  Celvibe develops solutions for digital video transmission for Internet
          broadband networks and mobile phone communications.

          In July 2000, the Company invested $ 1.5 million (adjusted NIS 6.1
          million) for approximately 15.8% of Celvibe's share capital. Celvibe
          raised $ 3 million based on company worth of $ 8.5 million before the
          money.

          In December 2000, Celvibe raised $ 220,000 from its shareholders, in
          consideration for 112,089 A preferred shares of NIS 0.01 par value.

          In January and March 2001, the Company invested adjusted NIS 5,538,000
          (approximately $ 1.3 million) in Celvibe, based on company value of
          $24 million before the money.

          Celvibe completed a financing round of $ 10.1 million from the
          issuance of 3,754,706 preferred shares.

          As of December 31, 2001, the book value of the investment in Celvibe
          is adjusted NIS 11,751,000.

     (c)  Trans4u Ltd. develops software for arranging land transport of goods
          in Europe over the Internet.

          In September 2000, the Company granted Trans4u a bridging loan of
          $ 250,000 (approximately adjusted NIS 1 million). This loan will be
          converted into shares when Trans4u raises at least $ 800,000.

          In January 2001, Trans4u raised approximately $ 1.5 million from
          shareholders and others, in consideration for the issuance of
          approximately 25% (on a fully diluted basis) of its share capital. An
          amount of $ 550,000 out of the above amount was raised pursuant to an
          agreement already signed in September 2000.

          Warrants to invest $ 675,000 in purchase of Trans4u's shares were also
          issued, based on a company value of $ 12 million before the money.

          The Company participated in the aforementioned financing round and
          invested $ 550,000 in consideration for 10.2% of Trans4u's share
          capital (9.1% on a fully diluted basis), of which $ 275,000 was
          invested pursuant to the agreement already signed in September 2000.
          The Company also received a warrant to invest $ 275,000 in purchase of
          Trans4u's shares, based on a company value of $ 12 million before the
          money.

          The investment in Trans4u as of December 31, 2001 is presented net of
          a provision of adjusted NIS 1.5 million for impairment of value.



                                       11
<PAGE>
                                 OPHIRTECH LTD.
                  NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 2 - INVESTMENTS IN COMPANIES (continued):

     (d)  Electro which is registered in the United States develops an
          electrochemical optic switching system. In January 2001, the Company
          invested in Electro $ 120,000 (adjusted NIS 505,000) in consideration
          for 15% of its share capital.

          The investment in Electro as of December 31, 2001 is presented net of
          a provision of adjusted NIS 0.5 million for impairment of value.

     (e)  Indocs is engaged in the development of software for E-commerce
          technological applications in the printing field, via the Internet and
          web uses.

          In November 2000, Indocs raised bridging loans of approximately
          $ 470,000 from its shareholders. The Company's share in these loans is
          approximately $ 123,000 (approximately adjusted NIS 511,000).

          The loans will be converted into shares issuable when Indocs raises an
          aggregate amount of $ 2 million, at the issuance price less 10% after
          the first month from the date the loans were granted, with an
          additional discount of 5% for each additional month, up to a maximum
          of 50%. If no such capital raising takes place within 360 days, the
          loans will be converted into A preferred shares of NIS 0.01 par value,
          at a price of $ 20.30 per share.

          In March and August 2001, Indocs raised bridging loans of $ 450,000
          and $ 174,000, respectively, from its shareholders. The loans are
          convertible into Indocs' shares. The Company's share in these loans
          was approximately $ 208,000 (approximately adjusted NIS 875,000).

          The investment in Indocs as of December 31, 2001 is presented net of a
          provision of adjusted NIS 6 million for impairment of value.

     (f)  Expand is engaged in the development of technology designed to
          accelerate communications over diverse network infrastructures
          (including E1, T1 and frame relay lines) and improve broadband
          efficiency.

          In June and September 2000, the Company invested $ 1.35 million
          (adjusted NIS 5.6 million) in Expand.

          Expand raised $ 24.8 million from its shareholders and others, based
          on a company value of $ 55 million before the money.

          As of December 31, 2001, the book value of the investment in Expand is
          adjusted NIS 7,938,000.



                                       12
<PAGE>
                                 OPHIRTECH LTD.
                  NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 2 - INVESTMENTS IN COMPANIES (continued):

     (g)  Netformx is engaged in development, marketing and support of software
          designed for planning, operation and maintenance of computer networks.

          In April 2001, Netformx raised bridging loans of $ 4.8 million from
          its shareholders. The Company's share in these loans was approximately
          $ 250,000 (adjusted NIS 1,048,000).

          The bridging loans will be converted into shares, under certain
          conditions, based on a company value of not less than $ 15 million
          before the money and/ or less a discount, or shall be convertible into
          shares, under certain conditions, based on a company value of $ 2.5
          million before the money.

          Netformx also issued to the participants in the aforementioned
          financing, warrants to invest in Netformx's shares, at an exercise
          price of $ 34.84 per share. The number of warrants issued was equal to
          the cumulative number of preferred shares issued, in respect of the
          bridging loans.

          The investment in Netformx as of December 31, 2001 is presented net of
          a provision of adjusted NIS 7.2 million for impairment of value.

     (h)  Interlink is engaged in the development of an integration software
          facilitating interface between operating systems in an E-commerce
          environment on the Internet.

          The Company has a fifteen month warrant, which commenced in February
          2000, to invest another $ 0.5 million in Interlink, based on company
          value of $ 13 million before the money.

          In June 2001, Interlink raised bridging loans of $ 625,000 from its
          shareholders. The Company's share in these loans was approximately
          $ 250,000 (adjusted NIS 1.046 million).

          Interlink also issued to each of the participants in the
          aforementioned financing, warrants to invest in Interlink's shares, at
          a rate of 50% of the amount of the loans.

          The bridging loans will be converted into Interlink shares, under
          certain conditions, based on a value that will be not less than that
          used in Interlink's next financing round, and/ or less a discount, or
          shall be convertible into shares, under certain conditions, based on a
          company value of $ 5 million before the money.

          As of December 31, 2001, the book value of the investment in Interlink
          is adjusted NIS 6,051,000.

     (i)  Carmel develops products to measure the concentration of glucose in
          blood without using the mechanical instruments currently available.

          In April 2001, Carmel raised bridging loans of $ 1 million from its
          shareholders. The Company's share in these loans was approximately
          $ 50,000 (adjusted NIS 213,000). The bridging loans will be converted
          into shares, under certain conditions.



                                       13
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 2 - INVESTMENTS IN COMPANIES (continued):

          Carmel also issued to each of the participants in the aforementioned
          financing, warrants to invest, under certain conditions, in Carmel's
          shares, in proportion to the amount of their investment and at an
          exercise price of $ 5 per share.

          The investment in Carmel as of December 31, 2001 is presented net of a
          provision of adjusted NIS 0.5 million for impairment of value.

     (j)  Camelot is engaged in development of security software designed to
          automatically control access to computer networks within enterprises
          and real-time detection and response to security breaches by
          unauthorized users.

          In July and September 2000, the Company invested $ 2 million in
          Camelot. Camelot raised approximately $ 20.7 million, based on a
          company value of $ 50 million before the money.

          During the third quarter of 2001, Camelot raised $ 3 million and,
          subsequent to December 31, 2001, a further $ 1.5 million was raised.
          The Company did not participate in these financing round.

          In February 2002, a temporary receiver was appointed for Camelot.

          The investment in Camelot as of December 31, 2001 is presented net of
          a provision of adjusted NIS 14 million for impairment of value.

     (k)  Pelican is engaged in the development of solutions to the problem of
          safeguarding information on the Internet against viruses and hackers.

          In August 2000, the Company gave a $ 1.3 million (adjusted NIS 5.3
          million) bridging loan to Pelican. In consideration, the Company was
          granted the right to a discount on the price per share in the next
          financing round of Pelican to the extent of 5% for each thirty day
          period elapsed since the date of grant of the loan, up to a ceiling of
          25%. If Pelican does not raise at least $ 3 million, the bridging loan
          will be converted into shares on the basis of a company value of $ 27
          million before the money.

          In August and November 2001, Pelican raised bridging loans of $ 1.9
          million from its shareholders and others.

          Pelican has converted bridging loans totalling $ 7.8 million
          (including bridging loans amounting to $ 5.9 million that were raised
          in 2000) into 34% of its share capital (on a fully diluted basis). The
          Company participated in the aforementioned financing round and
          invested, in August and November 2001, $ 350,000 in Pelican (adjusted
          NIS 1,477,000).

          The Company's investment in bridging loans in the amount of $ 1.65
          million (including bridging loans amounting to $ 1.3 million that were
          raised in 2000), was converted into shares of Pelican.



                                       14
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 2 - INVESTMENTS IN COMPANIES (continued):

          As of December 31, 2001, the book value of the investment in Pelican
          is adjusted NIS 7,505,000. This amount is net of a provision of
          adjusted NIS 1 million for impairment in value.

     (L)  Praxell is engaged in the development of a prepaid secured charge card
          for E-commerce transactions.

          In September 2000, the Company invested $ 750,000 (approximately
          adjusted NIS 3 million) for 8.8% of Praxell's share capital (8.2% on a
          fully-diluted basis). The Company has been granted a warrant to invest
          a further $ 250,000 in Paraxell.

          In December 2000, Praxell raised approximately $ 1 million, based on
          company value of $ 12 million before the money.

          Pursuant to an agreement signed in July 2001, Praxell raised $ 2.5
          million at a company value of $ 13.5 million before the money.

          As of December 31, 2001, the book value of the investment in Praxell
          is adjusted NIS 3,090,000.

     (m)  Viola is engaged in the development of a software system to allow
          quick and uninterrupted identifications of problems and technical
          difficulties on various communications networks.

          In June 2000, the Company invested $ 559,000 (approximately adjusted
          NIS 2.31 million) in Viola. Viola raised approximately $ 6 million,
          based on a company value of $ 22 million before the money.

          In December 2001, Viola raised approximately $ 5.1 million in bridging
          loans, which are convertible into shares, at a company value of $ 9
          million before the money. The Company's share in these bridging loans
          was $ 1 million (adjusted NIS 4,226,000).

          After the conversion of the bridging loans into shares, the Company's
          holding in Viola will increase to 16.3% (11.3% on a fully diluted
          basis).

          As of December 31, 2001, the book value of the investment in Viola is
          adjusted NIS 10,843,000. This amount is net of a provision of adjusted
          NIS 2 million for impairment in value.

     (n)  Mainsoft is engaged in the development of software and tools for
          software developers.

          Mainsoft notified its shareholders that it intended to raise up to
          $ 3.6 million in November 2001 from an offering to existing
          shareholders of D preferred shares, at a price of $ 0.60 per share
          with the addition of warrants. The Company declined to take up the
          150,000 shares it was entitled to under the above offer.



                                       15
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 2 - INVESTMENTS IN COMPANIES (continued):

     (o)  Romidot is engaged in development, production and marketing of
          precision measurement systems for the non-ferrous metal and plastic
          industries.

          In August 2000, the Company invested $ 110,000 (approximately adjusted
          NIS 0.4 million) in Romidot. Romidot raised $ 550,000, based on a
          company value of $ 10.3 million before the money.

          With this investment, the Company acquired 3,067 ordinary shares of
          NIS 1 par value at a price of $ 35.865 per share, as well as warrants
          for purchase of 1,859 ordinary shares of Romidot at an exercise price
          of $ 43.04 per share, exercisable over a period of nine months.

          In December 2001, the shareholders of Romidot decided to grant
          warrants to certain employees. These warrants are convertible into 20%
          of Romidot's share capital.

          The investment in Romidot as of December 31, 2001 is presented net of
          a provision of adjusted NIS 3.3 million for impairment in value.

     (p)  Iradius is developing a family and community service website on the
          Internet.

          In May 2000, the Company invested $ 500,000 (approximately adjusted
          NIS 2 million) in approximately 9.5% of the share capital of Iradius.

          In October 2000, Iradius raised bridging loans of $ 1.2 million from
          its shareholders; the Company's share in these loans is $ 300,000
          (adjusted NIS 1,258,000). These loans will be converted into shares by
          April 1, 2001, at the price of the next capital raising round, based
          on company value of not less than $ 7 million before the money and not
          more than $ 12.5 million, and after a discount of 8% for each
          thirty-day period elapsed since the date of grant of the loan, up to a
          ceiling of 40%.

          The investment in Iradius as of December 31, 2001 is presented net of
          a provision of adjusted NIS 3.2 million for impairment in value.

     (q)  Elpas is engaged in the development, production and marketing of
          products and solutions for asset and personnel tracking in hospitals
          and other buildings using infrared technology.

          In September 2000, the Company invested $ 400,000 (approximately
          adjusted NIS 1.6 million) in Elpas. Elpas raised $ 3.5 million, based
          on a company value of $ 8 million before the money.

          As of December 31, 2001, the book value of the investment in Elpas is
          adjusted NIS 4,613,000. This amount is net of a provision of adjusted
          NIS 2.1 million for impairment in value.



                                       16
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 2 - INVESTMENTS IN COMPANIES (continued):

     (r)  Techimage is engaged in the development of algorithm-based software
          for computerized animation for use in Internet advertising.

          In July 2000, Techimage raised $ 750,000, at a price of $ 100 per
          share. The Company exercised its rights and invested $ 17,000
          (adjusted NIS 68,000) in 167 Techimage shares.

          The investment in Techimage as of December 31, 2001 is presented net
          of a provision of adjusted NIS 2.1 million for impairment in value.

     (s)  RealM is engaged in development of video broadcasting equipment
          allowing interaction between the "viewers" and the "master of
          ceremonies," using the Internet infrastructure.

          In May and June 2000, the Company invested $ 350,000 (adjusted NIS 1.4
          million) in RealM. RealM raised approximately $ 3.7 million, based on
          a company value of $ 10 million, before the money.

          The Company has a warrant to purchase 299,950 shares of RealM
          (approximately 8.29% of its share capital) for approximately $400,000.

          In March 2001, RealM raised $ 240,000 as advance payments in respect
          of 20% of bridging loans, which are convertible into shares. The
          financing was based on a company value of $ 4 million before the
          money.

          Within the framework of the above financing, the options for the
          purchase of RealM's shares were cancelled.

          The Company's share in the above bridging loans was $ 50,000 (adjusted
          NIS 211,000).

          In May 2001, the Tel-Aviv-Jaffa District Court appointed a temporary
          receiver for RealM.

          As of December 31, 2001, the investment in RealM had been fully
          written off.

     (t)  Cipheractive is engaged in the development of algorithms and software
          for video encryption and recovery of data and for speeding up of data.

          In July 2000, Cipheractive raised $ 1 million at a company value of
          $2.3 million before the money.

          After balance sheet date the holding of the company in Cipheractive
          was reduced to 7.5%.

          As of December 31, 2001, the investment in Cipheractive had been fully
          written off.



                                       17
<PAGE>
                                 OPHIRTECH LTD.
                  NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 3 - FIXED ASSETS:

        a. COMPOSITION OF ASSETS, GROUPED BY MAJOR CLASSIFICATIONS, AND
CHANGES THEREIN IN 2001, ARE AS FOLLOWS:


<TABLE>
<CAPTION>
                                                             COST               ACCUMULATED DEPRECIATION      DEPRECIATED
                                                 ---------------------------   ---------------------------      BALANCE
                                                 BALANCE                                                        -------
                                                   AT      ADDITIONS  BALANCE  BALANCE AT ADDITIONS BALANCE    DECEMBER 31
                                                 BEGINNING  DURING     AT END  BEGINNING   DURING   AT END     -----------
                                                  OF YEAR  THE YEAR   OF YEAR  OF YEAR    THE YEAR  OF YEAR    2001    2000
                                                 --------  --------   -------  --------  ---------  -------   ------   ----
<S>                                              <C>       <C>        <C>      <C>       <C>        <C>        <C>     <C>
               Vehicles                              152                 152                 23       23       129      152
               Office furniture and equipment          5        89        94                  6        6        88        5
               Computers and peripheral equipment    119         9       128         3       34       37        91      116
                                                 -------   -------    ------   -------  -------  -------   -------  -------
                                                     276        98       374         3       63       66       308      273
                                                 =======   =======    ======   =======  =======  =======   =======  =======
</TABLE>



NOTE 4 - EMPLOYEE RIGHTS UPON RETIREMENT:

         a. Israeli labor laws and agreements requires the Company to pay
            severance pay to employees dismissed or retiring from their employ
            in certain other circumstances.

            The Company's severance pay liability to its employees is covered
            mainly by regular deposits with recognized pension and severance pay
            funds in the employees' names and/or by purchase of insurance
            policies. The amounts funded as above are not reflected in the
            balance sheets since they are not under the control and management
            of the Company.

         b. The amount of liability for severance pay presented in the balance
            sheets reflects that part of the liability not covered by the funds
            and/or insurance policies mentioned in a above, in accordance with
            labor agreements in force,/and based on salary components which, in
            management's opinion, create entitlement to severance pay.


                                       18
<PAGE>
                                 OPHIRTECH LTD.
                  NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 5 - COMMITMENT AND RESTRICTIONS IMPOSED WITH REGARD TO LIABILITIES:

         a. COMMITMENT

            Subsequent to December 31, 2001, the Company invested $ 700,000 in
            Cerel (Ceramic Technologies) Ltd., which develops ceramic layering
            technologies for the passive electrical components market.

            During the first quarter of 2002, Cerel is due to raise
            approximately $ 2 million, based on a company value of $ 7 million
            after the money.

         b. RESTRICTIONS IMPOSED WITH REGARD TO LIABILITIES

            In February 2001, the Company and its shareholders gave a commitment
            to certain banks that the Company would not make any repayments or
            settlements to its shareholders on account of shareholders' loans
            and/or sums received on account of shares up to an amount of
            approximately adjusted NIS 100 million. Also, the grant of credit by
            these banks in excess of $ 5 million is conditional on the Company
            increasing its shareholders' equity - at the time the credit is
            granted - by at least double the amount of the aforementioned
            credit. The maximum amount of the credit to be granted is limited to
            $ 15 million.

NOTE 6 - SHAREHOLDERS' EQUITY:

         a. SHARE CAPITAL

            The share capital as of December 31, 2001 and 2000 is composed of
            ordinary shares of NIS 1 par value, as follows: authorized - 10,000
            shares; issued and paid - 1,000 shares.

         b. RECEIPTS ON ACCOUNT OF SHARES

            On November 1, 2000, the Company received a payment on account of
            shares in the amount of adjusted NIS 131,711,000 from its
            shareholders. The shares have not yet been allotted.

         c. Within the framework of his terms of employment, the Company's
            managing director is entitled to be granted options that can be
            exercised, on the basis of the benefit component in relation to the
            sums received on account of capital invested in the Company, up to
            an amount of 5% of the Company's share capital. As of December 31,
            2001, exercisable options up to 2% of the Company's share capital
            had become vested in accordance with the above entitlement of the
            Company's managing director. The entitlement of the Company's
            managing director to the balance of the warrants will become vested
            over three years, the first ending in April 2002.

NOTE 7 - TAXES ON INCOME:

         a. MEASUREMENT OF RESULTS FOR TAX PURPOSES UNDER THE INCOME TAX
            (INFLATIONARY ADJUSTMENTS) LAW, 1985

            Under this law, results for tax purposes are measured in real terms,
            having regard to the changes in the Israeli CPI. The Company is
            taxed under this law.

         b. LOSSES FOR TAX PURPOSES, CARRIED FORWARD TO FUTURE YEARS

            Carryforward losses aggregate approximately adjusted NIS 1 million
            at December 31, 2001. No deferred tax assets have been included in
            respect of such losses.

         c. TAX ASSESSMENTS

            The Company has not been assessed for tax purposes since
            incorporation (March 29, 2000).


                                       19
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 8 - INTERESTED PARTY TRANSACTIONS AND BALANCES:

         a. TRANSACTIONS:

<TABLE>
<CAPTION>
                                                                     PERIOD FROM
                                                                       MARCH 29,
                                                                    2000 (DATE OF
                                                                    INCORPORATION,
                                                                      SEE NOTE
                                                        YEAR ENDED    1A(2)), TO
                                                      DECEMBER 31,   DECEMBER 31,
                                                          2001          2000
                                                      ------------   -------------
                                                       ADJUSTED NIS IN THOUSANDS
                                                      ----------------------------
<S>                                                    <C>           <C>
             INCOME (EXPENSES):
               Participation in expenses from
                companies which are interested
                parties, see note 1a                     3,207              2
                                                        =======        =======
               Payroll and related expenses of an
                interested party employed by the
                Company                                 (1,266)
                                                        =======
               Financial income (expenses) in
                respect of short-term loan with
                a company which is an
                Interested party                           (25)           757
                                                        =======        =======
</TABLE>

      As to options granted to the Company's managing director see note 6c.

<TABLE>
<S>                                                      <C>           <C>
         b. BALANCES RECEIVABLES (PAYABLES):
             Short-term loan to a company which is
             an interested party                                       *12,045
                                                                       =======
             Short-term loan from a company which
             is an interested party                      (4,713)
                                                        =======        =======
             Interested party - current accounts         *1,005           (152)
                                                        =======        =======
</TABLE>

                * Represent the highest balance during the year.


NOTE 9 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION:

         BALANCE SHEETS:

         a. SHORT-TERM LOAN TO A COMPANY WHICH IS AN INTERESTED PARTY

            The loan is linked to the Israeli CPI and bears no interest.

         b. ACCOUNTS RECEIVABLE:

<TABLE>
<CAPTION>
                                                         DECEMBER 31
                                                      ----------------
                                                     2001            2000
                                                     ----            ----
                                                   ADJUSTED NIS IN THOUSANDS
                                                   -------------------------

<S>                                                     <C>        <C>
               Institutions                                 28        12
               Interested party - current accounts       1,005
                                                       -------    ------
                                                         1,033        12
                                                       =======    ======
</TABLE>


                                       20
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 9 - SUPPLEMENTARY FINANCIAL STATEMENT INFORMATION (continued):

         c. SHORT-TERM BANK CREDIT

            Short-term bank credit is unlinked and bears annual interest rate of
            4.75%.

         d. ACCOUNTS PAYABLE AND ACCRUALS:

<TABLE>
<CAPTION>
                                                   DECEMBER 31
                                            --------------------------
                                             2001               2000
                                            -----              -------
                                            ADJUSTED NIS IN THOUSANDS
                                            --------------------------
<S>                                           <C>         <C>
             Interested party - current account               152
             Institutions                         178
             Provision for vacation pay           374
             Accrued expenses                      28          12
             Other                                 35
                                              -------     -------
                                                  615         164
                                              =======     =======
</TABLE>

         e. CONCENTRATIONS OF CREDIT RISKS

            The Company's cash and cash equivalents at December 31, 2001 and
            2000 were deposited with Israeli banks. The Company is of the
            opinion that the credit risk in respect of these balances is remote.

         f. FAIR VALUE OF FINANCIAL INSTRUMENTS

            The fair value of the financial instruments included in working
            capital of the Company is usually identical or close to their
            carrying value.

            Data regarding the of fair value of investments in companies is
            omitted because it is not practicable to determine such fair value
            with sufficient reliability.

         STATEMENTS OF OPERATIONS

         g. GENERAL AND ADMINISTRATIVE EXPENSES:

<TABLE>
<CAPTION>
                                                                                       PERIOD FROM
                                                                                      MARCH 29, 2000
                                                                                         (DATE OF
                                                                        YEAR ENDED  INCORPORATION, SEE
                                                                       DECEMBER 31,   NOTE 1A(1)) TO
                                                                           2001      DECEMBER 31, 2000
                                                                       -------------------------------
                                                                          ADJUSTED NIS IN THOUSANDS
                                                                       -------------------------------
<S>                                                                    <C>           <C>
             Payroll and related expenses                                      3,110
             Office rent and maintenance                                         628            126
             Professional fees                                                    53             51
             Other                                                               406             42
                                                                              ------         ------
                                                                               4,197            219
             Less - participation in expenses by interested parties           (3,207)            (2)
                                                                              ------         ------
                                                                                 990            217
                                                                              ======         ======
</TABLE>


                                       21
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 10 - NOMINAL DATA:

          a. BALANCE SHEET DATA:

<TABLE>
<CAPTION>
                                                           NOMINAL NIS IN THOUSANDS
                                                           -------------------------
                                                                   DECEMBER 31
                                                           -------------------------
                                                               2001           2000
                                                           ---------        --------
                             A S S E T S
             Current assets:
<S>                                                        <C>            <C>
                Cash and cash equivalents                       989            1
                Short-term loan to a company which is an
                  interested party                                        11,877
                Accounts receivable                           1,033           13
                                                            -------      -------
                                                              2,022       11,891
             Investments in companies                        66,693       94,574
             Fixed assets, net of accumulated depreciation      304          269
                                                            -------      -------
                                                             69,019      106,734
                                                            =======      =======
                LIABILITIES AND SHAREHOLDERS' EQUITY
             Current liabilities:
                Short-term bank credit                        2,000
                Short-term loan from a company which is
                  an interested party                         4,713
                Accounts payable and accruals                   615          162
                                                            -------      -------
                                                              7,328          162
                Liability for employee rights upon retirement,
                net of amount funded                             67
                                                            -------      -------
                          Total  liabilities                  7,395          162
             Shareholders' equity                            61,624      106,572
                                                            -------      -------
                                                             69,019      106,734
                                                            =======      =======
</TABLE>

          b. OPERATING RESULTS DATA:

<TABLE>
<CAPTION>
                                                          NOMINAL NIS IN THOUSANDS
                                                        -----------------------------
                                                                         PERIOD FROM
                                                                       MARCH 29, 2000
                                                                          (DATE OF
                                                                       INCORPORATION,
                                                                         SEE NOTE
                                                         YEAR ENDED      1A(1)) TO
                                                        DECEMBER 31,   DECEMBER 31,
                                                            2001            2000
                                                        ------------   --------------

<S>                                                     <C>            <C>
             Write-down of investments in companies        44,266          2,500
             General and administrative expenses              976            215
             Financial expenses (income) - net               (294)            74
                                                          -------        -------
             Loss for the period - nominal                 44,948          2,789
                                                          =======        =======
</TABLE>


                                       22
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 10- NOMINAL DATA (continued):


         c. CHANGES IN SHAREHOLDERS' EQUITY:

<TABLE>
<CAPTION>
                                                        NOMINAL NIS IN THOUSANDS
                                           -----------------------------------------------
                                                    RECEIPTS ON
                                                    ACCOUNT OF
                                            SHARE    SHARES TO    ACCUMULATED
                                           CAPITAL  BE ALLOTTED     DEFICIT         TOTAL
                                           -------  ------------  ------------   ---------
<S>                                        <C>      <C>          <C>             <C>
     Period from March 29, 2000
      (date of incorporation,
       see note 1a(1)) to
        December 31, 2000:
        Issuance of share capital                 *                                    *
        Receipts on account of shares to
        be allotted                                  130,000                     130,000
        Difference between cost of acquisition
          of investments in companies from
          a company under common control and
          the carrying value of those investments
          on the books of that company                             (20,639)      (20,639)
        Loss                                                        (2,789)       (2,789)
                                            -------  -------       -------       -------
     Balance at December 31, 2000                    130,000       (23,428)      106,572
     Changes during 2001 - loss                                    (44,948)      (44,948)
                                            -------  -------       -------       -------
     Balance at December 31, 2001                 *  130,000       (68,376)       61,624
                                            =======  =======       =======       =======
</TABLE>

               * Represents an amount less than nominal NIS 1,000.


                                       23
<PAGE>
                                 OPHIRTECH LTD.
                  NOTES TO FINANCIAL STATEMENTS (continued)



NOTE 11 - SPECIAL CONDENSED FINANCIAL STATEMENTS:

          a. GENERAL:

             1)  As stated in note 1b, the primary financial statements of the
                 Company are drawn up in Israeli currency adjusted for the
                 changes in the Israeli CPI.

                 For incorporation in the financial statements of the Company's
                 U.S. shareholder, Ampal-American Israel Corporation ("Ampal"),
                 the Company also prepared these special condensed consolidated
                 financial statements ("the special statements"), see below.

             2)  The translation into dollars should be made in accordance with
                 the principles set forth is Statement of Financial Accounting
                 Standards ("FAS") No. 52 of the Financial Accounting Standards
                 Board of the United States ("FASB") for economies that are not
                 considered to be highly inflationary.

             3)  These special statements have been prepared for the purpose of
                 translation into dollars and inclusion in the Ampal
                 consolidated financial statements in accordance with
                 instructions of Ampal, as follows:

                 (a)  The special statements are drawn up in Israeli currency
                      (NIS) terms.

                 (b)  Adjustments required to make the data conform with U.S.
                      generally accepted accounting principles ("GAAP") have
                      been made.

             4)  For the convenience of Ampal, these special statements have
                 been translated into U.S. dollars in accordance with the
                 principles set forth in FAS 52.


                                       24
<PAGE>
                                 OPHIRTECH LTD.
                  NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 11 - SPECIAL CONDENSED FINANCIAL STATEMENTS (continued):

          b. FOLLOWING ARE THE SPECIAL STATEMENTS:

             1)  Balance sheets as of December 31, 2001 and 2000:


<TABLE>
<CAPTION>
                                                                TRANSLATION INTO
                                                                   U.S. DOLLARS,
                                         NEW ISRAELI SHEKELS     SEE A(4) ABOVE
                                         --------------------   -----------------
                                             DECEMBER 31            DECEMBER 31
                                         --------------------   -----------------
                                           2001       2000      2001       2000
                                         -------    ---------   -------   -------
                                            IN THOUSANDS          IN THOUSANDS
                                         --------------------   -----------------
               A S S E T S
<S>                                      <C>          <C>       <C>        <C>
  Current assets:
     Cash and cash equivalents                 989          1        224
       Short-term loan to a company
       which is an interested party                    11,877                2,939
     Accounts receivable                     1,033         13        234         3
                                           -------    -------    -------   -------
          T o t a l  current assets          2,022     11,891        458     2,942
                                           -------    -------    -------   -------
  Investments in companies                  67,493     95,374     15,294    23,614
  Fixed assets, net of accumulated
     depreciation                              304        269         69        67
                                           -------    -------    -------   -------
                                            69,819    107,534     15,821    26,623
                                           =======    =======    =======   =======
  LIABILITIES AND SHAREHOLDERS' EQUITY
  Current liabilities:
     Short-term bank credit                  2,000                   453
     Short-term loan from a company
      which is an interested party           4,713                 1,067
     Accounts payable and accruals             615        162        139        40
                                           -------    -------    -------   -------
          T o t a l  current liabilities     7,328        162      1,659        40
     Liability for employee rights
      upon retirement, net of
      amount funded                             67                    15
                                           -------    -------    -------   -------
          T o t a l  liabilities             7,395        162      1,674        40
  Shareholders' equity                      62,424    107,372     14,147    26,583
                                           -------    -------    -------   -------
                                            69,819    107,534     15,821    26,623
                                           =======    =======    =======   =======
</TABLE>


                                       25
<PAGE>
                                 LTD.
                  NOTES TO FINANCIAL STATEMENTS (continued)

NOTE 11 - SPECIAL CONDENSED FINANCIAL STATEMENTS (continued):


             2)  Statement of operation for the year ended December 31, 2001 and
                 for the period from March 29, 2000 (date of incorporation) to
                 December 31, 2000:

<TABLE>
<CAPTION>
                                                                    TRANSLATION INTO
                                                                      U.S. DOLLARS,
                                       NEW ISRAELI SHEKELS           SEE A(4) ABOVE
                                   --------------------------  ---------------------------
                                                 PERIOD FROM                 PERIOD FROM
                                                  MARCH 29,                   MARCH 29,
                                                2000 (DATE OF               2000 (DATE OF
                                                INCORPORATION,              INCORPORATION,
                                                   SEE NOTE                    SEE NOTE
                                    YEAR ENDED     (1)) TO    YEAR ENDED   (1)) TO
                                   DECEMBER 31,    DECEMBER 31, DECEMBER 31,  DECEMBER 31,
                                       2001          2000          2001          2000
                                   ------------  ------------  -----------  -------------
                                          IN THOUSANDS                IN THOUSANDS
                                   --------------------------  ---------------------------
<S>                                <C>          <C>            <C>          <C>
Write-down of investments in           44,266        2,500         10,024          619
companies
General and administrative                976          215            231           52
expenses
Financial expenses - net                 (294)          74            (70)          20
                                      -------      -------        -------      -------
Loss for the period                    44,948        2,789         10,185          691
                                      =======      =======        =======      =======
</TABLE>

             3)  Statement of changes in shareholders' equity for the year ended
                 December 31,2001 and for the period from March 29, 2000 (date
                 of incorporation) to December 31, 2000:

<TABLE>
<CAPTION>
                                                         NEW ISRAELI SHEKELS
                                             -------------------------------------------
                                                      RECEIPTS ON
                                                       ACCOUNT
                                                       OF SHARES
                                              SHARE     TO BE      ACCUMULATED
                                             CAPITAL   ALLOTTED      DEFICIT      TOTAL
                                             -------- -----------   -----------  -------
<S>                                          <C>        <C>          <C>         <C>
Period from March 29, 2000
  (date of incorporation,
   see note(1)) to December 31, 2000:
   Issuance of share capital                       *                               *
   Receipts on account of shares to be allotted         130,000                 130,000
   Difference between cost of acquisition
     of investments in companies from a
     company under common control and the
     carrying value of those investments
     on the books of that company                                    (19,839)   (19,839)
   Loss                                                               (2,789)    (2,789)
                                             -------    -------      -------    -------
Balance at December 31, 2000                       *    130,000      (22,628)   107,372

Changes during 2001 - loss                                           (44,948)   (44,948)
                                             -------    -------      -------    -------
Balance at December 31, 2001                       *    130,000      (67,576)    62,424
                                             =======    =======      =======    =======
</TABLE>

                   * Represents an amount less than NIS 1,000.


                                       26
<PAGE>
                                 OPHIRTECH LTD.
                    NOTES TO FINANCIAL STATEMENTS (continued)


NOTE 11 - SPECIAL CONDENSED FINANCIAL STATEMENTS (continued):


<TABLE>
<CAPTION>
                                       TRANSLATION INTO U.S. DOLLARS, SEE a(4) ABOVE
                                   -----------------------------------------------------
                                            RECEIPTS ON
                                              ACCOUNT
                                             OF SHARES
                                    SHARE      TO BE    ACCUMULATED  TRANSLATION
                                   CAPITAL   ALLOTTED     DEFICIT    DIFFERENCES  TOTAL
                                   -------  ----------- -----------  -----------  -------
                                                        IN THOUSANDS
                                   ------------------------------------------------------
<S>                                <C>      <C>         <C>          <C>        <C>
Period from March 29, 2000 (date
of incorporation, see note 1a(1))
to December 31, 2000:
   Issuance of share capital           *                                              *
   Receipts on account of shares
     to be allotted                            31,553                             31,553
                                                                                  -------
   Difference between cost of
    acquisition of investments in
    companies from a company under
    common control and the
    carrying value of those
    investments on the books of
    that company                                          (4,916)                (4,916)
                                                         -------                 -------
   Loss                                                     (691)                  (691)
   Other comprehensive income -
     translation differences                                              637       637
                                                         -------      -------    -------
   T o t a l  comprehensive loss                            (691)         637       (54)
                                   -------   -------     -------      -------    -------
Balance at December 31, 2000            *     31,553      (5,607)         637    26,583
                                                         -------      -------    -------
Changes during 2001:
   Loss                                                  (10,185)               (10,185)
   Other comprehensive loss -
     Translation differences                                           (2,251)   (2,251)
                                   -------               -------      -------    -------
   T o t a l  comprehensive loss        *                (10,185)      (2,251)  (12,436)
                                   -------   -------     -------      -------    -------
Balance at December 31, 2001            *     31,553     (15,792)      (1,614)   14,147
                                   =======   =======     =======      =======    =======
</TABLE>

                    * Represents an amount less than $ 1,000.


                                 --------------------
                          --------------------------------
                                 --------------------


                                       27











<PAGE>

                           TRINET VENTURE CAPITAL LTD.
                              FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001


<PAGE>

                          TRINET VENTURE CAPITAL LTD.
                  FINANCIAL STATEMENTS AS OF DECEMBER 31, 2001

                                    CONTENTS
<TABLE>
<CAPTION>
                                                                                               Page
                                                                                               ----
<S>                                                                                             <C>
       Auditors' Report                                                                         1-2

       Balance Sheets                                                                            3

       Statements of Operations                                                                  4

       Statements of Changes in Shareholders' Deficiency                                         5

       Statements of Cash Flows                                                                 6-7

       Notes to the Financial Statements                                                        8-18
</TABLE>

<PAGE>

                                AUDITORS' REPORT
                  TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
                           TRINET VENTURE CAPITAL LTD.


We have audited the accompanying balance sheets of Trinet Venture Capital Ltd.
("the Company") as of December 31, 2001 and 2000, and the related statements of
operations, changes in shareholders' deficiency and cash flows for each of the
three years in the period ended December 31, 2001. 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 did not audit the financial statements of certain affiliates, the investments
in which are recorded using the equity method of accounting. Those financial
statements were audited by other auditors, whose reports have been furnished to
us and our opinion, insofar as it relates to the amounts included for the
affiliates, is based solely on the reports of the other auditors.

We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973, which, for purposes of these financial statements,
are substantially identical to generally accepted auditing standards in the
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 provide a
reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
aforementioned financial statements present fairly, in all material respects,
the financial position of the Company as of December 31, 2001 and 2000, and the
results of operations, changes in shareholders' deficiency and cash flows for
each of the three years in the period ended December 31, 2001, in accordance
with generally accepted accounting principles in Israel.

As described in Note 2, the aforementioned financial statements have been
prepared on the basis of historical cost, adjusted to reflect changes in the
general purchasing power of the Israeli currency in accordance with
pronouncements of the Institute of Certified Public Accountants in Israel.


















                                        1
<PAGE>

The financial information in U.S. dollars and in accordance with generally
accepted accounting principles in the United States is based on nominal
historical amounts in Israeli currency and is presented in Note 11. Such
financial information includes investments valued at $14,768 thousand as of
December 31, 2000 (99% of the total assets). The values of such investments have
been estimated by the Board of Directors and management in the absence of
readily ascertainable market values. We have reviewed the procedures used by the
Board of Directors and management in arriving at their estimates of value of
such investments and have inspected underlying documentation, and, in the
circumstances, we believe the procedures are reasonable and the documentation
appropriate. However, because of the inherent uncertainty of valuation, those
estimated values may differ significantly from the values that would have been
used had a ready market for the investments existed, and the differences could
be material.


Brightman Almagor & Co.
Certified Public Accountants

Tel Aviv, March 11, 2002.



















                                        2
<PAGE>

                           TRINET VENTURE CAPITAL LTD.
                                 BALANCE SHEETS
                        ADJUSTED TO NIS OF DECEMBER 2001
                        --------------------------------
                               (NIS in thousands)



<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                                 ------------
                                                       NOTE     2001          2000
                                                       ----    -------       -------
<S>                                                     <C>    <C>           <C>
     ASSETS

CURRENT ASSETS

Cash and cash equivalents                                            3            5
Related parties                                                 26,376          476
Other current assets                                                 5            5
                                                               -------       ------
                                                                26,384          486
                                                               -------       ------
INVESTMENTS
Affiliates                                              3           --       13,758
Other companies                                         4           --        2,279
                                                               -------       ------
                                                                    --       16,037
                                                               =======       ======
                                                                26,384       16,523
                                                               -------       ------
   LIABILITIES AND SHAREHOLDERS' DEFICIENCY

CURRENT LIABILITIES                                     5       19,883           45
                                                               -------       ------


CAPITAL NOTES                                           6       20,582       20,872
                                                               -------       ------

SHAREHOLDERS' DEFICIENCY
Share capital                                           7            2            2
Capital reserves                                                 6,771        6,612
Accumulated deficit                                            (20,854)     (11,008)
                                                               -------       ------
                                                               (14,081)      (4,394)
                                                               =======       ======
                                                                26,384       16,523
                                                               =======       ======
</TABLE>
March 11, 2002

----------------                  --------                           --------
Date of approval                  Director                           Director

The accompanying notes form an integral part of the financial statements.










                                        3
<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                            STATEMENTS OF OPERATIONS
                        ADJUSTED TO NIS OF DECEMBER 2001
                        --------------------------------
                               (NIS in thousands)


<TABLE>
<CAPTION>
                                                                   YEAR ENDED DECEMBER 31,
                                                                   -------------------------------
                                                       NOTE         2001        2000          1999
                                                                   -----        -----        -----
<S>                                                     <C>       <C>          <C>          <C>
REVENUES

Gains from realization of investments                    3,4       17,051           --         183
Gains on changes in ownership
    interests in affiliates                                3        1,889       24,238          --
                                                                   -----        -----        -----
    Total revenues                                                 18,940       24,238          183
                                                                   -----        -----        -----

EXPENSES

General and administrative                                 8          111           90         106
Financing, net                                                         --           --           11
                                                                   ------       ------        -----
    Total expenses                                                    111           90          117
                                                                   ======       ======        =====

    INCOME BEFORE EQUITY IN OPERATING RESULTS OF
      SUBSIDIARIES AND AFFILIATES                                 18,829       24,148           66

Equity in operating results of
    subsidiaries and affiliates                                   (8,672)     (14,302)       3,962
Write-down for decline in value of long-term
    investments                                                     (173)          --           --
                                                                   -----        -----        -----
    NET INCOME                                                     9,984        9,846        4,028
                                                                  =======      =======     =======
</TABLE>

The accompanying notes form an integral part of the financial statements.




                                       4

<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
                        ADJUSTED TO NIS OF DECEMBER 2001
                        --------------------------------
                               (NIS in thousands)



<TABLE>
<CAPTION>
                                      SHARE         CAPITAL        ACCUMULATED
                                     CAPITAL        RESERVES         DEFICIT          TOTAL
                                  -----------     -----------      -----------      -----------
<S>                               <C>             <C>              <C>              <C>
BALANCE AT JANUARY 1, 1999                  2           6,473          (24,882)         (18,407)

Effect of changes in the CPI
    on unlinked capital notes              --             279               --              279

Net income for the year                    --              --            4,028            4,028
                                  -----------     -----------      -----------      -----------

BALANCE AT DECEMBER 31, 1999                2           6,752          (20,854)         (14,100)

Translation adjustments                    --            (140)              --             (140)

Net income for the year                    --              --            9,846            9,846
                                  -----------     -----------      -----------      -----------
BALANCE AT DECEMBER 31, 2000                2           6,612          (11,008)          (4,394)

Effect of changes in the CPI
    on unlinked capital notes              --             290               --              290

Translation adjustments                    --            (131)              --             (131)

Net income for the year                    --              --            9,984            9,984

Dividend                                   --              --          (19,830)         (19,830)
                                  -----------     -----------      -----------      -----------
BALANCE AT DECEMBER 31, 2001                2           6,771          (20,854)         (14,081)
                                  ===========     ===========      ===========      ===========
</TABLE>



The accompanying notes form an integral part of the financial statements.



                                       5

<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                            STATEMENTS OF CASH FLOWS
                        ADJUSTED TO NIS OF DECEMBER 2001
                        --------------------------------
                               (NIS in thousands)



<TABLE>
<CAPTION>
                                                                                   YEAR ENDED DECEMBER 31,
                                                                          ---------------------------------------------
                                                                            2001             2000              1999
                                                                          -----------      -----------      -----------
<S>                                                                       <C>              <C>              <C>

CASH FLOWS FROM OPERATING ACTIVITIES

Net income                                                                      9,984            9,846            4,028
Adjustments to reconcile net income (loss) to net cash
    used in operating activities (Appendix A)                                  (9,986)          (9,563)          (4,736)
                                                                          -----------      -----------      -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                                (2)             283             (708)
                                                                          -----------      -----------      -----------


CASH FLOWS FROM INVESTMENTS ACTIVITIES
Proceeds from realization of investment in other company                           --               --              714
Investments in affiliates                                                          --             (281)              --
                                                                          -----------      -----------      -----------
NET CASH PROVIDED BY (USED IN) INVESTMENT ACTIVITIES                               --             (281)             714
                                                                          -----------      -----------      -----------


CASH FLOWS FROM FINANCING ACTIVITIES
Short-term bank credit, net                                                        --               --               (3)
                                                                          -----------      -----------      -----------
NET CASH USED IN FINANCING ACTIVITIES                                              --               --               (3)
                                                                          ===========      ===========      ===========

Net change in cash and cash equivalents                                            (2)               2                3
Cash and cash equivalents at beginning of year                                      5                3               --
                                                                          -----------      -----------      -----------
Cash and cash equivalents at end of year                                            3                5                3
                                                                          ===========      ===========      ===========

</TABLE>

The accompanying notes form an integral part of the financial statements.



                                       6

<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                            STATEMENTS OF CASH FLOWS
                        ADJUSTED TO NIS OF DECEMBER 2001
                        --------------------------------
                               (NIS in thousands)

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                               ---------------------------------------------
                                                                  2001               2000              1999
                                                               -----------        -----------        -----------
<S>                                                            <C>                <C>                <C>
APPENDIX A
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
   USED IN OPERATING ACTIVITIES:

Items not involving cash flows:
Gains from realization of investments                              (17,051)                --               (183)
Gains on changes in ownership interests of affiliates               (1,889)           (24,238)                --
Equity in operating results of affiliates                            8,672             14,302             (3,962)

Write-down for decline in value of long-term investments               173                 --                 --
                                                               -----------        -----------        -----------
                                                                   (10,095)            (9,936)            (4,145)
                                                               -----------        -----------        -----------


Changes in assets and liabilities:
Decrease (increase) in receivables from related parties                100                357               (579)
Decrease in other current assets                                        --                  1                  3
Increase (decrease) in current liabilities                               9                 15                (15)
                                                               -----------        -----------        -----------
                                                                       109                373               (591)
                                                               ===========        ===========        ===========
                                                                    (9,986)            (9,563)            (4,736)
                                                               ===========        ===========        ===========


APPENDIX B

ACTIVITIES NON INVOLVING CASH FLOWS:

Dividend                                                            19,830
                                                               ===========
Proceeds from realization of investments                            26,000
                                                               ===========
</TABLE>


The accompanying notes form an integral part of the financial statements.



                                       7

<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001


NOTE 1 - GENERAL

             A.   The Company was incorporated and registered on February 1,
                  1994 and commenced operations shortly thereafter. The Company
                  was established for the purpose of investing in high-tech
                  companies and projects that are in the manufacturing
                  development stage or the production and marketing stage of
                  developed products and to generate profits from the activities
                  and holdings in such companies.

             B.   Definitions
<TABLE>
<CAPTION>
<S>                                         <C>
                  (1)    The Company        -  Trinet Venture Capital Ltd.



                  (2)    Affiliate          -  A company in which the Company has significant influence and the investment in
                                               which is presented according to the equity method of accounting ("equity basis").



                  (3)    Other company      -  A company, the investment in which is presented at cost.



                  (4)    Shareholders       -  Koonras Technologies Ltd., owner of 50% of the Company's shares from September 2000.

                                            -  Ampal Industries (Israel) Ltd., owner of 50% of the Company's shares.



                  (5)    Related party      -  As defined in Opinion No. 29 of the Institute of Certified Public Accountants in
                                                Israel.


                  (6)    NIS                -  New Israeli shekel

                  (7)    Dollar             -  U.S. dollar.
</TABLE>


                                       8
<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

             A.   Financial statements in adjusted values

                  (1)   General

                        In accordance with certain pronouncements of the
                        Institute of Certified Public Accountants in Israel, the
                        Company prepares its financial statements on the basis
                        of cost, adjusted for changes in the purchasing power of
                        the NIS. Condensed financial data in nominal NIS, on the
                        basis of which the adjusted financial statements have
                        been prepared, is presented in Note 10.

                  (2)   Principles of adjustment

                        (a)  Balance sheets

                             Non-monetary items (i.e. investments and
                             shareholders' equity) have been adjusted for
                             changes in the Israeli Consumer Price Index ("CPI")
                             from the month of the transaction to the last month
                             of the reporting period.

                             Investments in affiliates reported on the equity
                             basis have been presented based upon the adjusted
                             financial statements of such companies.

                             The adjusted values of non-monetary assets do not
                             necessarily represent the market or economic values
                             of such assets, but rather their cost adjusted for
                             changes in the purchasing power of the NIS.

                             Monetary items (items whose amounts reflect current
                             or realizable values) have been presented in the
                             adjusted balance sheet at their nominal amounts as
                             of the balance sheet date.

                        (b)  Statements of operations

                             Items in the statements of operations (other than
                             financing) representing transactions during the
                             reporting period have been adjusted on the basis of
                             changes in the CPI from the month of the
                             transaction to the CPI for the last month of the
                             reporting period.

                             Amounts related to non-monetary items and to
                             various balance sheet accruals have been adjusted
                             based on the related balance sheet amounts.

                             The Company's equity in the results of subsidiaries
                             and affiliates has been determined based on the
                             adjusted financial statements of such companies.

                             Financing income or expenses are derived from the
                             other items in the financial statements, and
                             include, inter alia, amounts required to reconcile
                             certain other components in the statements of
                             operations for the element of inflation that is
                             included therein.

                        (c)  The comparative figures in the financial statements
                             have been adjusted to NIS of December 2001.



                                       9
<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

             B.   Investments in affiliates

                  The Company's investments in affiliates are presented on the
                  equity basis. In this regard, investments are presented at
                  original cost plus/minus the Company's equity in the operating
                  results of the affiliates or other changes in shareholders'
                  equity which have occurred since acquisition.

                  The Company does not record its portion of losses in
                  affiliates to the extent that the Company has not guaranteed
                  the affiliates liabilities.

                  Gains deriving to the Company from the issuance of shares of
                  an investee company to a third company, which is a "Start Up"
                  company, have been recorded as deferred income and are
                  amortized to the statement of operations in accordance with
                  Opinion No. 68 of the Institute of Certified Public Accountant
                  in Israel.

                  Differences arising between the Company's investments in
                  affiliates (which have been adjusted based on changes in the
                  CPI) and the Company's equity in the net assets of certain
                  affiliates (based on the financial statements in dollars) are
                  charged or credited to capital reserves.

             C.   Investments in other companies

                  Investments in long-term marketable securities are presented
                  in accordance with Opinion No. 44 of the Institute of
                  Certified Public Accountants in Israel, on the cost basis, net
                  of an allowance for decline in value.

                  Investments in other companies, which are not publicly traded,
                  are presented at cost less allowances for decline in value as
                  per management estimate.

             D.   Transactions between the Company and Controlling Parties

                  The erosion of unlinked, non-interest-bearing capital notes
                  issued by the Company to a shareholder and a related party are
                  reflected in the Company's capital reserves.

             E.   Deferred income taxes

                  Deferred income taxes are computed for timing differences
                  between the amounts of assets and liabilities as reported in
                  the financial statements and their amounts for income tax
                  purposes. The deferred taxes are computed at tax rates that
                  are expected to apply when the deferred taxes are realized.

                  The Company has not recorded deferred taxes for accumulated
                  losses for tax purposes due to the uncertainty of their
                  realization.

             F.   Use of estimates in preparation of financial statements

                  The preparation of financial statements in conformity with
                  generally accepted accounting principles ("GAAP") requires
                  management to make estimates and assumptions that affect the
                  reported amounts of assets and liabilities and disclosure of
                  contingent assets and liabilities as of the date of the
                  financial statements, and the reported amounts of revenues and
                  expenses during the reporting periods. Actual results could
                  differ from those estimates.


                                       10
<PAGE>

                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001
                             -----------------------
                               (NIS in thousands)

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTD.)

             G.   Linkage basis

                  (1)   Balances, which are linked to the CPI, are presented on
                        the basis of the relevant CPI (according to the term of
                        the transaction).

                  (2)   Data in respect of the CPI and the U.S. dollar
                        ("dollar"):

<TABLE>
<CAPTION>
                                                                                                                PERCENTAGE
                                                                      PERCENTAGE          EXCHANGE RATE          INCREASE
                                                    CPI                INCREASE           OF DOLLAR AS OF       (DECREASE)
                              YEAR ENDED        AS OF DECEMBER        DURING YEAR           DECEMBER 31           DURING YEAR
                              ----------       ----------------       -----------          -----------           -----------
                                                                          %                    NIS                   %
<S>                           <C>              <C>                    <C>                 <C>                   <C>
                                 2001                   108.1             1.4               4.416                  9.3
                                 2000                   106.6             -                 4.041                 (2.7)
                                 1999                   106.6             1.3               4.153                 (0.2)
</TABLE>

NOTE 3 - INVESTMENTS IN AFFILIATES

<TABLE>
<CAPTION>
                                                                        DECEMBER 31,
                                                                      ---------------
                                                                   2001               2000
                                                              -------------       -------------
<S>                                                           <C>                 <C>
A. Composition:

     (1) Cost (including payments on account of shares)                  --              12,745
         Company's share in cumulative net changes from
           acquisition date                                              --               2,902
                                                              -------------       -------------
                                                                         --              15,647
         Deferred income (See Note 3B(2))                                --              (1,889)
                                                              -------------       -------------
         Presented as investments in affiliates                          --              13,758
                                                              -------------       -------------

     (2) NetFormx Ltd.                                                   --                  --
         Smart Link Ltd.                                                 --              13,758
                                                              -------------       -------------

                                                                         --              13,758
                                                              =============       =============
</TABLE>

             B.   Additional details

                  (1) In December 2001 the Company sold all of its investments
                      in affiliates and other companies to its shareholders in
                      exchange for NIS 26 million, which not yet been paid and
                      presented in balance sheet as of December 31, 2001 within
                      "Related parties".

                  (2) NetFormx Ltd. ("NetFormx") - (formerly Imagenet Ltd.)
                      NetFormx develops, markets and supports computer-aided
                      network engineering and software products for network
                      design simulation and optimization. During 1996, the
                      Company invested in the shares of NetFormx the amount of
                      $1.5 million.


                                       11
<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001
                               (NIS in thousands)

NOTE 3 - INVESTMENTS IN AFFILIATES (contd.)

          B.  Additional details (contd.)

              (2) NetFormx Ltd. ("NetFormx") - (formerly Imagenet Ltd.)
                  (contd.)

                  In March 2000, Netformx issued additional shares to a group
                  of investors, for net proceeds of NIS 75.5 million. As a
                  result, the Company's holding in Netformx was reduced to
                  16.8%. In accordance with Opinion No.68 of the Institute of
                  Certified Public Accountants in Israel regarding third
                  party issuances, the gain of NIS 9,823 was recorded as
                  deferred income, of which NIS 7,934 was credited to income
                  in 2000 against the Company's share in the losses of
                  Netformx and the remainder of NIS 1,889 was credited to
                  income in 2001.

                  See Note 3B(1) above in respect of realization of investment
                  in Netformx by the Company.

              (3) Smart Link Ltd. ("Smart")

                  Smart is engaged in the development and marketing of efficient
                  software communication. As of December 31, 1996 the Company
                  held 43.7% of Smart.

                  In March 2000, Smart issued additional shares to a group of
                  investors, for net proceeds of NIS 57 million. As a result,
                  the Company's holding in Smart was reduced to 28.73%. The gain
                  of NIS 15,227 was credited to income. During the period after
                  March 2000 up to date of realization of investment in Smart
                  (see Note 3B(1) above), the Company's holding in Smart was
                  reduced to 28.41% due to exercise of options by third parties.

NOTE 4 - INVESTMENTS IN OTHER COMPANIES


<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                           -----------------
                                                                        2001           2000
                                                                       -------        -------
<S>                                                                    <C>            <C>
            A.   Composition:

                 Peptor Ltd.                                             --             2,106
                 Simplayer.com Ltd. (formerly Logal Ltd.)                --               173
                                                                     -------          -------
                                                                         --             2,279
                                                                     =======          =======
</TABLE>
            B.   Additional details

                 See Note 3B(1) above in respect of realization of investments
                 by the Company.

                  Peptor Ltd. ("Peptor")

                 Peptor is engaged in the research and development of peptides
                 for pharmeceutical medications. The original investment as of
                 the balance sheet date amounted to $705 thousand representing
                 0.98% of Peptor's shares.

                 Simplayer.com Ltd. (formerly Logal Ltd.)("Simplayer")

                 In October 1999, the Company sold all of its investment in
                 Simplayer in exchange for NIS 694. As a result of the sale the
                 Company recorded a gain of approximately NIS 183.

                 In March 2000, the Company exercised its option to buy back
                 84,894 shares of Simplayer for $ 42 thousand.

                                       12
<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001
                               (NIS in thousands)


NOTE 5 - CURRENT LIABILITIES

<TABLE>
<CAPTION>
                            DECEMBER 31,
                           ------------
                        2001         2000
                       ------       ------
<S>                    <C>          <C>
Composition:
Dividend to pay        19,830           --
Accrued expenses           53           45
                       ------       ------
                       19,883           45
                       ======       ======
</TABLE>



NOTE 6 - CAPITAL NOTES

              The capital notes, which were issued to a related party and a
shareholder, are unlinked and non-interest-bearing.



NOTE 7 - SHARE CAPITAL


<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                     ------------
                                                    2001 AND 2000

                                                             ISSUED AND
                                                AUTHORIZED    PAID-UP
                                                ----------    -------
<S>                                             <C>           <C>
Number of shares:
Ordinary shares NIS 1 par value                 25,000        1,000
                                                ======        =====
</TABLE>

NOTE 8 - GENERAL AND ADMINISTRATIVE EXPENSES



<TABLE>
<CAPTION>
                              YEAR ENDED DECEMBER 31,
                              -----------------------
                           2001     2000        1999
                          ------   -------     ------
<S>                       <C>      <C>          <C>
Composition:

 Professional services       111        90         90
 Other                        --        --         16
                          ------   -------     ------
                             111        90        106
                          ======   =======     ======
</TABLE>

                                       13
<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001
                             -----------------------
                               (NIS in thousands)


NOTE 9 - INCOME TAXES


              A.    The Company is subject to the provisions of the Income Tax
                    (Inflationary Adjustments) Law - 1985.


              B.    The Company has received final tax assessments for the years
                    up to and including tax year 1997.



NOTE 10 - CONDENSED FINANCIAL INFORMATION IN NOMINAL NIS

              A.    Condensed balance sheets:


<TABLE>
<CAPTION>
                                                      DECEMBER 31,
                                                ----------------------
                                                 2001            2000
                                                ------          ------
<S>                                           <C>              <C>
ASSETS

Current assets                                  26,384            479

Investments
    Affiliates                                      --         13,567
    Other companies                                 --          1,364
                                                ------         ------
                                                    --         14,931
                                                ======         ======
                                                26,384         15,410
                                                ======         ======

LIABILITIES AND SHAREHOLDERS' DEFICIENCY

Current liabilities                             19,883             44

Capital notes                                   20,582         20,582

Shareholders' deficiency                       (14,081)        (5,216)
                                                ------         ------
                                                26,384         15,410
                                                ======         ======
</TABLE>

                                       14
<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001
                             -----------------------
                               (NIS in thousands)

NOTE 10 - CONDENSED FINANCIAL INFORMATION IN NOMINAL NIS (CONTD.)


              B.    Condensed statements of operations:

<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31,
                                                          -----------------------------
                                                   2001                2000               1999
                                                -----------        -----------        -----------
<S>                                             <C>                <C>                <C>
REVENUES

Gains from realization of investments                18,494                 --                190
Gains on changes in ownership
  interests in affiliates                             1,863             23,718                 --
Financing, net                                            6                 --                 --
                                                -----------        -----------        -----------
                                                     20,363             23,718                190

EXPENSES
General and administrative                              110                 88                102
Financing, net                                           --                  1                  9
                                                -----------        -----------        -----------
                                                        110                 89                111

INCOME BEFORE EQUITY IN OPERATING RESULTS
 OF SUBSIDIARIES AND AFFILIATES                      20,253             23,629                 79

Equity in operating results of
   subsidiaries and affiliates                       (8,646)           (14,105)             3,528
Write-down for decline in value of long-
  term investments                                     (169)                --                 --
                                                -----------        -----------        -----------
NET INCOME                                           11,438              9,524              3,607
                                                ===========        ===========        ===========
</TABLE>

              C.    Statement of changes in shareholders' deficiency:



<TABLE>
<CAPTION>
                                      SHARE           CAPITAL          ACCUMULATED
                                     CAPITAL          RESERVES           DEFICIT             TOTAL
                                   -----------       -----------        -----------        -----------
<S>                                <C>               <C>               <C>                 <C>

BALANCE AT JANUARY 1, 1999                   1                49            (18,821)           (18,771)
Net income for the year                     --                --              3,607              3,607
                                   -----------       -----------        -----------        -----------

BALANCE AT DECEMBER 31, 1999                 1                49            (15,214)           (15,164)
Translation adjustments                     --               424                 --                424
Net income for the year                     --                --              9,524              9,524
                                   -----------       -----------        -----------        -----------

BALANCE AT DECEMBER 31, 2000                 1               473             (5,690)            (5,216)

Translation adjustments                     --              (473)                --               (473)
Net income for the year                     --                --             11,438             11,438
Dividend                                    --                --            (19,830)           (19,830)

BALANCE AT DECEMBER 31, 2001                 1                --            (14,082)           (14,081)
                                   ===========       ===========        ===========        ===========
</TABLE>


                                       15
<PAGE>

                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001

NOTE 11 -       CONDENSED FINANCIAL DATA IN DOLLARS AND IN ACCORDANCE WITH
                GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") IN THE
                UNITED STATES

              A.    Basis of presentation

                    (1)  The Company's functional currency is the NIS. Pursuant
                         to the request of a shareholder, the financial
                         information of the Company in nominal historical NIS,
                         as presented in Note 11, has been remeasured into U.S.
                         dollars in accordance with the principles of Statement
                         No. 52 of the Financial Accounting Standards Board of
                         the United States, "Foreign Currency Translation".

                    (2)  The Company's objective is to achieve long-term capital
                         appreciation from its portfolio of venture capital
                         investments in new and developing companies and other
                         special investment situations. In accordance with the
                         U.S. GAAP, such portfolio investments should be
                         reflected at fair value, defined as the quoted market
                         price for securities for which market quotations are
                         readily available, or as an estimate of fair value as
                         determined in good faith by the Board of Directors and
                         management.

                         In accordance with the above policy, the following
                         condensed financial information reflects investments in
                         publicly traded securities at market value and
                         investments in privately held portfolio securities at
                         cost until significant developments affecting the
                         portfolio company provide a basis for a change in
                         valuation. In this regard, the fair value of private
                         securities is adjusted to reflect meaningful
                         third-party transactions in the private market or to
                         reflect significant progress or deterioration in the
                         development of the portfolio of the Company's business,
                         such that cost is no longer reflective of fair value.
                         Unrealized appreciation or depreciation in the value of
                         investments is reflected in earnings.

                    (3)  Deferred income taxes in the condensed financial
                         information below have been recorded on the unrealized
                         appreciation of investments, net of deferred tax
                         benefits in respect of tax loss carryforwards.


                                       16
<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2001

NOTE 11 -       CONDENSED FINANCIAL DATA IN DOLLARS AND IN ACCORDANCE WITH
                GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") IN THE
                UNITED STATES (CONTD.)

                B.  Condensed balance sheets (dollars in thousands):


<TABLE>
<CAPTION>
                                                                 DECEMBER 31,
                                                                ---------------
                                                            2001               2000
                                                        -----------        -----------
<S>                                                     <C>                <C>
 ASSETS

 Current assets                                               5,975                119

 Investments                                                     --             14,768
                                                        -----------        -----------
                                                              5,975             14,887
                                                        ===========        ===========

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)

 Current liabilities
     Deferred income taxes                                       --              3,153
     Other current liabilities                                4,502                 11
                                                        -----------        -----------
                                                              4,502              3,164
 Capital notes                                                4,661              5,093

 Shareholders' equity (deficiency)                           (3,188)             6,630
                                                        -----------        -----------
                                                              5,975             14,887
                                                        ===========        ===========
</TABLE>




                C.  Condensed statements of operations (dollars in thousands):



<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                            -----------------------------------
                                                         2001               2000               1999
                                                      -----------        -----------        -----------
<S>                                                   <C>                <C>                <C>
 REVENUES
Gain from realization in other company                         --                 --                 44
Gain from increase in investments' value                       --             10,693                 --
Financing, net                                                  2                 --                  9
                                                      -----------        -----------        -----------
                                                                2             10,693                 53
                                                      -----------        -----------        -----------

 EXPENSES
Depreciation of portfolio investments (1)                   7,585              4,251                 --
Loss from changes in ownership interests
in affiliate                                                   70                 --                 --
General and administrative                                     25                 22                 24
                                                      ===========        ===========        ===========
                                                            7,680              4,273                 24
                                                      -----------        -----------        -----------


INCOME (LOSS) BEFORE TAX BENEFIT (INCOME TAXES)
                                                           (7,678)             6,420                 29
Tax benefit (income taxes)                                  2,886             (2,395)                --
                                                      -----------        -----------        -----------

NET INCOME (LOSS)                                           4,792)             4,025                 29
Other comprehensive income (loss) (2)                        (536)               (25)                 4
                                                      -----------        -----------        -----------

COMPREHENSIVE INCOME (LOSS)                                (5,328)             4,000                 33
                                                      ===========        ===========        ===========
</TABLE>

                                       17
<PAGE>


                           TRINET VENTURE CAPITAL LTD.
                        NOTES TO THE FINANCIAL STATEMENTS
                             AS OF DECEMBER 31, 2000


NOTE 11 -   CONDENSED FINANCIAL DATA IN DOLLARS AND IN ACCORDANCE WITH
             GENERALLY ACCEPTED ACCOUNTING PRINCIPLES ("GAAP") IN THE
            UNITED STATES (CONTD.)


            C.  Condensed statements of operations (dollars in thousands)
                    (contd.)

                (1) Due to various developments relating to the operations of
                    certain portfolio companies, the Company determined that the
                    fair value of such companies was less than the value
                    reflected in the Company's books.

                (2) In accordance with Statement of Financial Accounting
                    Standards No. 130 ("SFAS 130") foreign currency translation
                    adjustments have been presented as a component of
                    comprehensive income. The capital reserves include other
                    comprehensive income reflecting this foreign currency
                    translation of 2000, 1999 and 1998, respectively. No other
                    provision of SFAS 130 affects the financial statement
                    presentation of the Company.


            D.     Statement of changes in shareholders' equity (deficiency)
                    (dollars in thousands):

<TABLE>
<CAPTION>
                                      SHARE            RETAINED          CAPITAL
                                     CAPITAL           EARNINGS          RESERVES             TOTAL
                                   -----------       -----------        -----------        -----------
<S>                                <C>               <C>                <C>                <C>
BALANCE AT JANUARY 1, 1999                   1             3,381               (785)             2,597

Net income                                  --                29                 --                 29

Other comprehensive income -
  Translation adjustments                   --                --                  4                  4
                                   -----------       -----------        -----------        -----------

BALANCE AT DECEMBER 31, 1999                 1             3,410               (781)             2,630

Net income                                  --             4,025                 --              4,025

Other comprehensive loss -
  Translation adjustments                   --                --                (25)               (25)
                                   -----------       -----------        -----------        -----------

BALANCE AT DECEMBER 31, 2000                 1             7,435               (806)             6,630

Net loss                                    --            (4,792)                --             (4,792)

Other comprehensive income -
  Translation adjustments                   --                --               (536)              (536)

Dividend                                    --            (4,490)                --             (4,490)
                                   -----------       -----------        -----------        -----------

BALANCE AT DECEMBER 31, 2001                 1            (1,847)            (1,342)            (3,188)
                                   ===========       ===========        ===========        ===========
</TABLE>



                                       18

<PAGE>
                                DELOITTE & TOUCHE
                                BRIGHTMAN ALMAGOR

                      INDEPENDENT AUDITORS' SPECIAL REPORT

We have audited the balance sheets of Am-Hal Ltd. ("the Company") and the
consolidated balance sheets of the Company and a consolidated partnership as of
December 31, 2001 and 2000, and the related statements of operations, changes in
shareholders' equity and cash flows - of the Company and on a consolidated basis
- for each of the three years in the period ended December 31, 2001, and have
issued our unqualified report thereon dated February 14, 2002. The
aforementioned financial statements (not presented separately herein) were
prepared in new Israeli shekels (NIS) on the historical cost basis, adjusted for
changes in the general purchasing power of the NIS in accordance with standards
established by the Institute of Certified Public Accountants in Israel.

As described in Note 2B, the accompanying Company and consolidated financial
data in U.S. dollars as of the abovementioned dates and for the abovementioned
years then ended were prepared on the basis of financial data in nominal NIS
(the basis on which the Company and consolidated adjusted NIS financial
statements were also prepared), translated into US dollars in accordance with
the principles described in Note 2B.

In our opinion, the accompanying financial data in US dollars was translated in
accordance with the principles described in Note 2B.

This report is intended solely for the information and use of the Boards of
Directors and management of the Company and Ampal-American Israel Corp., and
should not be used for any other purpose.

Brightman Almagor & Co.
Certified Public Accountants

Tel Aviv, February 14, 2002
<PAGE>
                                FAHN, KANNE & CO.
                                 GRANT THORNTON

                                                        Number: 480
                                                        Tel-Aviv, March 15, 2000


                          INDEPENDENT AUDITORS' REPORT
                             TO THE SHAREHOLDERS OF
                         AMPAL INDUSTRIES (ISRAEL) LTD.

We have audited the balance sheets of AMPAL INDUSTRIES (ISRAEL) LTD. as of
December 31, 1999 and 1998 and the related statements of income, shareholders'
equity and cash flows for the three years in the period ended December 31, 1999,
expressed in New Israeli Shekels. 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.

Our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits in accordance with generally accepted
auditing standards, including those prescribed under the Auditors Regulations
(Auditor's Mode of Performance), 1973 and, accordingly, we have performed such
auditing procedures as we considered necessary in the circumstances. For
purposes of these financial statements, there is no material difference between
generally accepted Israeli auditing standards and auditing standards generally
accepted in the U.S. These standards require that we plan and perform the audit
to obtain reasonable assurance that 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
presentations. We believe that our audit provide a reasonable basis for our
opinion.

The data included in the Company's financial statements relating to the equity
in investee companies and relating to the Company's share in the results of
their operations are based on financial statements which were audited by other
auditors.

In our opinion, based on our audit and the reports of other auditors, the
abovementioned financial statements present fairly the financial position of the
Company as of December 31, 1999 and 1998 and the results of its operations, the
changes in its shareholders' equity and its cash flows for each of the three
years in the period ended December 1999, in conformity with accounting
principles generally accepted in Israel, consistently applied. Also, in our
opinion, the financial statements based on nominal data (Note 18) present
fairly, in conformity with generally accepted accounting principles, the
financial position of the Company as of December 31, 1999 and 1998, the results
of its operations, the changes in shareholders' equity and its cash flows, for
each of the three years in the period ended December 31, 1999, on the basis of
the historical cost convention.

Accounting principles generally accepted in Israel differ in certain respects
Tom accounting principles generally accepted in the United States. The data
regarding this difference is summarized in Note 19 to the financial statements.

Fahn, Kanne & Co.
Certified Public Accountants (Isr.)


                                     - 2 -
<PAGE>
                                DELOITTE & TOUCHE
                                BRIGHTMAN ALMAGOR

                          INDEPENDENT AUDITORS' REPORT
                             TO THE SHAREHOLDERS OF
                          BAY HEART LTD. AND SUBSIDIARY

We have audited the accompanying balance sheets of Bay Heart Ltd. ("the
Company") as of December 31, 2001 and 2000, and the consolidated balance sheets
as of such dates, and file related statements of operations, changes in
shareholders' equity and cash flows - of the Company and on a consolidated basis
- for each of the three years in the period ended December 31, 2001. 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 audit in accordance with generally accepted auditing standards,
including those prescribed under the Israeli Auditors' Regulations (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. For the purposes of these financial statements, there
is no material difference between Israeli and US generally accepted auditing
standards. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing file 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 provide a reasonable basis
for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the financial position - of the Company and on a consolidated basis -
at December 31, 2001 and 2000, and the results of operations, changes in
shareholders' equity and cash flows - of the Company and on a consolidated basis
- for each of the three the years then ended, in conformity with generally
accepted accounting principles.

Furthermore, in our opinion, the financial statements are presented in
accordance with the Israeli Securities Regulations (Preparation of Annual
Financial Statements), 1993.

As described in Note 2A, the above financial statements have been prepared in
adjusted values based on the changes in the general purchasing power of the
Israeli currency in accordance with pronouncements of the Institute of Certified
Public Accountants in Israel.

The condensed consolidated financial information in U.S. dollars presented in
Note 19 to the financial statements, prepared at the request of a holding
company, represents a translation of file Company's financial statements in
nominal values, as stayed in Note 19A. In our opinion, such translation into
U.S. dollars was appropriately performed on the basis stated in Note 19A.

Brightman Almagor & Co
Certified Public Accountants

Haifa, February 12, 2002


                                     - 3 -
<PAGE>
                                  ERNST& YOUNG

                         REPORT OF INDEPENDENT AUDITORS

                             To the Shareholders of

                          CARMEL CONTAINER SYSTEMS LTD.

      We have audited the accompanying consolidated balance sheets of Carmel
Container Systems Ltd. ("the Company") and its subsidiaries as of December 31,
2000 and 2001, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. 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 the consolidation
constitute approximately 20% and 22% of total consolidated assets as of December
31, 2000 and 2001, respectively, and whose revenues included in the
consolidation constitute approximately 31%, 30% and 29% of total consolidated
revenues for each of the three years ended December 31, 1999, 2000 and 2001,
respectively. The financial statements of those companies were audited by other
auditors whose reports have been furnished to us, and our opinion, insofar as it
relates to amounts included for those companies is based on the reports of the
other auditors.

      We conducted our audits in accordance with auditing standards generally
accepted in the United States and in Israel, including those prescribed by the
Israeli Auditors' 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 and the reports of other auditors provide a
reasonable basis for our opinion.

      In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of the Company and its
subsidiaries as of December 31, 2000 and 2001, and the consolidated results of
their operations and cash flows for each of the three years in the period ended
December 31, 2001, in conformity with accounting principles generally accepted
in Israel, which differ in certain respects from those followed in the United
States (see Note 21 to the consolidated financial statements).

      As explained in Note 2, the consolidated financial statements referred to
above have been prepared on the basis of historical cost adjusted to reflect the
changes in the general purchasing power of the Israeli currency, in accordance
with pronouncements of the Institute of Certified Public Accountants in Israel.

KOST FORER & GABBAY
A Member of Ernst & Young International


                                     - 4 -
<PAGE>
                                FAHN, KANNE & CO.
                                 GRANT THORNTON

                INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS
                        OF CORAL WORLD INTERNATIONAL LTD.

We have audited the accompanying consolidated balance sheets of "CORAL WORLD
INTERNATIONAL LTD." (the "Company") and its subsidiaries as of December 31, 2001
and 2000 and the related consolidated statements of income, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements are the responsibility of
the board of directors and the management of the Company. Our responsibility is
to express an opinion on these financial statements based on our audit.

We did not audit the financial statements of certain consolidated subsidiaries
whose assets included in the consolidation represent 72% and 74% of the total
consolidated assets as of December 31, 2001 and 2000 respectively, and whose
revenues included in the consolidation represent 61%, 54% and 56% of the total
consolidated revenues for the years ended December 31, 2001, 2000 and 1999,
respectively. The statements of these 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 on the reports
of the other auditors.

We conducted our audit in accordance with generally accepted auditing standards,
including those prescribed under the Auditors Regulations (Auditor's Mode of
Performance), 1973 and, accordingly, we have performed such auditing procedures
as we considered necessary in the circumstances. For purposes of these financial
statements, there is no material difference between generally accepted Israeli
auditing standards and auditing standards generally accepted in the U.S. These
standards require that we plan and perform the audit to obtain reasonable
assurance that the financial statements are five 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 presentations. We believe that our
audit and the reports of other audits provide a reasonable basis for our
opinion.

In our opinion, based on our audit and on the reports of the other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Coral World International Ltd. and subsidiaries as of
December 31, 2001 and 2000, and the results of operations, changes in
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2001, in accordance with generally accepted accounting
principles.

Fahn, Kanne & Co.
Certified Public Accountants (Isr.)


                                     - 5 -
<PAGE>
                                   PORAT & CO.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                               TO THE SHAREHOLDERS
                                       OF
                         COUNTRY CLUB KFAR-SABA LIMITED

We have audited the accompanying balance sheets of Country Club Kfar-Saba Ltd.
("the company") as of December 31,2000 and 1999, and the related statements of
operations, changes in shareholders' equity and cash flows of the Company for
each of the two years in the period ended December 31,2000. These financial
statements are the responsibility of the Company's Board of Directors and
management. Our responsibility is to express on opinion on these financial
statements based on our audits.

We conducted our audit in accordance with generally accepted auditing standards,
including those prescribed under the Auditors' Regulations (Auditor's Mode of
Performance) - 1973. For purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the U.S. These 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 statement. An audit also includes assessing the accounting
principles 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 provide a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2000 and
1999, and the results of operations, change in shareholders' equity and cash
flows of the Company for each of the two years in the period ended December 31,
2000, in accordance with generally accepted accounting principles. Also, in our
opinion, the financial statements based on nominal data (Note 20) present
fairly, in conformity with generally accepted accounting principles, the
financial position of the Company as at December 31, 2000 and 1999, and the
results of its operations, the changes in shareholders' equity, and its cash
flows for each of the three years in the period ended December 31, 2000, on the
basis of the historical cost convention.

As described in Note 2A the aforementioned financial statements have been
prepared in adjusted values on the basis of the changes in the general
purchasing power of the Israeli currency in accordance with pronouncements of
the Institute of Certified Public Accountants in Israel. Condensed nominal
Israeli currency data, on the basis of which the adjusted financial statements
were prepared, is presented in Note 20.

The condensed financial information in U.S. dollars presented in Note 20 to the
financial statement represents a translation of the Company's nominal Israeli
currency financial data in accordance with the basis stated in Note 2G. In our
opinion, such translation into U. S. dollars was properly made in accordance
with the stated basis.


                                     - 6 -
<PAGE>
Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of
nominal/historical net income (loss) and shareholders' equity to the extent
summarized in Note 21 to the financial statements.

Porat & Co.


Certified Public Accountants (Isr.)

Ramat Gan, March 12, 2001


                                     - 7 -
<PAGE>
                                DELOITTE & TOUCHE
                                BRIGHTMAN ALMAGOR

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

                             TO THE SHAREHOLDERS OF

                          EPSILON INVESTMENT BOVSE LTD.

We have audited the consolidated balance sheets of EPSILON INVESTMENT HOUSE LTD.
(an Israeli corporation), (hereinafter - "the Company") and its subsidiaries as
at December 31, 2000 and 1999, and the related consolidated statements of
income, comprehensive income and changes in shareholders' equity for each of the
three years ended December 31, 2000 translated into U.S. dollars. These
financial statements are the responsibility of the Company management. Our
responsibility is to express an opinion on these financial statements, based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the Unit d States. Those standards require that we plan and perform the audit
to obtain reasonable assurance 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 statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.

A statement of cash flows for the period has not been included in the financial
statements.

In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of the Company and its
subsidiaries, as at December 31, 2000 and 1999, the results of their operations
and the changes in their shareholders' equity, for each of the three years in
the period ended December 31,2000, in conformity with accounting principles
generally accepted in the United States.

Also, in our opinion, the translated amounts in the accompanying consolidated
financial statements in U.S. Dollars have been computed on the basis set forth
in Note 2 to the consolidated financial statements.

BRIGHTMAN, ALMAGOR & CO.
Certified Public Accountants

Tel-Aviv, February 21, 2001


                                     - 8 -
<PAGE>
                                   PORAT & CO.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                               TO THE SHAREHOLDERS
                                       OF
                         HOD HASHARON SPORT CENTER LTD.

We have audited the accompanying balance sheet of Hod Hasharon Sport Center Ltd.
as at December 31, 2000, and the related statements of income and changes in
shareholders' equity for each of the three years in the period then ended,
December 31, 2000 expressed in New Israel Shekels. 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 conducted our audit in accordance with generally accepted auditing standards,
including those prescribed under the Auditors Regulations (Auditors Mode of
Performance) - 1973. For purposes of these financial statements there is no
material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the U.S. These 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 provide a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2000 and
1999, and the results of operations, change in shareholders' equity for each of
the three years in the period ended December 31, 2000, in accordance with
generally accepted accounting principles.

As described in Note 2A the aforementioned financial statements have been
prepared in adjusted values on the basis of the changes in the general
purchasing power of the Israeli currency in accordance with pronouncements of
the Institute of Certified Public Accountants in Israel. Condensed nominal
Israeli currency data, on the basis of which the adjusted financial statements
were prepared, is presented in Note 7.

The condensed financial information in U.S. dollars presented in Note 7 to the
financial statement represents a translation of the Company's nominal Israeli
currency financial data in accordance with the basis stated in Note 2D. In our
opinion, such translation into U.S. dollars was properly made in accordance with
the stated basis.

Porat and Co.


Certified Public Accountants (lsr.)

Ramat Gan, February 22, 2001


                                     - 9 -
<PAGE>
                                   PORAT & CO.

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                                       OF
              HOD HASHARON SPORT CENTER (1992) LIMITED PARTNERSHIP

We have audited the balance sheet of Hod Hasharon Sport Center (1992) Limited
Partnership as at December 31, 2000 and 1999, and the related statements of
income, partners' capital and cash flows for each of the three years in the
period ended December 31, 2000, expressed in New Israel Shekels. These financial
statements are the responsibility of the partnership management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audits in accordance with generally accepted auditing
standards, including those prescribed under the Auditors' Regulations (Auditors
Mode of Performance) - 1973. For purposes of these financial statements there is
no material difference between generally accepted Israeli auditing standards and
auditing standards generally accepted in the U.S. These 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 provide a reasonable basis for our opinion.

In our opinion, the financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 2000 and
1999, and the results of operations, change in Partners Capital and cash flows
for each of the three years in the period ended December 31, 2000, in accordance
with generally accepted accounting principles.

As described in Note 2A the aforementioned financial statements have been
prepared in adjusted values on the basis of the changes in the general
purchasing power of the Israeli currency in accordance with pronouncements of
the Institute of Certified Public Accountants in Israel. Condensed nominal
Israeli currency data, on the basis of which the adjusted financial statements
were prepared, is presented in Note 20.

The condensed financial information in U.S. dollars presented in Note 20 to the
financial statement represents a translation of the Partnership nominal Israeli
currency financial data in accordance with the basis stated in Note 2D. In our
opinion, such translation into U.S. dollars was properly made in accordance with
the stated basis.

Porat and Co.


Certified Public Accountants (lsr.)

Ramat Gan, February 22, 2001


                                     - 10 -
<PAGE>
                             PRICEWATERHOUSE COOPERS

                         REPORT OF INDEPENDENT AUDITORS

To the shareholders of
OPHIR HOLDINGS LTD.

We have audited the financial statements of Ophir Holdings Ltd. (the "Company")
and the consolidated financial statements of the Company and its subsidiaries:
balance sheets as of December 31, 2001 and 2000 and the related statements of
income, changes in shareholders' equity and cash flows for each of the three
years in the period ended December 31, 2001. 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 did not audit the financial statements of a subsidiary, whose assets included
in consolidation constitute approximately 14% of total consolidated assets as of
December 31, 2000, and whose revenues included in consolidation constitute
approximately 8% and 9% of total consolidated revenues for the years ended
December 31, 2000 and 1999, respectively. We did not audit the financial
statements of certain associated companies, the Company's interest in which, as
reflected in the balance sheets as of December 31, 2001 and 2000, is adjusted
NIS 160,595,000 and adjusted NIS 122,611,000, respectively, and the Company's
share in excess of profits over losses of which is a net amount of adjusted NIS
819,000 in 2001, and the Company's share in excess of losses over profits of
which is a net amount of adjusted NIS 297,000 in 2000 and the Company's share in
excess of profits over losses of which is a net amount of adjusted NIS 4,228,000
in 1999. The financial statements of the above subsidiary and associated
companies were audited by other independent auditors, whose reports have been
furnished to us, and our opinion, insofar as it relates to amounts included for
those companies, is based on the reports of the other independent auditors.

We conducted our audits in accordance with auditing standards generally accepted
in Israel and in the United States, including those prescribed by the Israeli
Auditors (Mode of Performance) Regulations, 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 the Company's Board of
Directors and management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the reports of the other
independent auditors provide a reasonable basis for our opinion.

In our opinion, based upon our audits and the reports of the other independent
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, 2001 and 2000 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, 2001, in conformity with
accounting principles generally accepted in Israel. Furthermore, in our


                                     - 11 -
<PAGE>
opinion, the financial statements referred to above are prepared in accordance
with the Israeli Securities (Preparation of Annual Financial Statements)
Regulations, 1993.

As explained in note 1b, the financial statements referred to above are
presented in values adjusted for the changes in the general purchasing power of
Israeli currency, in accordance with pronouncements of the Institute of
Certified Public Accountants in Israel.

Accounting principles generally accepted in Israel differ in certain respects
from accounting principles generally accepted in the United States. The
application of the latter would have affected the determination of nominal
historical net income and shareholders' equity to the extent summarized in note
17.

The special condensed consolidated financial statements which are presented in
note 17 have been translated into U.S. dollars for the convenience of one of the
Company's shareholders, in accordance with the principles set forth in Statement
of Financial Accounting Standards No. 52 of the Financial Accounting Standards
Board of the United States. In our opinion, the translation has been properly
made.

Tel-Aviv, Israel                                    Kesselman & Kesselman
March 10, 2002                               Certified Public Accountants (Isr.)


                                     - 12 -
<PAGE>
                                DELOITTE & TOUCHE
                                BRIGHTMAN ALMAGOR

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

                             TO THE SHAREHOLDERS OF

                         RENAISSANCE INVESTMENT CO. LTD.

We have audited the consolidated balance sheets of RENAISSANCE INVESTMENT CO.
LTD., (an Israeli corporation), (hereinafter - "the Company") and its
subsidiaries as at December 31, 2000 and 1999, and the related consolidated
statements of income, comprehensive income and changes in shareholders' equity
for each of the three years ended December 31, 2000, translated into U.S.
dollars. These financial statements are the responsibility of the Company
management. Our responsibility is to express an opinion on these financial
statements, based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance 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 statements
presentation. We believe that our audit provides a reasonable basis for our
opinion.

A statement of cash flows for the period has not been included in the financial
statements.

In our opinion, the financial statements referred to above, present fairly, in
all material respects, the financial position of the Company and its
subsidiaries, as at December 31, 2000 and 1999, the results of their operations
and the changes in their shareholders' equity, for each of the three years in
the period ended December 31,2000, in conformity with accounting principles
generally accepted in the United States.

Also, in our opinion, the translated amounts in the accompanying consolidated
financial statements in U.S. Dollars have been computed on the basis set forth
in Note 2 to the consolidated financial statements.

BRIGHTMAN, ALMAGOR & CO.
Certified Public Accountants

Tel-Aviv, February 21, 2001


                                     - 15 -
<PAGE>
                                  ERNST & YOUNG

Messrs. Ampal Ltd.

                   Re:     Financial statements of Shmay-Bar Real Estate (1993)
                           Ltd. ("the Company") translated into U.S. dollars

    As you know, the Company publishes in Israel financial statements in NIS
adjusted to the changes in the Consumer Price Index, in accordance with
Statements of the Institute of Certified Public Accountants in Israel. These
primary annual financial statements of the Company for the years 2001 and 2000,
which were audited by us, and on which we expressed our opinion on February 12,
2002, have been provided to you.

    We have audited the accompanying translated U. S. dollar balance sheets of
the Company as of December 31, 2001 and 2000, and the related translated U.S.
dollar statements of income for each of the three years in the period ended
December 31, 2001. 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 conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors Regulations (Mode
of Performance) (Israel), 1973, which do not differ in any significant respect
from United States generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves, or due to any misleading
statement included therein. 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 provide a reasonable basis
for our opinion.

    The aforementioned translated U.S. dollar financial statements have been
prepared on the basis of nominal NIS historical cost. Disclosure of the effect
of the changes in the general purchasing power of the Israeli currency in the
financial statements as stated in the Opinions of the Institute of Certified
Public Accountants in Israel, has not been included in the above mentioned
statements.

    Fall financial statement disclosures and statements of cash flows that are
as required according to generally accepted accounting principles have not been
presented and as such, the translated U.S. dollar financial statements mentioned
above are to be read in conjunction with the primary annual audited financial
statements of the Company, as of December 31, 2001 and their accompanying Notes.

    In our opinion, except for the effects of the matters discussed in the
preceding paragraphs, the translated U.S. dollar financial statements referred
to above present fairly, in all material respects, the translated U. S. dollar
financial position of the Company as of December 3 l, 2001 and 2000, and the
related translated U. S. dollar results of its operations for each of the three
years in the period ended December 31, 2001, in conformity with generally
accepted accounting principles in Israel. As applicable to the Company's
financial statements, accounting principles generally excepted in the United
Sates and in Israel are substantially


                                     - 16 -
<PAGE>
identical in all material respects.

    Also, in our opinion, the translation of the aforementioned nominal figures
into U. S. dollars was made in accordance with the principles set forth in SFAS
52, see Note 2.

    The aforementioned financial statements are designated solely for you as
shareholders of the Company, are not to be published or delivered to others.

Tel-Aviv, Israel

February 12, 2002                        KOST FORER & GABAY
                                         A Member of Ernst & Young International


                                     - 17 -
<PAGE>
                                  ERNST & YOUNG

Messrs. Ampal Ltd.

                   Re:     Financial statements of Shmay-Bar (I.A.) (1993) Ltd.
                           ("the Company") translated into U.S. dollars

    As you know, the Company publishes in Israel financial statements in NIS
adjusted to the changes in the Consumer Price Index, in accordance with
Statements of the Institute of Certified Public Accountants in Israel. These
primary annual financial statements of the Company for the years 2001 and 2000,
which were audited by us, and on which we expressed our opinion on February 12,
2002, have been provided to you.

    We have audited the accompanying translated U.S. dollar balance sheets of
the Company as of December 31, 2001 and 2000, and the related translated U. S.
dollar statements of income for each of the three years in the period ended
December 31, 2001. 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 conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors Regulations (Mode
of Performance) (Israel), 1973, which do not differ in any significant respect
from United States generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement, either
originating within the financial statements themselves, or due to any misleading
statement included therein. 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 provide a reasonable basis
for our opinion.

    The aforementioned translated U.S. dollar financial statements have been
prepared on the basis of nominal NIS historical cost. Disclosure of the effect
of the changes in the general purchasing power of the Israeli currency in the
financial statements as stated in the Opinions of the Institute of Certified
Public Accountants in Israel, has not been included in the above mentioned
statements.

    Full financial statement disclosures and statements of cash flows that are
as required according to generally accepted accounting principles have not been
presented and as such, the translated U.S. dollar financial statements mentioned
above are to be read in conjunction with the primary annual audited financial
statements of the Company, as of December 31, 2001 and their accompanying Notes.

    In our opinion, except for the effects of the matters discussed in the
preceding paragraphs, the translated U.S. dollar financial statements referred
to above present fairly, in all material respects, the translated U.S. dollar
financial position of the Company as of December 31, 2001 and 2000, and the
related translated U.S. dollar results of its operations for each of the three
years in the period ended December 31, 2001, in conformity with generally
accepted accounting principles in Israel. As applicable to the Company's
financial statements, accounting principles generally excepted in the United
Sates and in Israel are substantially


                                     - 18 -
<PAGE>
identical in all material respects.

    Also, in our opinion, the translation of the aforementioned nominal figures
into U.S. dollars was made in accordance with the principles set forth in SFAS
52, see Note 2.

    The aforementioned financial statements are designated solely for you as
shareholders of the Company, are not to be published or delivered to others.

Tel-Aviv, Israel

February 12, 2002                        KOST FORER & GABAY
                                         A Member of Ernst & Young International


                                     - 19 -
<PAGE>
                                  ERNST & YOUNG

Messrs. Ampal Ltd.

                   Re:     Financial statements of Shmay-Bar (T.H) (1993) Ltd.
                           ("the Company") translated into U.S. dollars

    As you know, the Company publishes in Israel financial statements in NIS
adjusted to the changes in the Consumer Price Index, in accordance with
Statements of the Institute of Certified Public Accountants in Israel. These
primary annual financial statements of the Company for the years 2001 and 2000,
which were audited by us, and on which we expressed our opinion on February 12,
2002, have been provided to you.

    We have audited the accompanying translated U.S. dollar balance sheets of
the Company as of December 31, 2001 and 2000, and the related translated U. S.
dollar statements of income for each of the three years in the period ended
December 3 I, 2001. 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 conducted our audits in accordance with generally accepted auditing
standards, including those prescribed by the Israeli Auditors Regulations (Mode
of Performance) (Israel), 1973, which do not differ in any significant respect
from United States generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are flee of material misstatement, either
originating within the financial statements themselves, or due to any misleading
statement included therein. 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 provide a reasonable basis
for our opinion.

    The aforementioned translated U.S. dollar financial statements have been
prepared on the basis of nominal NIS historical cost. Disclosure of the effect
of the changes in the general purchasing power of the Israeli currency in the
financial statements as stated in the Opinions of the Institute of Certified
Public Accountants in Israel, has not been included in the above mentioned
statements.

    Full financial statement disclosures and statements of cash flows that are
as required according to generally accepted accounting principles have not been
presented and as such, the translated U.S. dollar financial statements mentioned
above are to be read in conjunction with the primary annual audited financial
statements of the Company, as of December 31, 2001 and their accompanying Notes.

    In our opinion, except for the effects of the matters discussed in the
preceding paragraphs, the translated U.S. dollar financial statements referred
to above present fairly, in all material respects, the translated U. S. dollar
financial position of the Company as of December 31, 2001 and 2000, and the
related translated U. S. dollar results of its operations for each of the three
years in the period ended December 31, 2001, in conformity with generally
accepted accounting principles in Israel. As applicable to the Company's
financial statements, accounting principles generally excepted in the United
Sates and in Israel are substantially


                                     - 20 -
<PAGE>
identical in all material respects.

    Also, in our opinion, the translation of the aforementioned nominal figures
into U. S. dollars was made in accordance with the principles set forth in SFAS
52, see Note 2.

    The aforementioned financial statements are designated solely for you as
shareholders of the Company, are not to be published or delivered to others.

Tel-Aviv, Israel

February 12, 2002                        KOST FORER & GABAY
                                         A Member of Ernst & Young International


                                     - 21 -
<PAGE>
                                DELOITTE & TOUCHE
                                BRIGHTMAN ALMAGOR

                                AUDITORS' REPORT
                  TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF
                      TRINET INVESTMENTS IN HIGH-TECH LTD.

We have audited the accompanying balance sheets of Trinet Investments in
High-Tech Ltd. ("the Company") as of December 31, 2001 and 2000, and the related
statements of operations and changes in shareholders' deficiency for each of the
three years in the period ended December 31, 2001. 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 generally accepted auditing standards
in Israel, including those prescribed under the Auditors' Regulations (Auditor's
Mode of Performance) - 1973, which, for purposes of these financial statements,
are substantially identical to generally accepted auditing standards in the
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 provide a
reasonable basis for our opinion.

In our opinion, the aforementioned financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2001
and 2000, and the results of its operations and changes in shareholders'
deficiency for each of the three years in the period ended December 31, 2001, in
accordance with generally accepted accounting principles in Israel.

As described in Note 2, the aforementioned financial statements have been
prepared on the basis of historical cost, adjusted to reflect changes in the
general purchasing power of the Israeli currency in accordance with
pronouncements of the Institute of Certified Public Accountants in Israel.

The financial information presented in U.S. dollars and in accordance with
generally accepted accounting principles in the United States is based on
nominal historical amounts in Israeli currency and is presented in Note 8 to the
financial statements.

BRIGHTMAN ALMAGOR & CO.
Certified Public Accountants

Tel Aviv, March 11, 2002


                                     - 22 -
<PAGE>
                                   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 to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
27th day of March, 2002.

                                     AMPAL-AMERICAN ISRAEL CORPORATION
                                     By:  /s/ RAZ STEINMETZ
                                          --------------------------------------
                                          Raz Steinmetz, Chief Executive Officer
                                          and President

      Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities indicated on March 27, 2002.

<TABLE>
<CAPTION>
SIGNATURES                         TITLE                              DATE
----------                         -----                              ----
<S>                                <C>                           <C>


/s/ MICHAEL ARNON                  Director                      March 27, 2002
------------------------------
      Michael Arnon

/s/ BENZION BENBASSAT              Director                      March 27, 2002
------------------------------
      Benzion Benbassat

/s/ JACK BIGIO                     Director                      March 27, 2002
------------------------------
      Jack Bigio

/s/ YAACOV ELINAV                  Director                      March 27, 2002
------------------------------
      Yaacov Elinav

/s/ KENNETH HENDERSON              Director                      March 27, 2002
------------------------------
      Kenneth Henderson

/s/ LEO MALAMUD                    Director                      March 27, 2002
------------------------------
      Leo Malamud

/s/ HILLEL PELED                   Director                      March 27, 2002
------------------------------
      Hillel Peled

/s/ DANIEL STEINMETZ               Chairman of the Board of      March 27, 2002
------------------------------     Directors and Director
      Daniel Steinmetz

/s/ RAZ STEINMETZ                  Director                      March 27, 2002
------------------------------
      Raz Steinmetz

/s/ AVI A. VIGDER                  Director                      March 27, 2002
------------------------------
      Avi A. Vigder

/s/ ELIYAHU WAGNER                 Director                      March 27, 2002
------------------------------
      Eliyahu Wagner

/s/ RAZ STEINMETZ                  Chief Executive Officer       March 27, 2002
------------------------------     and President (Principal
      Raz Steinmetz                Executive Officer)
</TABLE>


                                       99
<PAGE>
<TABLE>
<CAPTION>
SIGNATURES                         TITLE                              DATE
----------                         -----                              ----
<S>                                <C>                           <C>

/s/ SHLOMO MEICHOR                 Vice President - Finance      March 27, 2002
------------------------------     and Treasurer (Principal
      Shlomo Meichor               Financial Officer)

/s/ ALLA KANTER                    Vice President -              March 27, 2002
------------------------------     Accounting and Controller
      Alla Kanter                  (Principal Accounting
                                   Officer)

/s/ GIORA BAR - NIR                Controller                    March 27, 2002
------------------------------
      GIORA BAR - NIR
</TABLE>

                                 EXHIBIT INDEX

<TABLE>
<S>                                                                  <C>
EXHIBIT 3b - BY-LAWS OF AMPAL-AMERICAN ISRAEL CORPORATION

EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE

EXHIBIT 12 - STATEMENT RE COMPUTATION OF RATIOS

EXHIBIT 23 - CONSENTS OF AUDITORS:

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

    (b)   No reports on Form 8-K were filed during 2001.

    Page reference proceeded by the letter "E" refer to the separately bound
volumes of exhibits.


EXHIBIT 99.1 - Letter to Commission pursuant to temporary note 3T.



                                      100