---------------------
                                                           OMB Approval
                                                           OMB Number: 3235-0288
                                                           ---------------------

                       SECURITIES AND EXCHANGE COMMISSION

                                    FORM 20-F

                 ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 2006

                         Commission file number 2-41957

                         ISRAEL BANK OF AGRICULTURE LTD.
             (Exact name of registrant as specified in its charter)

                     83 Hashmonaim Street, Tel Aviv, Israel
                    (Address of principal executive offices)

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g) of the Act:

                                      NONE

 Securities for which there is a reporting obligation pursuant to Section 15(d)
                                   of the Act:

7.5% Cumulative Redeemable Preference "C" shares linked to the U.S. Dollar.

Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

<TABLE>
<S>                                                                          <C>
Ordinary shares of NIS 0.0001                                                135,050,000
    8% Cumulative and Participating Preference "A" Shares of NIS 0.001       195,768,412
    7.5% Cumulative Redeemable Preference "C" Shares of NIS 0.042
    linked to the U.S. Dollar                                                    250,000
</TABLE>

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes |_| No |X|

If this report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934. Yes |_| No |X|

Note - Checking the box above will not relieve any registrant required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
from their obligations under those Sections.

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 whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large accelerated filer |_|   Accelerated filer |_|  Non-accelerated filer  |X|

Indicate by check mark which financial statement item the Registrant has elected
to follow:

        Item 17  |X|                                    Item 18 |_|

If this is an annual report, indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes |_| No |X|

<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PART I                                                                                     Pages
------                                                                                     -----
<S>        <C>                                                                              <C>
Item 1     Identity of Directors, Senior Management and Advisors                             3
Item 2     Offer Statistics and Expected Timetable                                           3
Item 3     Key Information:                                                                  3
           A.     Selected Financial Data
           B.     Capitalization and Indebtedness
           C.     Reasons for the Offer and Use of Proceeds
           D.     Risk Factors
Item 4     Information on the Company:                                                       6
           A.     History and Development of the Company
           B.     Business Overview
           C.     Property, Plants and Equipment
           D.     Unresolved staff comments

Item 5     Operating and Financial Review and Prospects                                     10
           A.     Business Policy
           B.     Liquidity and Capital Resources
           C.     Loss recognition of doubtful debts
           D.     Income recognition on loans
           E.     Loan restructuring gains or losses
           F.     Results of operations
           G.     Shareholders' equity
           H.     Principal Balance Sheet items
           I.     Investee companies
           J.     Critical Accounting Policies
           k.     Trend information
           L.     Off- Balance Sheet Arrangements
           M.     Aggregate Contractual Obligations
Item 6     Directors, Senior Management and Employees                                       16
           A.     Board of Directors
           B.     Bank's Management
           C.     Personnel
Item 7     Major Shareholders and Related Party Transactions                                18
Item 8     Financial Information                                                            18
Item 9     The Offer and Listing                                                            18
Item 10    Additional Information                                                           18
           A.     Share Capital
           B.     Material Contracts
           C.     Exchange Controls
           D.     Taxation
           E.     Dividend and Paying Agents
           F.     Statement by Experts
           G.     Documents on Display
           H.     Subsidiary Information
Item 11    Quantitative and Qualitative Disclosure about Market Risks                       23
Item 12    Description of Securities Other Than Equity Securities                           24

PART II

Item 13    Defaults, Dividend Arrearages and Delinquencies                                  25
Item 14    Material Modifications to the Rights of Security Holders and Use of Proceeds     25
Item 15    Controls and procedures                                                          25
Item 16    Reserved                                                                         25
Item 16A   Audit Committee Financial Expert                                                 25
Item 16B   Code of ethics                                                                   25
Item 16C   Principal accountant fees and services                                           25

PART III

Item 17    Financial Statements                                                             26
Item 18    Exhibits                                                                         26
Item 19    Signatures                                                                       26
           Certifications
</TABLE>

<PAGE>

                                    FORM 20-F

PART I

ITEM 1.     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

            Not applicable

ITEM 2.     OFFER STATISTICS AND EXPECTED TIMETABLE

            Not applicable

ITEM 3.     KEY INFORMATION:

            A.    SELECTED FINANCIAL DATA

                  Financial data which highlight certain  significant  trends in
                  the   registrant's   financial   condition   and   results  of
                  operations, as presented on the adjusted basis (index December
                  1987) and from 2004 in  reported  amounts - see note 1c to the
                  financial statements:

<TABLE>
<CAPTION>
                                                                               December 31,
                                                         ---------------------------------------------------------
                                                             2006        2005       2004       2003       2002
                                                         ---------------------------------------------------------
<S>                                                          <C>           <C>        <C>        <C>        <C>
                  Rate of Exchange -
                                    1US$ = NIS                4.225         4.603      4.308      4.379      4.737

                  Consumer Price Index (points)              446.96        448.00     437.56     432.34     440.65

<CAPTION>


                                                          Reported                     Adjusted
                                                           amounts                      amounts
                                                          --------      ----------------------------------------
<S>                                                         <C>          <C>        <C>       <C>        <C>
                  ASSETS

                  Cash in hand and deposits with
                             Banks                          83,375        62,321    56,421     38,586     57,637

                  credit to the public                     221,302       238,590   238,372    251,618    278,078

                  credit to the Government of Israel        16,357        16,065    22,122     29,839     30,159

                  Investment in affiliate                    1,053         1,032     1,058      1,025        969

                  Bank premises and equipment                  221           265       299        343        375

                  Other assets                               1,218         3,309     2,192      2,118      1,629
                                                          --------      --------  --------   --------   --------

                  Total assets                             323,526       321,582   320,464    323,529    368,847
                                                          ========      ========  ========   ========   ========
</TABLE>


<PAGE>

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                December 31,
                                                      ------------------------------------------------------------------
                                                         2006          2005          2004          2003          2002
                                                      ----------    ----------    ----------    ----------    ----------
                                                           Reported amounts                  Adjusted amounts
                                                      ------------------------    --------------------------------------
<S>                                                   <C>           <C>           <C>           <C>             <C>
Deposits from the public                                      53            50           880         1,022         1,077
Deposits from the Government
           of Israel                                     456,294       456,047       443,316       438,291       436,946
Other liabilities                                          7,339         7,419         7,568         7,930         7,442
         Deferred deposits from the
           Government of Israel                        1,241,036     1,110,235       991,919       895,672       799,118
Deferred capital notes
           Held by the public                                 --            --            --            --        39,435
           Held by the Government                         72,412        78,891        73,835        75,052        79,602
Non-participating preference
           shares                                             11            11            11            11            11
Shareholders' deficiency                              (1,453,619)   (1,331,071)   (1,197,065)   (1,094,449)     (994,784)
                                                      ----------    ----------    ----------    ----------    ----------

Total liabilities and shareholders' equity               323,526       321,582       320,464       323,529       368,847
                                                      ==========    ==========    ==========    ==========    ==========
LOSS FROM FINANCING ACTIVITIES

     Loss from financing activities before
         allowance for doubtful debts:
                    Interest expense                    (147,485)     (157,230)     (122,568)     (118,202)      (82,106)
           Interest income                                35,974        32,039        28,508        31,143        20,238
                                                      ----------    ----------    ----------    ----------    ----------
                                                        (111,511)     (125,191)      (94,060)      (87,059)      (61,868)
       Increase  in  allowance  for  doubtful debts           --            --            --        (3,500)           --
                                                      ----------    ----------    ----------    ----------    ----------
       Loss from financing activities after
        allowance for doubtful debts                    (111,511)     (125,191)      (94,060)      (90,559)      (61,868)
                                                      ==========    ==========    ==========    ==========    ==========
Net loss for the year                                   (122,548)     (134,006)     (102,616)      (99,665)      (70,095)
                                                      ==========    ==========    ==========    ==========    ==========
Net loss per ordinary share

Loss per NIS 1 nominal value
      of share capital                                   (585.60)      (640.20)      (490.30)      (476.20)      (334.90)
                                                      ==========    ==========    ==========    ==========    ==========
</TABLE>

<PAGE>

Share Capital

Share capital of the Bank (in nominal values)

                                                            December 31,
                                                       ---------------------
                                          Authorized      2006        2005
                                         -----------   ---------   ---------
                                                        NIS
                                         ------------------------------------

Ordinary Shares of NIS 0.0001                 37,970      13,505      13,505

8% Cumulative and Participating
Preferred "A" Shares of NIS 0.001            201,530     195,768     195,768

7.5% Cumulative and Redeemable
Preferred "C" Shares of of NIS 0.042,
linked to the U.S. dollar (see d. below)      10,500      10,500      10,500
                                           ---------   ---------   ---------

                                             250,000     219,773     219,773
                                           =========   =========   =========

B.    CAPITALIZATION AND INDEBTEDNESS - Not applicable

C.    REASONS FOR THE OFFER AND USE OF PROCEEDS - Not applicable

D.    RISK FACTORS

      Since  the  Bank  is not  involved  in  granting  credit,  but  rather  in
      collecting  debts  from the  agricultural  sector in  respect to the loans
      extended in the past,  it does not have any risk in respect to new credit.
      The existing  debts are collected  according to the  arrangements  reached
      among the various banks and the  agricultural  sector.  There are concerns
      with respect to the credit,  that the recession  state of the economy will
      also effect the agricultural sector and the possibility of its meeting the
      payments in  accordance  with the  aforesaid  arrangements.  For more with
      respect to the Bank's activities, see also Item 11.

<PAGE>

      ITEM 4. INFORMATION ON THE COMPANY

      A.    HISTORY AND DEVELOPMENT OF THE COMPANY

      The Bank was incorporated on April 24, 1951. The Bank was organized and is
      owned by the Government of Israel, which supplied the original capital, to
      serve as an instrument to encourage and assist agricultural development in
      the State of Israel.

      In the mid-nineteen  eighties,  the agricultural  sector started investing
      large amounts in industrial  plants,  in the expansion of existing  plants
      and in better living conditions for its inhabitants.

      For those purposes,  loans were borrowed from banks, bearing real interest
      (interest  in excess of the change in the  Consumer  Price  Index),  which
      sometimes exceeded 10% annually.

      In addition,  the Bank of Israel's  monetary policy,  since 1985, has kept
      flat the  rate of  exchange  of  foreign  currencies,  and the rise in the
      Consumer Price Index was halted to a slow pace, thus causing  reduction in
      the selling prices  collected by the agricultural  sector,  which made the
      inhabitants' repaying ability meager.

      These   conditions   resulted  in  heavy  losses  and  insolvency  in  the
      agricultural sector, affecting banks' loan collecting ability.

      Over the years of its existence, the Bank has provided traditional banking
      services to its  agricultural  customers.  However,  due to the  financial
      crisis prevailing in the agricultural sector in recent years, as described
      in the preceding  paragraphs,  it was decided to considerably  curtail the
      activities of the Bank,  the said  decision  having been taken on December
      11, 1991.

      On  March  31,  2005 the  Governor  of the Bank of  Israel  announced  the
      cancellation  of the  license of the Bank as of April 1,  2005,  and as of
      August 1, 2005,  its name was striken from the list of the  membership  in
      the cleaning-house.

      According to article 9 of the Banking law (license), a banking corporation
      of which the license was  cancelled,  will remain for the  purposes of the
      Banking Order and Bank of Israel law as a banking  corporation for 3 years
      as of the cancellation of the license.

      On  September  4, 2005,  it was resolved in the  Ministers  Committee  for
      Privatization  to privatize the bank. The main details of the decision are
      as follows:

      a)    Selling or transferring  the essential  assets of the bank including
            the credit portfolio, real estate rights and shares in affiliate.

      b)    To authorize the Accountant  General and the Company's  Authority to
            act in this  matter  and to  resolve  the  debts  of the bank to the
            government by allocation of shares.

      c)    Preferred  shares which were  allocated  will be  transferred to the
            Accountant  General  for  redemption  of the  shares  and  until the
            transferring date the matter will be treated by the bank.

      d)    After the  completion  of the above  actions to act to liquidate the
            bank  (voluntarily).  Surplus  funds  will  be  transferred  to  the
            shareholders.

      Within the  framework of the decision to privatize  the Bank, as discussed
      above, and to cease operations, negotiations commenced with bank employees
      regarding  additional  payments  above  the  current  agreement.  A  draft
      agreement  has  been  prepared  but  not yet  discussed  by The  Board  Of
      Directors.

B.    BUSINESS OVERVIEW

      Background Information - Hebrew Terms:

      "Kibbutz"  -     Cooperative agricultural settlement. Plural: "Kibbutzim"

      "Moshav"   -     Village of family agricultural units. Plural: "Moshavim"

      "Balloon"  -     Any  amount  from the debt of Kibbutz or a Company  which
                       they are unable to repay in  accordance  with
                       their repayment ability.

      "ILA"      -     Israel Land Administration.

      Pursuant to an agreement between the Finance Ministry, the representatives
      of the Kibbutzim  and the banks,  the  Government of Israel  instituted an
      "Arrangement  Administration"  (the  Administration)  to  solve  the  debt
      arrears of the Kibbutzim to the banks. The said Administration carried out
      a survey of the overall indebtedness of each Kibbutz to all the banks.

<PAGE>


      The Administration accordingly classified the amounts of loans owed by the
      Kibbutzim into three categories:

      Category 1:

      Amounts  recoverable  according to the assessment by the Administration of
      the repayment ability of each Kibbutz. These amounts are to be rescheduled
      into new long-term loans at market terms. The Government  placed long term
      deposits with the banks at similar terms,  to be used for the financing of
      the said new long-term loans to be extended by the banks to the Kibbutzim,
      upon restructure of the impaired loans.

      Category 2:

      Amounts  to be  borne by the  Government.  These  amounts  are paid by the
      Government directly to the banks, by the way of "grants" to the respective
      Kibbutzim, in partial settlement of the impaired loans.

      Category 3:

      The remainder - to be written off and borne by the banks.  Allowances were
      recognized  by the Bank in prior years for the amounts to be written  off,
      and were carried as losses to income.

      As stated in note 3E to the financial statements,  the Law of Arrangements
      in the Family  Agricultural Sector was enacted in 1992, for the purpose of
      solving the indebtedness of the Moshavim to the various banks.

      On January 28, 1992, a Deposit  Agreement was signed  between the Bank and
      the  Government  of Israel.  The Deposit  Agreement  is a component of the
      arrangements to secure the financing of the Bank's  operations  within the
      framework of the arrangements of the agricultural sector's indebtedness to
      banks. In accordance with this agreement, the Government agreed to convert
      NIS 180  million  deposited  with  the Bank to  three  deferred  deposits,
      deferred to  December  31,  1999,  as  explained  in Note 1A and 11 to the
      financial statements.

      In  accordance  with the Deposit  Agreement,  the Bank agreed not to grant
      loans in excess of what it is obligated  to grant in the  framework of the
      arrangements  with the  agricultural  sector,  and in excess of what it is
      obligated to grant to its existing customers.  If there will be additional
      obligations in the framework of further  arrangements in the  agricultural
      sector,  these will be given only after  authorization by the ministers in
      charge, in coordination with the Bank of Israel. The Bank will concentrate
      its major  efforts in the  collection  of loans which were  granted to the
      agricultural  sector,  and will not expand the scope of deposits  from the
      public.  Any renewal of existing  deposits from the public will be done in
      coordination with the Bank of Israel.

      On January 31, 1992, the Bank of Israel  notified the Bank that further to
      the deposit  agreement with the  Government of Israel,  the Bank of Israel
      will make available to the Bank special credit facilities,  subject to the
      terms set below:

      The Bank will not expand the scope of deposits raised from the public, and
      will not renew existing deposits until determined otherwise.

      The  special  credit  facilities  which  the  Bank  of  Israel  is to make
      available to the Bank will be used only for  carrying out its  obligations
      to depositors,  and for financing  current operating  expenses  (salaries,
      maintenance, etc.). The granting of new loans to customers of the Bank, in
      the framework of further  arrangements in the agricultural sector, will be
      carried out only after  authorization  by the ministers in charge,  and in
      coordination with the Bank of Israel,  according to the guidelines set out
      above.

      The Bank is a Government-owned  company The arrangements described in Note
      1A(2) to the financial statements, are specifically intended to enable the
      Bank to  proceed  with  its  business,  namely  - its  operations  for the
      collection of the loans.  However,  in the case of  liquidation,  the Bank
      will repay these special credit  facilities  only after repaying  deposits
      from the public,  from other banks,  and any remaining  liabilities to the
      public, the employees of the Bank, and Government deposits.

      Should the Bank not carry out the above terms, all of these special credit
      facilities will then be immediately due and repayable.

<PAGE>

      The credit  facilities and interest  thereon will be linked to the Israeli
      Consumer Price Index.  A guarantee of the complete and total  repayment of
      funds  granted or to be  granted by the Bank of Israel  from time to time,
      including  monetary  deposits of the Bank of Israel with the Bank, as they
      currently exist, or may exist in the future,  the Bank signed a debenture,
      on January  10,  1992,  collateralizing  its loan  portfolio  by a primary
      floating charge.

      Toward the end of 2000,  the Bank did not have a debt  balance  toward the
      Bank of Israel.  In a letter to the Bank dated  December 6, 2000, the Bank
      of Israel gave notice that it is ceasing to extend  current  credit to the
      Bank.

      In  addition,  the  Bank of  Israel  gave  notice  that it will act at the
      earliest convenience to eliminate the floating charge on the Bank's credit
      portfolio and, indeed, the floating charge was eliminated in January 2001.

      Since the Bank does not have any credit  sources as it had in the past, in
      the event it may require  short-term  bridge loans, the Bank may be forced
      to defer  payments  to the  Government  for those same  periods of time in
      accordance with the pace of its collections.

      In the  opinion of the Bank's  management,  the cash and cash  equivalents
      balance as of December 31, 2005 and the current collection  anticipated in
      2006 from the payment arrangement with the moshavim and the kibbutzim will
      allow  the Bank in  2006,  subject  to what is  stated  above,  to pay the
      ongoing operating expenses (primarily salaries) and make interest payments
      to the Government.

      Effective May 10, 1992 trading in the Bank's "A" and "C" preferred shares,
      and in its deferred  capital notes, was discontinued on the Tel-Aviv Stock
      Exchange,  and on January  31,  1993 the  aforementioned  securities  were
      unlisted.  The  discontinuance  of trading,  and later the unlisting  were
      decided upon due to the difficulties encountered in trading the securities
      and due to the Bank's deficit.

      In prior years, the Bank reduced its manpower quota in accordance with its
      requirements.  At the  present  time,  the number of  employees  currently
      employed by the Bank is appropriate for its needs.

      Nature of trading market

    (a) The following  securities of the Bank were traded in the United  States,
        and to the best of our knowledge,  according to the clarifications made,
        there is no trading in the Bank shares. Since there is no trading in the
        above  shares,  the State of Israel is  purchasing  the shares  from the
        vendors at 90% of their nominal value.

        Trade was affected through a United States Nominee:

        250,000 - 7.5% Cumulative Redeemable Preference "C" shares linked to the
        dollar (Nominee: Mellon Investor services LLC, New York).

    (b) The 8% Cumulative and  Participating  Preference "A" shares and the 7.5%
        Cumulative  Redeemable Preference "C" Shares were quoted on the Tel Aviv
        Stock  Exchange.  On April 30,  1992,  the Board of Directors of the Tel
        Aviv Stock  Exchange  resolved to cease trading of the securities of the
        Bank until such time when conditions permitted  continuation of trading.
        The  securities  were  de-listed on January 31, 1993.  Before that date,
        four  trading  days took place,  from  January 25 to January  28,  1993.
        Appropriate notices were mailed to holders in Israel and abroad.

    (c) Dividend to the shareholders of Preferred A and C shares:

<PAGE>

            Pursuant  to the  Companies  Law,  the  prospectuses  and the Banks'
            Memorandum  and  Articles of  Incorporation,  a dividend may only be
            distributed from earnings.

            In spite of the  losses  which the Bank  accumulated  during  recent
            years, a dividend was paid to the  shareholders of Preferred A and C
            shares  referred to above,  subject to the  approval of the Board of
            Directors,  the Government Companies  Authority,  and based on legal
            opinions obtained in 1986 and 1987. The amount of the aforementioned
            dividend  paid  in  1998  amounted  to  NIS  7,367  thousand,  where
            approximately  NIS 2 thousand was at the expense of the Bank and the
            balance  at the  expense  of the  Government  in the  context of the
            exchange rate  insurance,  to which it was committed in the issuance
            prospectus for the Preferred C shares.

            Over the years, the Government has become the principal  shareholder
            (as of December 31, 2006:  Preferred A shares - 99.52%,  Preferred C
            shares - 93.74%)  and,  in any case,  it is  entitled to receive the
            greater  part  of the  dividend.  For  several  years,  there  is an
            arrangement  pursuant to which the Government  purchases Preferred C
            shares from those who are willing to sell them.

            On July 27, 1999,  the Board of Directors  decided on the basis of a
            legal opinion it obtained to cease paying the dividend.  A report on
            this development was communicated to the Accountant  General and the
            Companies Authority.

            The Bank did not record a liability with respect to the accumulative
            dividend, since its distribution is dependent on:

            a.    The existence of earnings (in other words, the distribution of
                  a dividend will not be contrary to the Companies Law);

            b.    According to a decision of the Board of Directors.

            The accumulative dividend which was not paid in respect to the years
            1999 - 2006 amounted to NIS 63,500 thousand. In addition, there is a
            commitment  on the part of the  Treasury  of the  State of Israel to
            cover the linkage  differences  included in the above  amount  which
            amounted to NIS 63,369 thousand.

C.    PROPERTY, PLANTS AND EQUIPMENT

      The  Bank's  offices  are owned by it, and are  located  at 83  Hashmonaim
      Street,  a prominent  business  center in Tel-Aviv.  These offices are too
      large for the Bank's present needs, and a portion of the building has been
      leased.

                                                                  Square Meters
                                                                  -------------

      Total space owned by the Bank                                   2,621
                                                                      =====

      Occupied by the Bank (inc. 243 sq/m of public space)            1,157

      Space for rent                                                  1,464
                                                                      -----

                                                                      2,621
                                                                      =====

<PAGE>

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

        Business Policy

      In the reported  period,  the Bank  continued to implement the  prescribed
      policy (see notes 1A and 11 to the annual  financial  statements)  whereby
      the Bank:

o     Granted loans only for  settlement  of debts,  within the framework of the
      Arrangement in the agricultural sector.

o     Collected loans, intensively using means of enforcement at its disposal.

      On April 20,  1993,  the Bank  received  notice  from the Bank of  Israel,
      limiting its banking permit to the activities described above.

      In view  of the  above  described  prescribed  policy,  whereby  the  Bank
      refrains  from  extending  loans,  except  for  those  stemming  from  its
      obligations  under the  Arrangements,  and from taking  deposits  from the
      public,  the Bank of  Israel  has  exempted  the Bank from  reporting  the
      following:

o     Rates of income and expense.

o     Exposure to fluctuations in interest rates.

o     Breakdown of assets and liabilities according to linkage basis.

o     Assets and liabilities according to linkage bases and repayment periods.

o     Fair value of financial instruments.

o     Disclosure  of the effect of the  differences  between the increase in the
      CPI according to which the  financial  statements  are  adjusted,  and the
      increase in the CPI according to which the loans are adjusted (the CPI for
      the prior month).

o     Exposure to market risks and how to manage them.

      The Bank of  Israel  has also  exempted  the Bank  from  implementing  the
      directive in respect of the setting off of those designated deposits,  the
      repayment of which to  depositors  is dependent  upon the extent of credit
      collected from the public.

      Liquidity and Capital Resources

      On January 31, 1992, the Bank of Israel  notified the Bank that further to
      the Deposit  Agreement with the  Government of Israel,  the Bank of Israel
      will make available to the Bank special credit facilities,  subject to the
      terms set out below:

      The Bank will not expand the scope of deposits raised from the public, and
      will not renew existing deposits until determined otherwise.

      The special credit facilities which the Bank of Israel will make available
      to the  Bank  will be used  only  for  carrying  out  its  obligations  to
      depositors,  and  for  financing  current  operating  expenses  (salaries,
      maintenance,  etc.). The granting of new loans to customers of the Bank in
      the framework of comprehensive  arrangements in the  agricultural  sector,
      will be carried out only after authorization by the responsible ministers,
      and in coordination with the Bank Israel.

      In  case  of  dissolution,  the  Bank  will  repay  these  special  credit
      facilities  after repaying  deposits from the public,  from banks, and the
      other remaining  liabilities to the public, the employees of the Bank, and
      Government deposits.

      Should the Bank not carry out the above terms, all of these special credit
      facilities will then be immediately repayable.

<PAGE>

      The credit  facilities and interest  thereon will be linked to the Israeli
      Consumer Price Index.  As a guarantee for the complete and total repayment
      of the credit granted and/or to be granted by the Bank of Israel from time
      to time,  including monetary deposits of the Bank of Israel with the Bank,
      as they  currently  exist,  or may exist in the future,  the Bank signed a
      debenture, on January 10, 1992,  collateralizing its credit portfolio by a
      senior in priority floating charge.

      Toward the end of 2000,  the Bank did not have a debt  balance  toward the
      Bank of Israel.  In a letter to the Bank dated  December 6, 2000, the Bank
      of Israel gave notice that it is ceasing to extend  current  credit to the
      Bank.

      In addition,  the Bank of Israel  eliminated  the  floating  charge on the
      Bank's credit portfolio.

      Since the Bank does not have any credit  sources as it had in the past, in
      the event it will require  short-term bridge loans, the Bank may be forced
      to defer  payments to the Government for those same periods of time and in
      accordance with the pace of its collections.

      In the  opinion of the Bank's  management,  the cash and cash  equivalents
      balance as of December 31, 2006 and the current collection  anticipated in
      2007 from the payment arrangement with the moshavim and the kibbutzim will
      allow  the Bank in  2007,  subject  to what is  stated  above,  to pay the
      ongoing operating expenses (primarily salaries) and make interest payments
      to the Government.

Arrangements in the Agricultural Sector

Credit to Moshavim

On March 4, 1992, the Arrangements Law in the Family  Agricultural  Sector, 1992
was enacted.  The ensuing  obligating  regulations were partly determined during
1994. In December 1997, the regulation for the realization of assets,  which are
not agricultural  assets was completed,  including land and which deals with the
modus  operandi  for those  who are  recovering.  Within  the  framework  of the
regulation,  the agriculture assets, which are not realizable,  were temporarily
determined.

The  regulations  not yet amended  refer to the  distributions  of the proceeds,
realization  of  agricultural  assets and  collateral  for the settlement of the
debts. The proposal of the regulations to distribute the proceeds was considered
by several  sessions of the economic  committee  of the Knesset,  and during the
most recent  session held on March 5, 2001,  the members of the committee  voted
against the approval of the  regulations  according to the text submitted by the
ministers.

In the absence of the above regulations, the settlement of debts in this segment
can  only  be  completed  by  a  comprehensive  creditor  arrangement  which  is
acceptable to the Moshav and all the creditors.  Commencing  with the end of the
first  half of  1997,  "wraparound  plans"  which  constitute  the  basis  for a
comprehensive arrangement were formulated.  The sources for that arrangement are
the  members'  debts  and the sale of the  moshav  assets,  mainly  by  extended
appropriation  of residential  plots (in line with  Resolution 737 of the Israel
Land  Administration)  and from changes in the  designation of land initiated by
the  moshav,  according  to  Israel  Land  Administration   (hereinafter  "ILA")
decisions.

These  arrangements  are supposed to make the need to sell  agricultural  assets
superfluous, however at the beginning of 1999, the performance of Resolution 737
of the ILA was frozen,  and since then the issue of the freeing of  agricultural
land has come up for  discussion  over the years in the  committees and in other
contexts.

On August 29, 2002,  the Supreme Court ruled that  decisions  717,727 and 737 of
the ILA are void since  they do not meet the  reasonability  criteria.  However,
this  determination  did not receive immediate force since the decisions concern
numerous  transactions  for  which  the  procedure  in their  respect  and their
economic and social implications are far-reaching.  Therefore,  the Board of the
ILA should have formulated transitional provisions that would determine which of
the transactions  would be carried out. Only on October 2, 2003, the Minister of
Finance signed the  transitional  provisions which were approved by the Board of
the ILA on September 2, 2003.

This  uncertainty,  that has  persisted  since 1999,  inhibited  any progress in
finalizing  arrangements,  and even  resulted in the  collapse  of  arrangements
agreed on in the past and the search for new  resources,  among them the linkage
of the framework of agreements to individual level.

<PAGE>

Credit to Moshavim (Cont.)

Settlements  which  comply  with the  transitional  provisions  conditions  make
efforts to meet the timetable allotted in the provisions and thereby promote the
repayment of the debts.

On December 19,  2005,  the Minister of Finance and the chairman of the Board of
ILA, Mr. Ehud Ulmert  signed the decision of ILA according to which an extension
will be given until December 31, 2006, to execute expansion  transactions in the
Moshavim  in a way which is  designated  to cover  debts  according  to recovery
judgments  on  condition  that the  request to execute the  transaction  will be
submitted  prior to November 30,  2006.  The  condition  for giving an extension
according  to this  decision is the transfer of all the revenue from selling the
lots to the creditors after deducting development expenses.

In the current decision an extension was also granted for executing transactions
according  to  previous  decisions  (727,  717)  according  to the  transitional
provisions  until  December 31, 2006.  On condition of  submitting a request for
execution prior to April 10, 2005.

In the decision it was resolved that no additional  extensions will be given for
the transitional provisions.

As a result of the events of the war in the North, the Attorney General recently
recommended  to the  Israel  Land  Administration  to  extend  the  transitional
provisions, however this recommendation requires the approval of the Israel Land
Administration.

On June 6, 2000, an inter-bank agreement was reached for the distribution of the
proceeds,  where until the date of the financial statements,  several additional
creditors joined and, thereby since the end of 2001, it is somewhat  possible to
promote  the   distribution  of  the  proceeds  that  were  accumulated  at  the
administration of arrangements in the agricultural sector.

As of the  date of  these  financial  statements,  there  are  approximately  36
moshavim  in respect of which  their  debts  have not yet been  granted,  and 89
settlements  for which recovery  judgments had been given. In part of them, they
are already in stages of being executed, and the proceeds are being channeled to
the creditors or to the Moshav account with the  Administration  of arrangements
in the agricultural  sector,  and there are moshavim that are not complying with
the arrangement and it will be necessary to deal with alternative arrangements.

During the reported  year, the Bank continued to implement the directives of the
Supervisor  of Banks dated  October 16, 1994,  regarding  the  non-recording  of
interest income (including linkage and exchange rate  differentials) and on that
portion of the moshavim debt debt for which the allowance for doubtful  debts is
made on a collective basis.

Credit to the Kibbutzim

On August 15, 1991,  the Bank signed the first  agreement for the  settlement of
the kibbutzim  debts.  On April 5, 1995,  the  Government  decided to approve in
principle   a   supplementary   agreement   to  the   kibbutzim   based  on  the
recommendations  of the Suari Commission and, on March 20, 1996, a supplementary
kibbutzim  agreement  was  reached  between  the  Government,  the  two  kibbutz
movements, Bank Hapoalim and Bank Leumi, with the remaining banks joining on May
6, 1996.

The  supplementary  agreement is intended to resolve the debts of the kibbutzim,
their  companies  and two  regional  organizations  which,  following  the  full
implementation  of the first  agreement,  there is still a debt  which  they are
unable to repay according to their annual repayment power,  ("the Balloon"),  as
well as kibbutzim  regarding which the ratio of their annual  repayment power to
their debt exceeds 10 and they do not have an abundant  amount of property.  The
latter will join the Balloon kibbutzim to receive incentives.  An incentive is a
conditional  debt  annulment  and  will be  extended  upon  the  kibbutz  having
fulfilled  the repayment of the  arrangement  debts over a period of a number of
years.

The origins of the  supplementary  agreement  (including  debts  written off) as
referred to above, are as follows:

<PAGE>

-     From the  contribution  made by the banks and the  Government  -  Effected
      through the annulment of the debts by the banks and the Government's  cash
      transfers at a ratio of 65% (banks) and 35%  (Government)  (except for the
      peripheral  kibbutzim  and  "incentive"  kibbutzim,  regarding  which  the
      annulment  of the  debts  by  the  banks  will  be at a  rate  of 75%  and
      Government participation of 25%).

-     From  contributions  by  kibbutzim  entering  the  arrangement  - Effected
      through a waiver of rights to alternatively  designated land which the ILA
      is  interested  in the land  being  returned  to it. The  Government  will
      provide the banks with letters of  commitment  stating the amounts for the
      repayment  of the debts  from the  proceeds  of the sale of the land.  The
      share of each bank in the proceeds will be in proportion to their share in
      the total debt of the kibbutzim to the banks.

The parties  agreed that if a transaction is carried out with respect to kibbutz
real estate, and a first priority mortgage has been imposed over the land in the
bank's favor,  or that it has in respect thereto any lawful other fixed lien, of
a nature and quality identical or similar to the aforementioned  mortgage, there
will be an increase of 20% of the bank's share in the amounts of the  Government
letters of liability and/or the amounts of the financial bank guarantees and the
share  of the  other  banks  in  the  aforementioned  amounts  will  be  reduced
accordingly pari pasu.

In the context of the  supplementary  agreement,  61  kibbutzim  entered and, in
addition, an arrangement was also implemented in the central  organizations.  In
respect to the real estate kibbutzim,  a survey was conducted  pursuant to which
the land for the ILA was  earmarked.  The survey  was  concluded,  however,  the
alternative  value of the land  cannot  be  estimated.  Therefore,  a  financial
alternative  was proposed,  following  which, on April 11, 1999, a supplementary
agreement  (amended) was reached  between the Accountant  General and the banks,
including  the  Bank,  which  became  effective  pursuant  to the  notice of the
director of the Kibbutz  Arrangement  Board on May 25,  1999.

This  alternative  relies on the  separation,  both time-wise and  financially -
between the  arrangement  regarding the "Balloon" and the  realization of land -
the financial  arrangement  regarding the "Balloon" will be executed immediately
with the entrance of the kibbutz to the  arrangement  (65% by debt  annulment by
the banks and 35% from Government  sources).  The treatment of the restored land
will  be  carried  out  after  the  financial  arrangement  is  executed,  while
distributing  the  yields  from  the  change  in  the  designation  between  the
Government and the banks, in proportion to the debt annulment.

At the stage when the kibbutz enters the arrangement, the Government and the ILA
will furnish the banks with an  unlimited  letter of  commitment  which does not
specify an amount,  pursuant to which the ILA  confirms its  agreement  that the
land will be returned to it and  undertakes to only market the land  following a
change in the designation against the receipt of a cash consideration. The banks
will be entitled to record a caveat at the Land Registry  Office with respect to
the aforementioned letter of commitment.

Lately,  the entrance of a Kibbutz to an  arrangement  is executed by individual
arrangement,  which is based on the  principal  of the  supplementary  agreement
(amended) and adjusted to each kibbutz with considering its economic position at
the time of the entrance,  the  financing  sources it has or will have while the
part  of  the  debt  which  exceeds  the  repayment  power  at the  time  of the
arrangement is recorded as a "Deferred debt" without a maturity date and will be
paid off from future property transactions, if any.

As of the signing of the amendment to the supplementary  agreement, a further 45
kibbutzim have entered into the arrangement, among them are peripheral kibbutzim
and  "incentive"  Kibbutzim and 41 kibbutzim  which have been classified as real
estate, and therefore, all the Kibbutzim have entered into the arrangemet.

The  "write-off"  in the Bank's books with respect to the "Balloon" for the real
estate kibbutzim  amounts to approximately  NIS 170 million and, in exchange for
the write off of the  "Balloon"  by all of the  banks,  the  kibbutzim  returned
approximately  13,366 sq. meters of land to the ILA and committed to comply with
the  conditions  of  the  supplementary   agreement  should  a  neighborhood  be
established on the kibbutz's section of land. In addition, approximately,  3,111
dunams were expropriated for the purpose of the cross-Israel highway,  where the
indemnification  will  be  transferred  to  the  banks  and  the  Government  in
accordance with the principles of the agreement.

As of  31.1.07,  the  balance of  write-offs  mentioned  above,  after  receipts
relating to returns and forfeitures totaling approximated 166 million NIS.

<PAGE>

Loss recognition of doubtful debts

Allowance for losses on loans to the Moshavim were recognized in prior years, in
accordance with management estimates,  and in concurrence with directives issued
to the banks by the "Bank's Supervisor", a department of the Bank of Israel. The
Bank's  Supervisor has the overall  information of the  indebtedness  to all the
banks in Israel. Total allowance on Moshavim loans amounted on December 31, 2006
to about 90% of the total  amounts  owed by the  Moshavim to the Bank.

Impaired loans to Kibbutzim are carried net of the aforesaid  Government  grants
(see  Category  2 above).  The  reported  net  amounts  represent  the  expected
recoverable  amounts.  As explained above,  these amounts will be settled by new
long term loans, to be undertaken by the Kibbutzim (linked to the Consumer Price
Index, and bearing interest,  presently about 4%-5% p.a.).  Thus, as of December
31, 2006, the total amount of loans  outstanding  to Kibbutzim,  net of specific
allowances and of Government "grants",  received to that date amounted to NIS 75
million.

Deposits to finance the said  restructuring  of long-term loans were financed by
the Government of Israel.

In view of the aforesaid,  loss  recognition on the impaired loans is compatible
with both Israel and U.S. GAAP in terms of "Constant  Shekels"  (Shekel  amounts
adjusted to changes in general  price  level) and from 2004 in reported  amounts
(See note 1c to the financial statements).

Income recognition on loans

Income on non-impaired  loans,  or restructured  loans, is recognized as accrued
according to the contractual respective terms.

In accordance  with the  directives of the Supervisor of Banks dated October 16,
1994, the Bank may not recognize revenues from linkage  differences and interest
with  respect to the debts of Moshavim  which have not yet settled  their debts.
Further,  in accordance with Israeli GAAP, the comparative data in the financial
statements  are presented in terms of adjustment to the Consumer  Price Index as
of balance  sheet date (a  technical  linkage of the  comparative  data was made
according  to the annual  increase  in the  Index) and from 2004 the  adjustment
ceased (See Note 1c to the financial statements).

Subsequent  to the  aforementioned,  there is an erosion in the above  mentioned
debts for the  Moshavim  which have not yet entered into an  arrangement  at the
rate of the increase in the annual Index in prior years. The loss resulting from
this erosion is included in the loss from financing  activities in the statement
of operations in prior years.

Results of Operations

Major factors affecting results of operations in 2005 were:

o     The  non-recognition of interest income (including  linkage) on portion of
      Moshavim debt, as explained above.

o     The high interest rate of the deferred deposits.

o     The high interest rate of the deferred capital notes.

The Bank's loss from financing activities, before allowances for doubtful debts,
was nominal NIS 114.2  million in 2006 as compared to nominal NIS 125.2  million
in 2005.

The general allowance and the additional  allowance together represent 45.96% of
the borrowers' debt, under the Bank's responsibility, as of December 31, 2006.

In addition to the above  allowances,  the Supervisor of Banks instructed that a
special  allowance  is to be  recorded  not later than  December  31,  2001 in a
cumulative amount which will not be less than the aggregate of the following:

1.    0.15% of the balance of the risk assets as of June 30, 2001.

2.    1% of the balance of the specially supervised debts as of June 30, 2001.

3.    2.5% of the balance for the problematic  debts, net of the balance for the
      specially supervised debts as of June 30, 2001.

The special  allowance  amounted to NIS 6 million and will be  maintained in its
nominal amount, subject to the aforesaid.

Operating and other income totaled  nominal NIS 0.4 million in 2006, as compared
to nominal NIS 0.5 million in 2005.


<PAGE>

Results of Operations (Cont.)

Operating  and net loss in 2006 were NIS 122.6 million in reported  amounts,  as
compared to NIS 134 million in reported  amounts in 2005. Net loss per NIS 1 par
value  Ordinary  and  Preference  "A" share was NIS 585.6 in 2006 (NIS  640.2 in
2005).

Shareholders' Equity

The  shareholders'  deficiency  increased  from NIS 1,331.1  million in adjusted
amounts at the end of 2005, to a deficiency of NIS 1,453.6 million at the end of
2006 in reported  amounts.

On December 31, 1991,  Government deposits in the amount of NIS 180 million were
converted (December 31, 2006 - NIS 1241 million) to deferred deposits, while the
maturity date for a portion thereof was determined for January 1, 2000.

The maturity date for the deposits has been postponed  several times pursuant to
an approval  received  from the  Accountant  General.  Pursuant to an additional
extension  which was approved by the Accountant  General on May 13, 2007,  their
maturity date was deferred until June 30, 2007,  among other purposes,  to allow
the Bank and the  Government,  during the period  until the  maturity  date,  to
formulate  a  detailed  plan  with  respect  to the  manner  for  the  continued
operations of the Bank.

The capital notes are deferred in relation to both secured liabilities and other
liabilities of the Bank,  whose terms  guarantee that they have  preference over
the capital  notes.

Pursuant to the letter from the Treasury dated February 12, 2003,  commencing in
2004,  the Bank will file a request on a quarterly  basis to extend the time for
the payment of the deferred  capital  notes held by the  Government.

On May 13, 2007 the  Accountant  General  approved the extension of the maturity
date to June 30, 2007.

Principal Balance Sheet Items

The  assets  and  liabilities  of the Bank at the end of 2006  and 2005  were as
follows (in thousands of NIS):

                                                     Year ended December 31,
                                                    ---------------------------
                                                       2006           2005
                                                         Reported amounts
                                                    ---------------------------
Total Balance Sheet                                      323,526        321,582
Credit to the Public                                  (*)221,302        238,590
Credit loans to the Government of Israel                  16,357         16,065
Cash and Bank Deposits                                    83,375         62,321
Deposits from the Public                                      53             50
Deposits from the Government                             456,294        456,047
Capital Notes and Deferred Deposits                    1,313,448      1,189,126
Shareholders' Equity (deficit)                        (1,453,619)    (1,331,071)

(*)   Includes  credit for which the  Government is  responsible in an amount of
      155 million NIS as the  deposits  to cover it are  included  partly in the
      deposits from the Government and partly in deferred deposits.

Investee Companies

The  Bank's  affiliated   company  -  The  Palestine   Agricultural   Settlement
Association  Ltd. (50% owned by the Bank,  49.9% of voting rights) was involved,
in the  past,  in  financing  activities,  but in  recent  years  has been  only
collecting debts.

The Board of Directors of the  affiliated  company  decided to close the company
and to terminate its activity.  A committee has been  established to examine all
the relevant aspects of this decision.

Critical Accounting policies

Critical  Accounting  Policies refers to the allowance for doubtful  debts.  The
Bank bases its  judgment on the above  allowance on its  experience  and various
assumptions that it believes to be reasonable under the circumstances.  Material
changes  in  the  arrangements  if  any,  are  likely  to  obligate   additional
allowances.  Please refer to Note 1I to the Bank's financial statements included
in this Annual Report on Form 20-F for the year ended December 31, 2006 for more
details.

<PAGE>

Trend Information

Not Applicable

Off- Balance Sheet Arrangements

Please see Note 13 to the Bank's  financial  statements  included in this Annual
Report on Form 20-F for the year ended December 31, 2006 for more details.

Aggregate Contractual Obligations

Please  see  Item 4 and  Item 5 in this  Annual  Report  on Form  20-F  for more
details.

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

      A.    Board of Directors

            In the course of 2006,  9 Board  meetings  were  held,  as well as 8
            meetings of various Board Committees.

            Board changes in 2006 and as of June 2007 were -

            Directors whose term began:

                  Name                                    Date
            -------------------------------     -------------------------

            Helmaliah Dorit                           March 27, 2006
            Cheifetz Avi                              February 20, 2007
            Freeman Menachem                          March 12, 2007
            Navon Erez                                March 28, 2007

             Directors whose term ended:

                  Name                                     Date
            -------------------------------     -------------------------

            Dadon-Israeli -Bar                        February 3, 2007
            Grinfeld Elisha                           February 18, 2007
            Kulas Eliezer, Adv.                       MAY 30, 2007
            Medleg Gamal                              MAY 30, 2007

            Roster of Directors, their principal occupation and other
            directorships held by them:

<TABLE>
<CAPTION>
                     Name                   Principal Occupation                Other Directorship
            -------------------      ---------------------------------   --------------------------------
<S>                                  <C>                                 <C>
            Freeman Menachem.        Pensioner

            Cheifetz Avi             General  manager - Association for  Yad Vashem, Channel Two
                                     the promotion Of Tourism - NETANYA  Television and Radio

            Navon Erez               Self Employed                       Israel Consumers Counsel

            Zibin Nehama, Adv.       Attorney                            Omnitek, Meshulam Levinstein,
                                                                         TTI

                                     Genral Manager of business
            Helmaliah Dorit          development center in Kiryat
                                     Shmone and Ezba Hagalil
</TABLE>

<PAGE>

      Bank's Management

      Name                             Major Responsibility
      -----------------------          ------------------------------------

      Patalovsky Lea                   General Manager

      Sitton Moshe                     Assistant General Manager,
                                       Manager of Credit, Collection and
                                       Current Accounts

      Levi Noah, Adv.                  Chief Legal adviser of the Bank

      Cohen Yacov                      CFO, Secretary of the Bank,
                                       Director of Human Resources and
                                       Personnel.

      Gelem Avigdor                    Manager of information system

      Executives Officers

      On February 1, 2006, Mr. Brokner Yoav, CPA is the internal  auditor of the
      bank after being appointed by the Board of Directors.

      Remuneration

      Salaries,  benefits and  provisions  of the five  highest paid  executives
      among the Bank's officers (all amounts NIS in thousands).

<TABLE>
<CAPTION>
                                                    Provisions for Severance
                                                      Pay, Provident Funds,
                                                      Pensions, Continuing      Total-Salary
                                                    Education Programs, Sick     and Other         Other
                   Name                 Salary        Pay, Leave Pay, etc.        Benefits       Payments
      -----------------------------------------------------------------------------------------------------
<S>                                       <C>                  <C>                   <C>              <C>
      In 2006 - Reported amounts
      Patalovsky Lea                      394                   98                   492              1
      Sitton Moshe                        341                  103                   444              3
      Levi Noah                           310                   64                   374              2
      Gelem Avigdor                       278                   77                   355              2
      Cohen Yacov                         257                   48                   305              1

      In 2005 - Reported amounts
      Patalovsky Lea                      378                   98                   476              1
      Sitton Moshe                        330                   94                   424              2
      Levi Noah                           286                   78                   364              2
      Gelem Avigdor                       263                   81                   344              1
      Cohen Yacov                         255                   73                   328              1
</TABLE>

      Personnel

      At the end of 2006,  25 persons  were  employed by the Bank (24  full-time
      positions),  as compared with 26 persons (24.5 full-time positions) at the
      end of 2005.

<PAGE>

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A summary of the operating results with related parties:

                                                           Year ended
                                                           December 31
                                                     ------------------------
                                                      2006             2005
                                                         (In thousands)
                                                     ------------------------
                                                        Reported amounts
                                                     ------------------------

   Participation in expenses by the affiliate          98               96

ITEM 8. FINANCIAL INFORMATION

Legal Proceedings

The Bank has not had any material pending legal proceedings, other than ordinary
litigation, incidental to the business.


ITEM 9. THE OFFER AND LISTING

None.

ITEM 10. ADDITIONAL INFORMATION

         Subsidiaries
<TABLE>
<CAPTION>
                                                                                   December 31,
                                                                           ----------------------------
                                                                              2006              2005
                                                                           -------------    -----------
                                                                                (NIS in thousands)
                                                                                 Reported amounts
                                                                           ----------------------------
<S>                                                                          <C>              <C>
         (a)    Investment in shares
                Cost of shares                                                22,529           22,529
                Post acquisition losses                                      (21,476)         (21,497)
                                                                           ---------         --------
                Total investment                                               1,053            1,032
                                                                           =========         ========

<CAPTION>

         (b)    Details of subsidiaries                                         Affiliated Company

                Name of company:                                            The Palestine Agricultural
                                                                            Settlement Association Ltd.
               Company details:                                               Agricultural Financial
                                                                                    Institution
                                                                           ----------------------------
                                                                              2006              2005
                                                                           ----------        ----------
<S>                                                                            <C>               <C>
               Capital with rights for dividends
                  - percentage of holding                                       50.0%             50.0%
               Capital with voting rights
                  - percentage of holding                                       49.9%             49.9%
               Investments in shares-equity basis                              1,053             1,032
               Contribution to net profit (loss) on ordinary activities           21               (26)
</TABLE>

<PAGE>

      (c)   Affiliated Company - The Palestine Agricultural Settlement
            Association Ltd.

<TABLE>
<CAPTION>
              Balance Sheet                                                   December 31,
                                                                          ----------------------
                                                                            2006           2005
                                                                           (NIS in thousands)
                                                                          ----------------------
              Assets                                                        Reported amounts
                                                                          ----------------------
<S>                                                                         <C>            <C>
              Loans out of designated deposits by the State of Israel       2,908          4,083

              Loans out of designated deposits by the Jewish Agency         1,252          1,321

              Other loans                                                     185             99

              Cash and deposits with banks                                  2,270          2,291

              Other assets                                                     31              6
                                                                            -----          -----

                                                                            6,646          7,800
                                                                            =====          =====

              Liabilities and Shareholders' Equity

              Designated deposits from the Government of Israel             3,056          4,177

              Designated deposits from the Jewish Agency                    1,343          1,384

              Other liabilities                                               141            174

              Shareholders' Equity                                          2,106          2,065
                                                                            -----          -----

                                                                            6,646          7,800
                                                                            =====          =====
</TABLE>

      The  Bank's  share in  equity,  50% of NIS 1,053  thousand,  namely in the
      amount of NIS 1,032 thousand, is shown in (a) above.

      The Jewish Agency holds the other 50% in equity, but also holds a "casting
      share".  This share  entitles  the Agency to a casting vote in any general
      meeting and in any meeting of the board of directors.

      The Board of  Directors  of the  affiliated  company  decided to close the
      company and to terminate its activity. A committee has been established to
      examine all the relevant aspects of this decision.

      Uncertainties

      See  items  5  (Operating  and  financial  review  and  prospects)  and 11
      (Quantitative and Quantitative  disclosure about market risks) for various
      uncertainties which may affect the Bank's operations.

      U.S. GAAP Reconciliation - General

      See item 5 for background and various clarifications  referring to matters
      that may appear to indicate  variations  between Israeli and U.S. GAAP. It
      emerges from the clarifications  and the information  submitted that there
      are no material  variations between U.S. GAAP, and the GAAP applied in the
      financial  statements.

      No U.S.  GAAP  reconciliation  is therefore  required,  except for certain
      disclosures and elaboration.

<PAGE>

B.    MATERIAL CONTRACTS

      On January 28, 1992, a Deposit  Agreement was signed  between the Bank and
      the  Government  of  Israel.  In  accordance  with  this  agreement,   the
      Government  agreed  to  convert  NIS 180  million  (NIS of  January  1992)
      deposited with the Bank into three deferred deposits, deferred to December
      31, 1999, as explained in Note 11.

      Paragraph  4(3) to the agreement  stipulates  that:

      "The principal of the deposits  including the accrued interest and linkage
      differentials thereon are repayable as follows:

      (1)   All the amount that were  scheduled  to be repaid  according  to the
            original  clearing  schedule by December  31, 1999 are  repayable on
            January 1, 2000; however, if it will become clear that the repayment
            of  all  such  amounts  on  January  1,  2000  may  results  in  the
            dissolution  of the Bank,  the Bank may  request the  Government  of
            Israel  to  consider  an  agreement  for  changes  in the  repayment
            schedule.  The Government will deliberate the request while applying
            pertinent considerations and subject to its policy at that time.

      (2)   All the amounts that  according to the  original  clearing  schedule
            were to be  repaid  after  December  31,  1999 will be repaid at the
            original date that was determined for their repayment."

      Due to the crisis in the agriculture sector and the restriction imposed on
      the Bank regarding its ability to exercise the pledged assets by virtue of
      the "Gal Law" and the "Kibbutz Arrangements", the Bank was unable to repay
      the deferred deposits as scheduled.

      The  maturity  date for the  deposits  has been  postponed  several  times
      pursuant to an approval received from the Accountant General.  Pursuant to
      an additional  extension  which was approved by the Accountant  General on
      June 26, 2005, their maturity date was deferred until July 31, 2005, among
      other purposes,  to allow the Bank and the  Government,  during the period
      until the maturity  date, to formulate a detailed plan with respect to the
      manner for the continued operations of the Bank.

      In accordance  with the Deposit  Agreement,  the Bank agreed not to extend
      credit in excess of what it is obligated  pursuant to the framework of the
      arrangements  for the  agricultural  sector,  and in  excess of what it is
      obligated to grant to its existing customers.  If there will be additional
      obligations  in  the  framework  of  comprehensive   arrangements  in  the
      agricultural  sector,  these will be only upon after  authorization of the
      accountable  ministers,  in coordination with the Bank of Israel. The Bank
      will  concentrate  its major efforts in the collection of loans which were
      granted  to the  agricultural  sector,  and will not  expand  the scope of
      deposits  from the  public.  Existing  deposits  from the  public  will be
      renewed in coordination with the Bank of Israel.

      There is an agreement  between the State of Israel and the Bank that until
      the  termination  of the  arrangements  between  the  Bank and the Bank of
      Israel and the State of Israel,  the  Government of Israel  deposits which
      were granted to the Bank in the first  agreement for the settlement of the
      Kibbutzim debts will be deferred.

      The capital notes are deferred in relation to both secured liabilities and
      other  liabilities  of the  Bank,  whose  terms  guarantee  that they have
      preference over the capital notes.

      Pursuant  to the  letter  from  the  Treasury  dated  February  12,  2003,
      commencing in 2004,  the Bank will file a request on a quarterly  basis to
      extend the time for the payment of the deferred  capital notes held by the
      Government.  On May 13, 2007 the Accountant General approved the extension
      of the maturity date to June 30, 2007.

      The 7.5%  Cumulative  Redeemable  Preference  "C"  shares of the Bank were
      traded in the United States,  and to the best of our knowledge,  according
      to the clarifications  made, there is no trading in the Bank shares.

      Since  there is no  trading  in the above  shares,  the State of Israel is
      purchasing the shares from the vendors at 90% of their nominal value.

<PAGE>

      On  March  31,  2005 the  Governor  of the Bank of  Israel  announced  the
      cancellation  of the  license of the Bank as of April 1,  2005,  and as of
      August 1, 2005,  his name was striken from the list of the  membership  in
      the cleaning-house.

      According to article 9 of the Banking law (license), a banking corporation
      of which the license was  cancelled,  will remain for the  purposes of the
      Banking Order and Bank of Israel law as a banking  corporation for 3 years
      as of the cancellation of the license.

      On  September  4, 2005,  it was resolved in the  Ministers  Committee  for
      Privatization  to privatize the bank. The main details of the decision are
      as follows:

      a)    Selling or transferring  the essential  assets of the bank including
            the credit portfolio, real estate rights and shares in affiliate.

      b)    To authorize the Accountant  General and the Company's  Authority to
            act in this  matter  and to  resolve  the  debts  of the bank to the
            government by allocation of shares.

      c)    Preferred  shares which were  allocated  will be  transferred to the
            Accountant  General  for  redemption  of the  shares  and  until the
            transferring date the matter will be treated by the bank.

      d)    After the  completion  of the above  actions to act to liquidate the
            bank  (voluntarily).  Surplus  funds  will  be  transferred  to  the
            shareholders.

C.    EXCHANGE CONTROL

      No  exchange  control   regulations  exist  prohibiting  foreign  currency
      payments to overseas  investors of interest or principal on investments in
      the Bank's  securities,  provided that the  investment  (a) is transferred
      through an authorized dealer who confirm that the investment complies with
      the  regulations,  and (b)  transfers  of payments  are made  according to
      general permits issued by the Ministry of Finance.

D.    TAXATION

      Tax Reform in Israel

      On  January 1, 2003 a  comprehensive  tax  reform  took  effect in Israel.
      Pursuant to the reform,  resident  companies are subject to Israeli tax on
      income accrued or derived in Israel or abroad. In addition, the concept of
      "controlled  foreign  corporation"  was  introduced  according to which an
      Israeli company may become subject to Israeli taxes on certain income of a
      non-Israeli  subsidiary if the  subsidiary's  primary  source of income is
      passive income (such as interest,  dividends,  royalties, rental income or
      capital gains).  The tax reform also  substantially  changed the system of
      taxation of capital gains.

      Corporate Tax Rate

      The  regular  corporate  tax rate in Israel was 34% in 2005.  This rate is
      currently  scheduled  to  decrease  as  follows:  in  2006-31%,  2007-29%,
      2008-27%, 2009-26% and 2010 and onward-25%.

      Withholding Taxes on Dividends Distributed to Non-Israeli Residents

      Dividends  distributed by an Israeli company to non-Israeli  residents are
      generally  subject to a 20% tax to be withheld  at source,  unless a lower
      rate is provided in a treaty between Israel and the shareholder's  country
      of residence.

      Under the U.S.-Israel tax treaty,  the maximum Israeli tax and withholding
      tax on dividends paid to a holder of ordinary  shares who is a resident of
      the United States is generally 25%

      Capital Gains and Income Taxes Applicable to Non-Israeli Shareholders

      Israeli  law  generally  imposes  a  capital  gains  tax  on the  sale  of
      securities  and any other  capital  asset.  Gains on the sale of  ordinary
      shares traded on a recognized stock exchange (including the Tel Aviv Stock
      Exchange and NASDAQ) by non-Israeli tax resident  investors will generally
      be exempt from Israeli capital gains tax.  Notwithstanding  the foregoing,
      dealers in securities in Israel are taxed at regular tax rates  applicable
      to business income.

      In addition,  the U.S.-Israeli Tax Treaty exempts U.S.  residents who hold
      an interest of less than 10% in an Israeli  company,  and who did not hold
      an interest of 10% or more in the company at any time during the 12 months
      prior  to a sale  of  their  shares  from  Israeli  capital  gains  tax in
      connection with such sale. Certain other tax treaties to which Israel is a
      party also grant exemptions from Israeli capital gains taxes.

<PAGE>

E.    DIVIDEND AND PAYING AGENTS

      On July 27, 1999, the Board of Directors decided, based on a legal opinion
      which it obtained,  to  terminate  the payment of a dividend in respect to
      "A" and "C" shares.  A report  regarding this decision was communicated to
      the Accountant General and the Company's Authority.

      The Bank  did not  record  a  liability  with  respect  to the  cumulative
      dividend since its distribution is contingent upon:

      1.    The existence of income (in other words, the  distribution  will not
            be in contravention of the Company's Law).

      2.    As per a decision of the Board of Directors.

      The cumulative  dividend which was not paid with respect to the years 1999
      - 2006 amounts to NIS 63,500  thousand.  In addition,  the Treasury of the
      State of Israel has a liability to cover the linkage differences  included
      in the  aforementioned  amount which  amounts to NIS 63,369  thousand.  In
      prior  years,  a  dividend  was paid as noted in Note 12 to the  financial
      statements.

F.    STATEMENT BY EXPERTS

      None.

G.    DOCUMENTS ON DISPLAY

      We are  subject  to  the  reporting  requirements  of  the  United  States
      Securities  Exchange Act of 1934,  as amended,  as  applicable to "foreign
      private  issuers" as defined in Rule 3b-4 under the  Exchange  Act, and in
      accordance therewith, we file annual reports.

      As a foreign private issuer, we are exempt from certain  provisions of the
      Exchange Act. Accordingly,  our proxy solicitations are not subject to the
      disclosure  and  procedural  requirements  of  Regulation  14A  under  the
      Exchange Act,  transactions  in our equity  securities by our officers and
      directors are exempt from reporting and the "short-swing"  profit recovery
      provisions  contained in Section 16 of the Exchange  Act. In addition,  we
      are not  required  under the  Exchange  Act to file  periodic  reports and
      financial  statements  as  frequently  or as  promptly  as  United  States
      companies whose securities are registered under the Exchange Act. However,
      we distribute  annually to our  shareholders an annual report,  containing
      financial  statements  that have been  examined  and  reported on, with an
      opinion expressed by, an independent public accounting firm.

      This annual report and the exhibits thereto and any other document we file
      pursuant to the Exchange Act may be inspected without charge and copied at
      prescribed  rates at the  following  Securities  and  Exchange  Commission
      public reference rooms. 100 Fifth Street, N. E., Washington,  D.C. 20549;.
      You may obtain information on the operation of the Securities and Exchange
      Commission's  public  reference room in  Washington,  D. C. by calling the
      Securities and Exchange Commission at 1-800-SEC-0330.

      The SEC maintains an Internet website at http://www.sec.gov  that contains
      reports,  information statements and other material that are filed through
      the SEC's  Electronic  Data  Gathering,  Analysis and Retrieval  ("EDGAR")
      system.

      The  documents  concerning  our Bank which are  referred to in this annual
      report may also be inspected at our offices  located at 83 Hashmonaim  St.
      Tel Aviv, Israel.

H.    SUBSIDIARY INFORMATION

      None.

<PAGE>

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

      The Bank is  exposed to a variety  of risks  including  changes in foreign
      currency exchange rates.

      The Bank does not use derivative instruments.

      The Bank created  specific  allowances for doubtful  debts,  which, in the
      opinion of management,  reflect  potential losses on the credit portfolio,
      in  accordance  with  existing  arrangements.   Material  changes  in  the
      arrangements  if any, are likely to obligate  additional  allowances.  The
      criteria for such allowances are as follows:

      (1)   In  the  credit   portfolio   for   kibbutzim   and  their   related
            organizations  in  consideration  of the kibbutzim  Arrangement,  as
            signed (see Note 3F.

      (2)   In the credit portfolio for moshavim and their related organizations
            - of the "Law for  Arrangements  in the Family  Agricultural  Sector
            1992" and the guidelines of the  Supervisor of Banks,  is taken into
            consideration, as mentioned in Note 3E.

      (3)   In the credit  portfolio of other  customers,  with reference to the
            financial  information  available  to the Bank,  in  respect  of the
            financial status of the receivable.

      In  addition  to  the  above  mentioned  specific  allowances,  a  general
      allowance  for doubtful  debts was recorded in the past at a rate of 1% of
      the  receivables  balance as of December 31, 1991.  Beginning in 1992, the
      Supervisor of Banks directives  determine that an additional allowance for
      doubtful debts is to be recorded (in excess of the general allowances) and
      in addition to the former general allowance is to be maintained as accrued
      pursuant to prior  directives at an amount which is not greater than 1% of
      the total customer debts as of December 31, 1991, adjusted for inflation.

      The portion of the  allowance in excess of 1% may be charged on account of
      the  additional  allowance.  As of  December  31,  2006,  the  general and
      additional  allowances represent 45.96% of total credit for which the Bank
      is responsible.

      In addition to the above  allowances,  the Supervisor of Banks  instructed
      that a special  allowance  is to be recorded  not later than  December 31,
      2001 in a cumulative  amount which will not be less than the  aggregate of
      the following:

      1.    0.15% of the balance of the risk assets as of June 30, 2001.

      2.    1% of the balance of the specially  supervised  debts as of June 30,
            2001.

      3.    2.5% of the balance for the  problematic  debts,  net of the balance
            for the specially supervised debts as of June 30, 2001.

      The special allowance will be maintained in its nominal amount, subject to
      the aforesaid.

      Foreign currency exchange risk

      The Bank has liabilities in U.S. dollars. The maturity of the primary item
      is up to 1 year.

      A -10%  movement in the level of the exchange  rate of the Israeli  shekel
      against  the  U.S.  dollar,   with  all  other  variables  held  constant.
      Liabilities would be effected by about adjusted NIS 7.2 million.

<PAGE>

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

      (a)   The  following  securities  of the Bank were  traded  in the  United
            States,  and  to  the  best  of  our  knowledge,  according  to  the
            clarifications  made, there is no trading in the Bank shares.  Since
            there is no  trading  in the  above  shares,  the State of Israel is
            purchasing  the  shares  from the  vendors  at 90% of their  nominal
            value.

            Trade was affected through a United State Nominee:

            250,000 - 7.5% Cumulative Redeemable Preference "C" shares linked to
            the  dollar  (Nominee:   Mellon  Investor   Services  LLC  Manhattan
            Shareholders Service, New York).

      (b)   The  capital   notes  are  deferred  in  relation  to  both  secured
            liabilities and other liabilities of the Bank, whose terms guarantee
            that they have  preference  over the capital notes.  Pursuant to the
            letter from the Treasury  dated  February 12,  2003,  commencing  in
            2004,  the Bank will file a request on a  quarterly  basis to extend
            the time for the payment of the deferred  capital  notes held by the
            Government.  On May 13, 2007 the  Accountant  General  approved  the
            extension of the maturity date to June 30, 2007.

      (c)   The 8% Cumulative  and  Participating  Preference "A" shares and the
            7.5% Cumulative  Redeemable Preference "C" Shares were quoted on the
            Tel Aviv Stock  Exchange.  On April 30, 1992, the Board of directors
            of the Tel Aviv  Stock  Exchange  resolved  to cease  trading of the
            securities  of the Bank  until such time when  conditions  permitted
            continuation  of trading.  The securities  were de-listed on January
            31,  1993.  Before that date,  four  trading  days took place,  from
            January 25 to January 28, 1993.

<PAGE>

PART II

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

      None.

ITEM 14. MATERIAL  MODIFICATIONS  TO THE RIGHTS OF SECURITY  HOLDERS AND USE OF
         PROCEEDS

      None

ITEM 15. CONTROLS AND PROCEDURES

      (A)   Disclosure  controls and procedures.  The Bank's General Manager and
            Chief  financial  Officer have  evaluated the  effectiveness  of its
            disclosure  controls  and  procedures  as of the  end of the  period
            covered  by this  Annual  Report  on Form  20-F/A.  Based  upon such
            review,  the General Manager and Chief financial  Officer  concluded
            that  the  Bank has in place  appropriate  controls  and  procedures
            designed to ensure that information  required to be disclosed by the
            Bank in the  reports  it  files  or  submits  under  the  Securities
            Exchange Act of 1934, as amended, and rules hereunder,  is recorded,
            processed, summarized and reported within the time periods specified
            in the SEC's rules and forms.

      (B)   Internal controls. Since the date of the evaluation described above,
            there have not been any changes in the Bank's internal  control over
            financial  reporting  or  in  other  factors  that  have  materially
            affected,  or are reasonably likely to materially affect, the Bank's
            internal control over financial reporting.

ITEM 16. [RESERVED]

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

      In a Board  meeting on January 16, 2005,  it was resolved  that due to the
      limited activity of the Bank,  focused on restructuring  and collection of
      debts of the agricultural sector, the appropriate number of directors with
      financial expertise is one. On the date that the financial statements were
      approved, the following two individuals were considered financial experts:
      (1) Mr. G.  Medleg,  MBA,  who in the last five years was  employed  as an
      economist in the Ministry of Agriculture and since 1999 serves as a member
      of the audit  committee  of the  Institute of Wine in Israel and also as a
      management member of the Institute.  Mr. G. Medleg is a civil servant (the
      Government  of  Israel is the main  shareholder  of the  Bank).  (2) Dorit
      Almaliah was approved as a audit committee Financial Expert.

ITEM 16B. CODE OF ETHICS

      Following the cessation of the company's banking  activities and the non -
      renewal of its license by The Bank Of Israel, the company discontinued its
      activities regarding the issue of the Code of Ethics.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      On November 28, 2005,  the Board of Directors of the Bank  approved  audit
      fees to the  independent  auditors for the year ended December 31, 2006 in
      an amount not to exceed NIS  165,000  (plus  VAT).

      All the  members  of the  Audit  Committee  are  members  of the  Board of
      Directors.

<PAGE>

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES (Cont.)

      On May 28, 2005, the Board of Directors of the Bank approved audit fees to
      the independent auditors for the year ended December 31, 2005 in an amount
      not to exceed NIS 165,000 (plus VAT).

      After  finishing  all the audit work for the year 2005,  a final  approval
      will be given by the Government Companies Authority.

      The fees for professional services for the 2 years ended December 31, 2006
      were as follows

      ==========================================================================
                                   Year ended                 Year ended
                                December 31, 2006         December 31, 2005
                            -------------------------  -------------------------
                             Amount       Percentage    Amount       Percentage
                               NIS                        NIS
                            ----------   ------------  ----------  -------------

      Audit fees              165,000           100%     165,000            82%
      Audit related fees           --            --       35,939            18%
                            ---------         -----    ---------         -----
                              165,000           100%     200,939           100%
                            =========         =====    =========         =====
      ==========================================================================

PART III

ITEM 17. FINANCIAL STATEMENTS

      See pages F-1 to F-46 incorporated herein by reference

ITEM 18. EXHIBITS

      12.1  Certification of the General Manager pursuant to Section 302, of the
            Sarbanes - Oxley Act of 2002.

      12.2  Certification  of the Chief  Financial  Officer  pursuant to Section
            302, of the Sarbanes - Oxley Act of 2002.

      13.1  Certification of the General Manager and the Chief Financial Officer
            pursuant to 18 U.S.C Section  1350,  as adopted  pursuant to Section
            906 to the Sarbanes - Oxley Act of 2002.

ITEM 19. SIGNATURES

      Pursuant to the  requirements of Section 12 of the Securities and Exchange
      Act of 1934, the Bank certifies that it meets all of the  requirements for
      filing on From 20-F and has duly caused this annual report to be signed on
      its behalf by the undersign, thereunto duly authorized.

                                                 Israel Bank of Agriculture Ltd.


                                   /s/ Lea Patalovsky
                                 ----------------------
                                     Lea Patalovsky
                                     General Manager
  Date: June 26, 2007.


<PAGE>

                         ISRAEL BANK OF AGRICULTURE LTD.

                              FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2006

<PAGE>

                         ISRAEL BANK OF AGRICULTURE LTD.

                              FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2006

                                      INDEX

                                                                      Page
                                                                  -------------

Report of Independent Auditors                                        2-3

Balance Sheet                                                         4-5

Statements of Operations                                               6

Statements of Changes in Shareholders' Deficiency                      7

Statements of Cash Flows                                               8

Notes to the Financial Statements                                    9 - 45


                                      -1-
<PAGE>

                               [LETTERHEAD OF R&H]

             Report of Independent Registered Public Accounting Firm
                               To the Shareholders

                                       of

                         ISRAEL BANK OF AGRICULTURE LTD.

We have audited the  accompanying  balance  sheets of Israel Bank of Agriculture
Ltd. ("the Bank") as of December 31, 2006 and 2005,  and the related  statements
of  operations,  changes in equity  (deficiency)  and cash flows for each of the
three years in the period ended December 31, 2006.  These  financial  statements
are the  responsibility  of the  Bank'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 an  affiliate,  the  investment in
which,  on the equity basis of  accounting,  totaled NIS 1,053  thousand and NIS
1,032  thousand as of December 31, 2006 and 2005,  respectively,  and the Bank's
share in the net income  (loss) of which  totaled NIS 21  thousand  for the year
ended December 31, 2006, and the Bank's share in the net income of which totaled
NIS (26)  thousand  and NIS 33 thousand  for each of the two years in the period
ended December 31, 2005 and 2004, respectively. These statements were audited by
other auditors whose reports have been furnished to us, and our opinion, insofar
as it relates to data included for the affiliate, is based solely on the reports
of the other auditors.

We conducted our audits in accordance with generally accepted auditing standards
in Israel, including those prescribed by 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.We  were not  engaged to  perform  audits of the
Bank's   internal   control  over   financial   reporting.   An  audit  includes
consideration  of  internal  control  over  financial  reporting  as a basis for
designing audit  procedures that are appropriate in the  cicrumstances,  but not
for the  purpose of  expressing  an opinion on the  effectiveness  of the Bank's
internal  control  over  financial  reporting.  Accordingly,  we express no such
opinion. An audit also 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 the other  auditors  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 Bank as of December 31,
2006 and 2005 and, the results of its operations, and its cash flows for each of
the three  years in the period  ended  December  31 ,2006,  in  conformity  with
generally  accepted  accounting  principles  in Israel  which  differ in certain
respects from Accounting Principles Generally Accepted in the United States.


                                      -2-
<PAGE>

As  explained  in Note 1C,  the  financial  statements  for dates and  reporting
periods  subsequent  to December  31, 2003 are stated in  reported  amounts,  in
accordance  with the  accounting  standards of the Israel  Accounting  Standards
Board. The financial statements for dates and reporting periods that ended up to
the  aforementioned  date are stated in values  that were  adjusted to that date
according  to the  changes  in  the  general  purchasing  power  of the  Israeli
currency,  in  accordance  with  opinions of the  Institute of Certified  Public
Accountants in Israel,  except the items in the statements of operations in 2003
upto and including the operating  profit before tax which are stated in reported
amounts (as  detailed in Note 1C) in  accordance  with the  instructions  of the
Supervisor of banks in Israel and to its provisions.

The accompanying  financial statements have been prepared assuming that the Bank
will  continue to operate as a going  concern.  As  discussed  in Note 1A to the
financial statements the Bank's operations, upon which restrictions were imposed
by the Bank of Israel as stated in Note 1A(2)(b) are stipulated on the fact that
the  Government  will defer the maturity date of its deferred  deposits with the
Bank as  stated in Note  1A(2) and the  maturity  date of the  principal  of the
capital notes held by the government as stated in Note 11, and on the basis that
current cash  collections  of the Bank will enable it to pay operating  expenses
(mainly salaries) and interest to the Government as stated in Note 1A(2)(c). The
Bank  has a  shareholder's  deficiency  amounting  to NIS  1,454  million  as of
December 31, 2006. Further, the maturity date of the Government deposits and the
principal of the capital notes held by the Government was postponed to April 30,
2007. The Government  intends,  during the period until the maturity date of the
Government deposits,  to formulate a detailed plan with the Bank with respect to
the manner of the Bank's continued  operations.  These factors raise substantial
doubt  with  respect  to  Bank's  ability  to  continue  a  going  concern.  The
management's  plans with  respect to these  issues are  described in Note 1A(2).
These  financial  statements  do not include  any  adjustments  to reflect  that
possible future effects on the  recoverability  and classification of assets and
the amount  and  classification  of  liabilities  that they may result  from the
outcome of this uncertainty.

Allowances related to the agricultoral  sector were made as explained in Note 1I
and in  accordance  with the  arrangements  explained  in Note 3. Changes in the
arrangements may require changes in the allowances.  As explained in Note 1A(3),
regarding the announcement of the Bank of Israel,  regarding the cancellation of
the license of the bank and regarding  the decision of the  Ministers  Committee
for  Privatization  to  sell  the  bank's  assets  and  subsequently   voluntary
liquidation of the bank.

Theses  financial  statements  do not include any  adjustments  to reflect  that
possible future effects on the  recoverability  and classification of assets and
the amount  and  classification  of  liabilities  that they may result  from the
outcome of the privitization and voluntary liquidation of the bank.

                                                     Rosenblum-Holtzman
                                             Certified Public Accountants (Isr.)
Tel Aviv, Israel
March 13, 2007


                                      -3-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.
BALANCE SHEETS
--------------------------------------------------------------------------------
In thousands of NIS

                                                          As of December 31
                                                      -------------------------
                                                        2006            2005
                                                      -------         ---------
                                             Note        Reported amounts (*)
                                            -------   -------------------------
ASSETS

    Cash on hand and deposits with banks        2      83,375            62,321

    Credit to the public                        3     221,302           238,590

    Credit to the Government of Israel          4      16,357            16,065

    Investment in affiliate                     5       1,053             1,032

    Bank building and equipment                 6         221               265

    Other assets                                7       1,218             3,309
                                                      =======           =======

TOTAL ASSETS                                          323,526           321,582
                                                      =======           =======


(*)   As for the cessation of the adjustment for the effect of inflation,  based
      on December 2003, CPI, see Note 1c.

       (s) Mr. E. Kulas, Adv.    (s) Ms. L. Patalovsky      (s) Mr. Y. Cohen
   ---------------------------  -----------------------  -----------------------
         Mr. E. Kulas, Adv.        Ms. L. Patalovsky          Mr. Y. Cohen
     Chairman of the Board of       General Manager      Chief Financial Officer
            Directors

Date of approval of the financial statements: March 13, 2007

     The accompanying notes are an integral part of the financial statements


                                      -4-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.
BALANCE SHEETS
--------------------------------------------------------------------------------
In thousands of NIS

                                                          As of December 31
                                                        -----------------------
                                                           2006          2005
                                                        ----------   ----------
                                                  Note     Reported amounts (*)
                                                 -----  -----------------------

LIABILITIES AND SHAREHOLDERS'
 DEFICIENCY

Deposits from the public                            8           53           50
Government of Israel deposit                        9      456,294      456,047
Other liabilities                                  10        7,339        7,419
                                                        ----------   ----------
                                                           463,686      463,516

Deferred deposits from the Government of Israel    11    1,241,036    1,110,235
                                                        ----------   ----------

Deferred capital notes:
    Held by the Government                         11       72,412       78,891
                                                        ----------   ----------

Total liabilities                                        1,777,134    1,652,642

Non-participating Preferred Shares                              11           11

Shareholders' deficiency                                (1,453,619)  (1,331,071)
                                                        ----------   ----------

Total liabilities and shareholders' equity                 323,526      321,582
                                                        ==========   ==========

(*)   As for the cessation of the adjustment  for the effect of inflation  based
      on December 2003, CPI, see Note 1c.

     The accompanying notes are an integral part of the financial statements


                                      -5-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
--------------------------------------------------------------------------------
In thousands of NIS

<TABLE>
<CAPTION>
                                                                                                    For the year ended
                                                                                                        December 31
                                                                                        ------------------------------------------
                                                                                            2006             2005           2004
                                                                                        -----------       ----------     ---------
                                                                              Note                 Reported amounts (*)
                                                                             ------     ------------------------------------------
<S>                                                                            <C>        <C>             <C>              <C>
Loss from financing activities
Loss from financing activities before allowance for
  doubtful debts (1)                                                           14         (111,511)       (125,191)        (94,060)
Increase in allowance for doubtful debts                                       3c           (2,677)             --              --
                                                                                        ----------       ---------       ---------
Loss from financing activities after allowance for doubtful debts                         (114,188)       (125,191)        (94,060)
                                                                                        ----------       ---------       ---------
Operating and other income
Rental income                                                                                  402             389             426
Other income                                                                   15                9              85             129
                                                                                        ----------       ---------       ---------
Total operating and other income                                                               411             474             555
                                                                                        ----------       ---------       ---------
Operating and other expenses
Salaries and related expenses                                                  16            6,552           6,603           6,508
Depreciation on bank building and equipment                                                     44              45              44
Building and equipment maintenance                                                             807             974           1,152
Other expenses                                                                 17            1,389           1,641           1,440
                                                                                        ----------       ---------       ---------
Total operating and other expenses                                                          (8,792)         (9,263)             ()
                                                                                        ==========       =========       =========

Operating loss                                                                            (122,569)       (133,980)       (102,649)

Equity in (loss) profits of an affiliate                                                        21             (26)             33
                                                                                        ----------       ---------       ---------

Net loss for the year                                                                     (122,548)       (134,006)       (102,616)
                                                                                        ==========       =========       =========

Loss per share NIS 1 nominal value (in NIS)
   of Ordinary Share capital and Preferred "A" Share capital
   (Note 1(k))

Operating loss for the year per Ordinary Share and
  Preferred "A" share                                                                      (585.60)        (640.20)        (490.30)
                                                                                        ----------       ---------       ---------
Weighted average shares outstanding                                                        209.273         209.273         209.273

(1) (Loss) income from financing activities before allowance for
  doubtful debts, interest on Government deposits                                           24,891            (987)          7,861

Interest on Government deposits and deferred capital notes                                (136,402)       (124,204)       (101,921)
Loss from financing activities before expense before                                    ----------       ---------       ---------
      allowance  for doubtful debts                                                       (111,511)       (125,191)        (94,060)
                                                                                        ==========       =========       =========
</TABLE>

(*)   AS for the cessation of the adjustment  for the effect of inflation  based
      on Dec 2003 CPI, see Note 1c.

     The accompanying notes are an integral part of the financial statements


                                      -6-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
--------------------------------------------------------------------------------
In thousands of NIS

<TABLE>
<CAPTION>
                                                                  Total
                                                                outstanding
                                Outstanding     Receipts on    share capital                       Total
                                   share        account of      and capital     Accumulated      shareholders'
                                  capital         shares         reserves         deficit        deficiency
                                -----------     -----------     -----------     -----------      -----------
                                                            Reported amounts (*)
                                ----------------------------------------------------------------------------
<S>                                 <C>             <C>           <C>            <C>              <C>
Balance at January 1, 2004          864,568         308,479       1,173,047      (2,267,496)      (1,094,449)

Loss for the year                        --              --              --        (102,616)        (102,616)
                                -----------     -----------     -----------     -----------      -----------
Balance at January 1, 2005          864,568         308,479       1,173,047      (2,370,112)      (1,197,065)

  Loss for the year                      --              --              --        (134,006)        (134,006)
                                -----------     -----------     -----------     -----------      -----------

Balance at January 1, 2006          864,568         308,479       1,173,047      (2,504,118)      (1,331,071)

Loss for the year                        --              --              --        (122,548)        (122,548)
                                -----------     -----------     -----------     -----------      -----------

Balance at December 31,2006         864,568         308,479       1,173,047      (2,626,666)       1,453,619
                                ===========     ===========     ===========     ===========      ===========
</TABLE>

(*)   As for the cessation of the adjustment for the effect of inflation,  based
      on December 2003, CPI, see Note 1c.

     The accompanying notes are an integral part of the financial statements


                                      -7-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
--------------------------------------------------------------------------------
In thousands of NIS

<TABLE>
<CAPTION>
                                                                               For the year ended
                                                                                   December 31
                                                                        ----------------------------------
                                                                           2006        2005        2004
                                                                        --------    --------   -----------
                                                                              Reported          Adjusted
                                                                             amounts (1)       amounts (2)
                                                                        --------------------   -----------
<S>                                                                     <C>         <C>         <C>
Cash flows from operating activities:
Loss for the year                                                       (122,548)   (134,006)   (102,616)

Adjustments to reconcile the cash flows used in operating activities:
 Equity in the loss (profits) of an affiliate                                (21)         26         (33)
 Depreciation on the bank's building and equipment                            44          45          44
                                                                        --------    --------    --------
Net cash used in operating activities                                   (122,525)   (133,935)   (102,605)
                                                                        --------    --------    --------
Cash flows from investing activities
Credit to the public, net                                                 17,288        (218)     13,246
Credit to the Government of Israel, net                                     (292)      6,057       7,717
Purchase of equipment                                                         --         (11)         --
Other assets, net                                                          2,091      (1,117)        (74)
                                                                        --------    --------    --------
Net cash provided by investing activities                                 19,087       4,711      20,889
                                                                        --------    --------    --------
Cash flows from financing activities:
Deposits from the public, net                                                  3        (830)       (142)
Deposits from the Government, net                                            247      12,731       5,025
Other liabilities, net                                                       (80)       (149)       (362)
Deferred Government deposits                                             130,801     118,316      96,247
Deferred capital notes, net                                               (6,479)      5,056      (1,217)
                                                                        --------    --------    --------
Net cash provided by financing activities                                124,492     135,124      99,551
                                                                        ========    ========    ========

Increase (Decrease) in cash on hand and deposits with banks               21,054       5,900      17,835
Balance of cash on hand and deposits with banks
  at the beginning of the year                                            62,321      56,421      38,586
                                                                        --------    --------    --------
Balance of cash on hand and deposits with banks
  at the end of the year                                                  83,375      62,321      56,421
                                                                        ========    ========    ========
</TABLE>

(1)   As for the Cessation of the adjustment  for the effect of inflation  based
      on December 2003 CPI, see Note 1c.

     The accompanying notes are an integral part of the financial statements


                                      -8-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

                                 INDEX TO NOTES

<TABLE>
<CAPTION>
Note                                                                                  Page
----                                                                             -------------
<S>    <C>                                                                       <C>
1.     The Bank, Its Main Activities and Significant Accounting Policies         10    -    19

2.     Cash on Hand and Deposits with Banks                                            19

3.     Credit to the Public (Less Allowances for Doubtful Debts)                 20    -    28

4.     Credit to the Government of Israel                                              29

5.     Investment in an Affiliate                                                      29

6.     Building and Equipment                                                          30

7.     Other Assets                                                                    31

8.     Deposits from the Public                                                        31

9.     Deposits from the Government                                                    31

10.    Other Liabilities                                                               32

11.    Deferred Government Deposits and Deferred Capital Notes                         33

12.    Share Capital                                                             34    -    35

13.    Related Parties                                                           36    -    37

14.    Loss from Financing Activities Before Allowance for Doubtful Debts              38

15.    Commissions and Other Income                                                    39

16.    Salaries and Related Expenses                                                   39

17.    Other Expenses                                                                  39

18.    Income Taxes                                                                    40

19.    Reconciliation Between Israel GAAP and U.S. GAAP                          40    -    43

20.    Subsequent events                                                               43

21.    Information on the basis of Nominal Historical Data for tax purposes      43    -    45

22.    Other Information in Nominal Values                                             45
</TABLE>


                                      -9-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006
--------------------------------------------------------------------------------

Note 1 - The Bank, Its Main Activities and Significant Accounting Policies

      A.    General

            1.    The financial statements have been prepared in accordance with
                  accounting  principles  generally  accepted in Israel ("Israel
                  GAAP") and  accounting  principles  of the  Israel  Accounting
                  Standards Board. The accounting  policies,  according to which
                  the  financial  statements  were  prepared,  have been applied
                  consistently   except  for  the  required   changes  from  the
                  transition in 2004 to nominal  accounting  reporting (See Note
                  1C). Israeli GAAP and accounting principles generally accepted
                  in the  United  States  ("U.S.  GAAP")  as  applicable  to the
                  financial statements of the Bank, differ in certain respects.

            2.    (a)   On  January  28,  1992, a  Deposit  Agreement was signed
                        by the Bank and the Government of Israel.  In accordance
                        with this  agreement,  the Government  agreed to convert
                        NIS 180 million (NIS of January 1992) deposited with the
                        Bank into three deferred deposits,  deferred to December
                        31, 1999, as explained in Note 11.

                        Paragraph 4(3) to the agreement stipulates that:

                        "The  principal  of the deposits  including  the accrued
                        interest and linkage differentials thereon are repayable
                        as follows:

                        1.    All the amounts  that were  scheduled to be repaid
                              according  to the  original  clearing  schedule by
                              December  31,  1999 are  repayable  on  January 1,
                              2000;  however  if it will  become  clear that the
                              repayment  of all such  amounts on January 1, 2000
                              may  result in the  dissolution  of the Bank,  the
                              Bank may  request  the  Government  of  Israel  to
                              consider an agreement for changes in the repayment
                              schedule.   The  Government  will  deliberate  the
                              request while  applying  pertinent  considerations
                              and subject to its policy at that time.

                        2.    All the amounts  that  according  to the  original
                              clearing schedule were to be repaid after December
                              31, 1999 will be repaid at the original  date that
                              was determined for their repayment;"

                        Due to the  crisis  in the  agriculture  sector  and the
                        restriction imposed on the Bank regarding its ability to
                        exercise  the pledged  assets by virtue of the "Gal Law"
                        and the "Kibbutz  Arrangements",  the Bank was unable to
                        repay the deferred deposits as scheduled.


                                      -10-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 1 - The Bank,  Its Main  Activities  and  Significant  Accounting  Policies
         (Cont.)

      A.    General (Cont.)

            2.    (Cont.)

                  (a)   (Cont.)

                        The maturity  date for the  deposits  has been  extended
                        several  times  pursuant to approvals  received from the
                        Accountant General. Under the last extension,  which was
                        approved by the Accountant General on February 21, 2007,
                        their  maturity date was deferred  until April 30, 2007.
                        The approval was granted, among other purposes, to allow
                        the Bank and the Government, during the period until the
                        maturity date, to formulate a detailed plan with respect
                        to the manner for the continued operations of the Bank.

                  (b)   In  accordance  with  the  Deposit  Agreement,  the Bank
                        agreed  not to  extend  credit  in  excess of what it is
                        obligated  pursuant to the framework of the arrangements
                        for the agricultural sector, and in excess of what it is
                        obligated to grant to its existing  customers.  If there
                        will  be  additional  obligations  in the  framework  of
                        comprehensive  arrangements in the agricultural  sector,
                        these will be only upon authorization of the accountable
                        ministers,  in coordination with the Bank of Israel. The
                        Bank  will   concentrate   its  major   efforts  in  the
                        collection   of  loans,   which  were   granted  to  the
                        agricultural  sector,  and will not  expand the scope of
                        deposits  from the public.  Existing  deposits  from the
                        public will be renewed in coordination  with the Bank of
                        Israel.

                  (c)   Toward  the end of  2000,  the  Bank did not have a debt
                        balance  toward the Bank of  Israel.  In a letter to the
                        Bank dated  December  6, 2000,  the Bank of Israel  gave
                        notice  that it is ceasing to extend  current  credit to
                        the Bank.

                        In addition,  the Bank of Israel eliminated the floating
                        charge on the Bank's credit portfolio.

                        Since the Bank does not have any  credit  sources  as it
                        had in the past, in the event it will require short-term
                        bridge loans,  the Bank may be forced to defer  payments
                        to the  Government for those same periods of time and in
                        accordance with the rate of its collections.

                        In the  opinion of the Bank's  management,  the cash and
                        cash  equivalents  balance as of December 31, 2006,  and
                        the  current  collection  anticipated  in 2007  from the
                        payment  arrangement with the moshavim and the kibbutzim
                        will  allow the Bank in 2007,  subject to what is stated
                        above, to pay the ongoing operating expenses  (primarily
                        salaries) and make interest payments to the Government.


                                      -11-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 1 - The Bank,  Its Main  Activities  and  Significant  Accounting  Policies
         (Cont.)

      A.    General (Cont.)

            3.    On March 31, 2005 the Governor of the Bank of Israel announced
                  the  cancellation  of the  license  of the Bank as of April 1,
                  2005,  and as of August 1, 2005, its name was striken from the
                  list of the membership in the clearing house.

                  According to article 9 of the Banking law (license), a banking
                  corporation of which the license was  cancelled,  will remain,
                  for the purposes of the Banking  Order and Bank of Israel law,
                  as a banking corporation for 3 years as of the cancellation of
                  the license.

                  On  September  4,  2005,  it was  resolved  in  the  Ministers
                  Committee for  Privatization  to privatize the bank.  The main
                  details of the decision are as follows:

                  a)    Selling or transferring the essential assets of the bank
                        including the credit  portfolio,  real estate rights and
                        shares in affiliate.

                  b)    To authorize  the  Accountant  General and the Company's
                        Authority to act in this matter and to resolve the debts
                        of the bank to the government by allocation of shares.

                  c)    Preferred   shares   which   were   allocated   will  be
                        transferred to the Accountant  General for redemption of
                        the  shares and until the  transferring  date the matter
                        will be treated by the bank.

                  d)    After  the  completion  of  the  actions  -  to  act  to
                        liquidate the bank (voluntarily).

      B.    Definitions

            In these financial statements:

            The Bank/Bank       -     Israel Bank of Agriculture Ltd.

            Affiliate           -     A company in which the  Company  has
                                      significant  influence  and which is
                                      not  a  subsidiary,  and  where  the
                                      Company's investment in that company
                                      is   included   in   the   financial
                                      statements  according  to the equity
                                      method.

            Interested parties  -     As   defined   in   the   Securities
                                      Regulations  (Preparation  of Annual
                                      Financial   Statements),   1993   of
                                      Israel.

            Related parties     -     As  defined in  Statement  No. 29 of
                                      the  Institute of  Certified  Public
                                      Accountants in Israel.


                                      -12-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 1 - The Bank,  Its Main  Activities  and  Significant  Accounting  Policies
         (Cont.)

      C.    Financial Statements Presentation Basis

            (1)   General

                  The Bank  prepares and presents its  financial  statements  in
                  Israeli  currency (NIS).  Commencing in 2004, the Bank applies
                  the  directives of  Accounting  Standard No. 12 with regard to
                  "Cessation of Adjustments  Financial Statements for Inflation"
                  of the Israeli Accounting  Standards Board (hereinafter:  "the
                  IASB").  In  accordance  with this  standard and in accordance
                  with  Accounting  Standard No. 17 from December 2002, the Bank
                  ceased from the above date the  adjustments  of the  financial
                  statements to inflation and uses  transitional  directives for
                  nominal accounting reporting as described below.  However, the
                  comparative  figures  which  were  presented  in 2004 in these
                  financial  statements  are  based  on the  financial  data  as
                  adjusted  that were  previously  reported,  except  income and
                  expenses that were  included in the operating  loss in 2003 as
                  follows.

            (2)   The starting point for preparing the financial statements:

                  (a)   Until December 31, 2003, the Bank prepared its financial
                        statements  on the  accepted  basis of  historical  cost
                        adjusted  to  the  Consumer  Price  Index  ("CPI").  The
                        adjusted  amounts,  as aforesaid,  that were included in
                        the  financial   statements  as  of  December  31,  2003
                        (transition  date)  were  the  starting  point  for  the
                        nominal  accounting  reporting  from  January  1,  2004.
                        Additions that were made after the transition  date were
                        included in nominal values.

                        Accordingly,  the amounts  reported  for  2004-2006  are
                        composed as follows:

                        Amounts before the transition  date, are composed of the
                        amounts  adjusted to NIS of  December  31, 2003 with the
                        addition of amounts in nominal  values added  subsequent
                        to the transition date, and subtracting amounts deducted
                        subsequent to the  transition  date (the  subtraction of
                        the  above  amounts  is  in  adjusted   amounts  to  the
                        transition  date, in nominal values or in combination of
                        both respectively).

                        All the  amounts  from the period  after the  transition
                        date are included in the financial statements in nominal
                        values.

                  (b)   The values of the non-monetary  items do not necessarily
                        represent their economic  value,  but rather the balance
                        of their reported cost.

                  (c)   In  the  financial  statements,  the  terms  "cost"  and
                        "equity"  means  cost and  equity in  reported  amounts,
                        unless expressly stated otherwise.


                                      -13-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 1 - The Bank,  Its Main  Activities  and  Significant  Accounting  Policies
(Cont.)

      C.    Financial Statements Presentation Basis(Cont.)

            (3)   Financial statements in reported amounts

                  a.    Definitions

                        Adjusted amount              - Historical nominal amount
                                                       adjusted  in   accordance
                                                       with Statements 23 and 36
                                                       of   the   Institute   of
                                                       Certified          Public
                                                       Accountants in Israel.

                        Reported amount              - Adjusted amount as of the
                                                       transition  date with the
                                                       addition  of  amounts  in
                                                       nominal  values that were
                                                       added      after      the
                                                       transition  date, and net
                                                       of   amounts   that  were
                                                       deducted     after    the
                                                       transition date.

                        Adjusted financial reporting - Financial reporting based
                                                       on Statements  23, 36 and
                                                       50 of  the  Institute  of
                                                       Certified          Public
                                                       Accountants in Israel.

                        Nominal financial statements - Financial reporting based
                                                       on reported amounts.

                  b.    Balance Sheet

                        (1)   Non-monetary items are stated in reported amounts.

                        (2)   Monetary  items are stated in  nominal  historical
                              values as of the balance sheet date.

                        (3)   Equity  in  an   investment  in  an  affiliate  is
                              determined   on  the   basis   of  the   financial
                              statements in reported amounts of this company.

                  c.    Statements of operations

                        (1)   Income and  expenses  deriving  from  non-monetary
                              items or from  provisions  included in the balance
                              sheet  are  derived   from  the  changes   between
                              reported  amount in the  beginning of the year and
                              the reported amounts in the end of the year.

                        (2)   Other items in the  statements of  operations  are
                              stated in nominal values.


                                      -14-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 1 - The Bank,  Its Main  Activities  and  Significant  Accounting  Policies
         (Cont.)

            C.    Financial Statements Presentation Basis(Cont.)

                  (3)   Financial statements in reported amounts (Cont.)

                        c.    Statements of operations (Cont.)

                              (3)   The Banks' equity in the  operating  results
                                    of the affiliate has been  determined on the
                                    basis  of the  financial  statements  of the
                                    affiliate   in  reported   amounts  of  this
                                    company.

                  (4)   Adjusted amounts for the end of 2003

                        (a)   General

                              Through  December 31, 2003,  the Bank prepared its
                              financial   statements   on  the   basis   of  the
                              historical  cost  adjusted  for the changes in the
                              general  purchasing  power of the Israeli currency
                              (NIS)  based upon  changes in the  Consumer  Price
                              Index (CPI) in accordance with  pronouncements  of
                              the Institute of Certified  Public  Accountants in
                              Israel (hereinafter: "The Institute").

                        (b)   Balance sheet

                              Monetary  assets  and  liabilities  are  stated in
                              nominal values.  Non-monetary  assets (investments
                              in  an   affiliate,   the  Bank's   building   and
                              equipment,  share  capital)  have been adjusted on
                              the basis of the changes in the CPI from the month
                              in which the transaction  occurred through the CPI
                              for December 2003.

                              Equity  in  an   investment  in  an  affiliate  is
                              determined on the basis of the adjusted  financial
                              statements of that company.

                              The adjusted values of the  non-monetary  items do
                              not  necessarily  represent  their economic value,
                              but rather the balance of their  historical  cost,
                              adjusted  for the effect of changes in the general
                              purchasing power of the NIS.

                              The terms  "cost" and "equity" as used herein mean
                              "adjusted  cost"  and  "adjusted  equity",  unless
                              expressly stated otherwise.

                        (C)   Statement of operations

                              1.    Income and expenses (excluding  depreciation
                                    and interest income or expenses),  have been
                                    adjusted on a monthly basis for the increase
                                    in the Index,  from the month of transaction
                                    up to the balance  sheet  month,  net of the
                                    adjustments  of  the  opening   balances  of
                                    monetary assets and liabilities.

                                    Income and expenses in the  unlinked  shekel
                                    segment  were  adjusted   according  to  the
                                    average  balances  (on a daily basis) of the
                                    previous  month,  instead of on the basis of
                                    the  opening  monthly   balances.   The  net
                                    differences between the adjustments based on
                                    average  balances and  adjustments  based on
                                    opening  monthly  balances  were  carried to
                                    other interest income (expense).


                                      -15-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 1 - The Bank,  Its Main  Activities  and  Significant  Accounting  Policies
         (Cont.)

            C.    Financial Statements presentation basis (Cont.)

                  (4)   Adjusted amounts for the end of 2003 (Cont.)

                              2.    Depreciation  has been  adjusted on the same
                                    basis used for the adjustment of the related
                                    balance sheet fixed assets.

                              3.    The specific  allowance  for doubtful  debts
                                    has been  adjusted to the changes in the CPI
                                    from  the  date on  which  the debt has been
                                    determined  as  doubtful,  up to the balance
                                    date.  See Note 1I,  concerning  the general
                                    allowance.

                              4.    The Bank's equity in the  operating  results
                                    of the affiliate has been  determined on the
                                    basis  of the  financial  statements  of the
                                    affiliate,  as  adjusted  for the  effect of
                                    inflation on this company.

            D.    Foreign Currency and Linkage

                  (1)   Assets and liabilities in or linked to foreign currency,
                        are stated  according  to the  effective  representative
                        rates of exchange as of balance  sheet date as published
                        by the Bank of Israel. Exchange rate differences arising
                        from the adjustment of assets and liabilities in foreign
                        currency,   due  to  exchange  rate  fluctuations,   are
                        included in the statement of operations.

                  (2)   Monetary  balances,  which are  linked  to the CPI,  are
                        stated  in the  balance  sheet on the basis of the known
                        CPI  as  of  balance  sheet  date,  according  to  their
                        contractual terms.

                  (3)   Assets  and  liabilities  subject to  optional  linkage,
                        i.e.,  either to the CPI or to the rate of  exchange  of
                        the U.S. dollar/NIS, are stated at the higher option.

                  (4)   Data on rates of exchange and the Consumer Price Index:

<TABLE>
<CAPTION>
                                                                                             Rate of change
                                                              December 31,                    for the year
                                                       ---------------------------    --------------------------
                                                        2006       2005      2004      2006       2005      2004
                                                                                         %         %          %
                                                       ------     ------    ------    -----     -------    -----
<S>                                                    <C>        <C>       <C>        <C>       <C>        <C>
                        Rate of exchange of the
                         U.S. dollar                    4.225     4.603     4.308     (8.21)      6.85      (1.6)
                        Rate of exchange of the
                         Euro                          5.5643     5.4465    5.8768     2.17      (7.32)     6.21
                        Consumer Price Index (in
                         Points) for the month of
                          November                      102.9     103.20    100.50     (0.3)      2.69      0.88
                          December                      102.9     103.00    100.60     (0.1)      2.39      1.21
</TABLE>


                                      -16-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 1 - The Bank,  Its Main  Activities  and  Significant  Accounting  Policies
         (Cont.)

            E.    Investments in an affiliate

                  The investment in an affiliate is stated by the equity method.

            F.    Bank building and equipment

                  Assets acquired after April 1, 1984, are stated at cost net of
                  accumulated  depreciation.  Depreciation  is calculated by the
                  straight-line method over the useful lives of the assets.

                  Up to March 31, 1984,  the assets were written down in full in
                  the year they were  acquired,  in  accordance  with the policy
                  then applied.

            G.    Deferred taxes

                  As it is uncertain whether there will be taxable income in the
                  future,  the Bank did not record a deferred tax benefit in its
                  books.

            H.    Basis of recognition of revenues and expenses

                  (1)   Revenues  and  expenses  are  recognized  on an  accrual
                        basis.

                  (2)   The Bank  implemented  a directive of the Bank of Israel
                        regarding not  recognizing  income from interest for the
                        debts related to the Moshav  sector,  for those Moshavim
                        which have not yet joined the  arrangement  for settling
                        their debts.

            I.    Allowance for doubtful debts

                  The  financial  statements  include  specific  allowances  for
                  doubtful debts,  which, in the opinion of management,  reflect
                  potential losses on the credit  portfolio,  in accordance with
                  existing arrangements. Material changes in the arrangements if
                  any, are likely to require additional allowances. The criteria
                  for such allowances are as follows:

                  1.    In the credit  portfolio for kibbutzim and their related
                        organizations   in   consideration   of  the   kibbutzim
                        arrangement, as signed (see Note 3F).

                  2.    In the credit  portfolio  for moshavim and their related
                        organizations - the "Law for  Arrangements in the Family
                        Agricultural  Sector 1992" is taken into  consideration,
                        as mentioned in Note 3E.

                  3.    In  the  credit  portfolio  of  other  customers,   with
                        reference to the financial  information available to the
                        Bank,  in  respect  of  the  financial   status  of  the
                        receivable.


                                      -17-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 1 - The Bank,  Its Main  Activities  and  Significant  Accounting  Policies
         (Cont.)

            I.    Allowance for doubtful debts (Cont.)

                  In  addition to the above  mentioned  specific  allowances,  a
                  general  allowance for doubtful debts was recorded in the past
                  at a rate of 1% of the receivables  balance as of December 31,
                  1991.  Beginning in 1992, the  Supervisor of Banks  directives
                  determine  that an additional  allowance for doubtful debts is
                  to be recorded  (in excess of the general  allowances)  and in
                  addition to the former  general  allowance is to be maintained
                  as accrued  pursuant to prior directives at an amount which is
                  not greater than 1% of the total customer debts as of December
                  31, 1991, adjusted for inflation.  According to the directives
                  of the  Supervisor  of  Banks,  adjustments  will  cease as of
                  January 1, 2004.

                  The portion of the allowance in excess of 1% may be charged on
                  account of the additional allowance.  As of December 31, 2006,
                  the  general and  additional  allowances  represent  45.96% of
                  total credit for which the Bank is responsible.

                  In addition to the above  allowances,  the Supervisor of Banks
                  instructed  that a special  allowance  is to be  recorded  not
                  later than  December  31, 2001 in a cumulative  amount,  which
                  will not be less than the aggregate of the following:

                  1.    0.15% of the  balance of the risk  assets as of June 30,
                        2001.

                  2.    1% of the balance of the specially  supervised  debts as
                        of June 30, 2001.

                  3.    2.5% of the balance for the  problematic  debts,  net of
                        the balance  for the  specially  supervised  debts as of
                        June 30, 2001.

                  The  special  allowance  will  be  maintained  in its  nominal
                  amount, subject to the aforesaid.

            J.    Severance pay and pension and accruals for wage costs

                  The  liabilities  for severance pay and pension are covered by
                  appropriate  accruals,  which  are  deposited  with  reputable
                  pension funds,  and by the appropriate  liabilities  (see Note
                  10(1)(2)).

            K.    Loss per share

                  Loss Per Share was computed in accordance with Statement 55 of
                  the Institute of Certified Public Accountants in Israel.

            L.    Statement of cash flows

                  The  Bank  reports  on  cash  flows  in  accordance  with  the
                  Statements of the Institute of Certified Public Accountants in
                  Israel.


                                      -18-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 1 - The Bank,  Its Main  Activities  and  Significant  Accounting  Policies
         (Cont.)

            L.    Statement of cash flows (Cont.)

                  In  the   statement  of  cash  flows,   the  cash  flows  from
                  transactions in assets and liabilities,  excluding investments
                  in the Bank's  building and equipment,  are presented in their
                  offset amounts.

                  The cash item  includes  unrestricted  cash and bank  deposits
                  held with banks and the Bank of Israel for which the  original
                  term of deposit is short-term and does not exceed three months
                  from the date of the investment therein.

            M.    Financial instruments

                  The Bank's financial  instruments  include mainly cash, credit
                  and  financial  liabilities,  which  include  mainly  deferred
                  promissory  notes and deposits by the  Government  and others.
                  Most  of  the  credit   extended   by  the  Bank  is  for  the
                  agricultural  settlements - kibbutzim  and moshavim.  The Bank
                  has recorded an allowance for doubtful  debts on a prudent and
                  conservative basis. The Bank does not use derivatives.

            N.    Use of estimates

                  The  preparation  of financial  statements in conformity  with
                  generally accepted  accounting  principles requires management
                  to make  estimates  and  assumptions  that  affect the amounts
                  reported in the financial  statements and accompanying  notes.
                  Actual results could differ from those estimates.

            O.    Accounting   Standard  No.  29   regarding   the  adoption  of
                  International Financial Reporting Standards.

                  In July 2006, the Israel Accounting  Standards Board published
                  Accounting   Standard  No.  29,   "Adoption  of  International
                  Financial  Reporting  Standards  ("IFRS")   (hereinafter-  the
                  Standard).  The Standard provides that entities subject to the
                  Securities Law - 1968 that are required to report according to
                  the  regulations  of this law, are to prepare their  financial
                  statements  for  periods  beginning  as from  January  1, 2008
                  according to IFRS.

                  The initial implementation of IFRS will be effected along with
                  the  implementation  of IFRS 1, the initial  implementation of
                  IFRS, for purposes of the transition.

Note 2 - Cash on Hand and Deposits with Banks

<TABLE>
<CAPTION>
                                                                              December 31
                                                                         ------------------------
                                                                          2006             2005
                                                                         ------           ------
                                                                             In thousands NIS
                                                                         -----------------------
<S>                                                                      <C>              <C>
             Deposits with banks maturing in less than three months      83,375           62,231
                                                                         ------           ------
             Total                                                       83,375           62,231
                                                                         ======           ======
</TABLE>


                                      -19-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 3 - Credit to the Public (Less - Allowance for Doubtful Debts)

            A.    Composition:

<TABLE>
<CAPTION>
                                                                                     December 31
                                                                                 --------------------
                                                                                   2006        2005
                                                                                 --------    --------
                                                                                   In thousands NIS
                                                                                 --------------------
<S>                                                                                <C>         <C>
                  Credit                                                          125,192     125,222
                  Credit from designated deposits                                  61,695      80,188
                                                                                 --------    --------
                  Total credit to the public for which the Bank is
                   Responsible (*)                                                186,887     205,410

                  Less - general and additional allowances for
                   doubtful debts                                                 (24,844)    (24,844)
                  Special allowance                                                (6,000)     (6,000)
                                                                                 --------    --------

                  Total                                                           156,043     174,566
                                                                                 --------    --------

                  Credit from designated deposits, repayment of which to the
                  depositor is conditional upon the collection of the loan and
                  includes a margin                                                65,259      64,024
                                                                                 ========    ========

                  Total credit to the public                                      221,302     238,590
                                                                                 ========    ========
</TABLE>

                  The specific  allowances for doubtful debts were deducted from
                  the appropriate credit items.

                  (*)   An amount of NIS 89,050 thousand (2005 - NIS 78,088) for
                        which the Bank is not responsible, but which is included
                        as credit  extended from the Bank's  resources since the
                        deposits are  presented as deferred  deposits and not as
                        designated deposits.


                                      -20-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 3 - Credit to the Public (Less - Allowance for Doubtful Debts) (Cont.)

            B.    Credit  to the  public  for  which  the  Bank  is  responsible
                  includes (*)

<TABLE>
<CAPTION>
                                                                                     December 31
                                                                                  ------------------
                                                                                    2006      2005
                                                                                  --------  --------
                                                                                   In thousands NIS
                                                                                  ------------------
<S>                                                                                 <C>       <C>
                  Credit to the agricultural sector

                  (a)    For which the Bank is responsible (*):

                         Kibbutzim (including factories and regional
                           and national organizations)                              62,961    80,478

                         Moshavim  (including factories and regional
                           and national organizations)                             123,926   124,932
                                                                                   -------   -------

                        Total  credit to the  Agricultural  Sector for
                        which the Bank is responsible (**)                         186,887   205,410

                  (b)    Credit for which the Bank is not
                         responsible (*):
                                Balance as of balance sheet date                    53,303    49,642
                                                                                   -------   -------

                          Total credit to the Agricultural Sector                  240,190   255,052
                                                                                   =======   =======
</TABLE>

                  (*)   Credit  for  which  the  Bank is  responsible  excluding
                        designated deposits.  The repayment of these deposits is
                        subject to collection of the respective credit.

                  (**)  An amount of NIS 89,050  thousand (2005 - NIS 78,088) is
                        not under the Bank's responsibility,  but is included in
                        the Bank's  responsibility  since the deposits are shown
                        as deferred rather than designated.


                                      -21-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 3 - Credit to the Public (Less - Allowance for Doubtful Debts) (Cont.)

            B.    Credit  to the  public  for  which  the  Bank  is  responsible
                  includes (*) (Cont.)

                  Credit  to the  Agricultural  Sector  for  which  the  Bank is
                  responsible includes (*):

<TABLE>
<CAPTION>
                                                                                              December 31
                                                                                          ------------------
                                                                                           2006       2005
                                                                                          -------    -------
                                                                                           In thousands NIS
                                                                                          ------------------
<S>                                                                                         <C>       <C>
                  (a)    Credit to borrowers which has been rescheduled:
                          (1)   Credit which was rescheduled in prior years, with
                                waiver of income -
                                Balance as of balance sheet date                            7,461     2,134

                          (2)   Credit which was rescheduled  during the current year
                                without waiver of income -
                                Balance as of balance sheet date                           21,319        --

                  (b)     Credit to borrowers  which is to be  rescheduled, as per the
                          Bank management's decision, but has not
                          yet been rescheduled:
                          Balance as balance sheet date                                    75,656    88,544

                  (c)     Credit in temporary arrears, balance at balance sheet date           95        41

                  (d)     Credit under special supervision:
                          Balance as of balance sheet date                                 53,205    74,861

                  (e)     Credit  to the  agricultural  sector  for  which  the Bank is
                          responsible  (*), and is not included within the framework of
                          loans to problematic borrowers as above.
                          Balance as of balance  sheet date (income in respect of these
                          loans  included in the  statement  of  operations  -NIS 1,703
                          (2005 - NIS 2,917 thousand)                                      29,151    39,830
                                                                                          -------   -------

                  Total                                                                   186,887   205,410
                                                                                          =======   =======
</TABLE>

                  (*)   Credit  for  which  the  Bank is  responsible  excluding
                        credit extended from designated deposits.

                        The  repayment  of  these  deposits  is  subject  to the
                        collection of the respective loans.


                                      -22-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 3 - Credit to the Public (Less - Allowance for Doubtful Debts) (Cont.)

            C.    Allowances for doubtful debts

<TABLE>
<CAPTION>
                                                 December 31, 2006                             December 31, 2005
                                    ------------------------------------------    --------------------------------------------
                                                     Allowance                                     Allowance
                                    ------------------------------------------    --------------------------------------------
                                    Specific(*)    Additional(**)     Total        Specific(*)   Additional(**)      Total
                                    -----------    -------------   -----------    -------------  --------------  -------------
<S>                                     <C>               <C>          <C>              <C>             <C>            <C>
Balance at the beginning
  of the year                           100,391           30,844       131,235          100,432         30,844         131,276
                                     ----------    -------------   -----------    -------------    -----------   -------------
Allowance during the current year         2,677               --         2,677               --             --              --
Decrease in allowances                       --               --            --               --             --              --
                                     ----------    -------------   -----------    -------------    -----------   -------------
Amount charged to statement of
operations                                2,677               --         2,677               --             --              --
                                     ----------    -------------   -----------    -------------    -----------   -------------
Write offs                              (13,056)              --       (13,056)             (41)            --             (41)

Erosion and adjustment
  of balances                                --               --            --               --             --              --
                                     ----------    -------------   -----------    -------------    -----------   -------------
Balance at the end of the year           90,012           30,844       120,856          100,391         30,844         131,276
                                     ==========    =============   ===========    =============    ===========   =============

<CAPTION>

                                                 December 31, 2004
                                    -------------------------------------------
                                                     Allowance
                                    -------------------------------------------
                                    Specific (*)   Additional(**)      Total
                                    -----------    -------------    -----------
<S>                                     <C>               <C>             <C>
Balance at the beginning
  of the year                           109,011           30,869        139,880
                                    -----------    -------------    -----------
Allowance during the current year
Decrease in allowances                       --               --             --
                                    -----------    -------------    -----------
Amount charged to statement of
operations                                   --               --             --
                                    -----------    -------------    -----------
Write offs                               (8,579)              --         (8,579)

Erosion and adjustment
  of balances                                --              (25)           (25)
                                    -----------    -------------    -----------
Balance at the end of the year          100,432           30,844        131,276
                                    ===========    =============    ===========
</TABLE>

(*)   Does not include an allowance for interest on doubtful debts for the
      period after the debts had been determined as doubtful.

(**)  Including an additional and general allowance for doubtful debts.


                                      -23-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 3 - Credit to the Public (Less - Allowance for Doubtful Debts) (Cont.)

            D.    Classification of credit balances (*) to the public under the
                  Bank's responsibility(**) according to size of credit to
                  individual borrower

<TABLE>
<CAPTION>
                    December 31 2006                                        December 31 2005
  -----------------------------------------------------   ----------------------------------------------------
     Credit to borrowers        No. of        Credit        Credit to borrowers         No. of        Credit
  ------------------------     borrowers     Reported     -------------------------   borrowers     Adjusted
     From            To         (***)         amounts         From           To         (***)        amounts
  ---------     ----------    ----------   ------------   ------------  -----------   ---------     ----------
             In                                 In                    In                                In
          thousands                          thousands             thousands                         thousands
           Of NIS                              of NIS               Of NIS                            Of NIS
  ------------------------                  -----------   -------------------------                 ----------
<S>               <C>              <C>        <C>           <C>           <C>             <C>       <C>
                      10          18              91                          10           13            64
       10             20          13             204            10            20           13           183
       20             40          12             403            20            40           15           412
       40             80          21           1,183            40            80           19         1,030
       80            150          12           1,277            80           150           19         2,106
      150            300          17           3,656           150           300           20         4,448
      300            600          18           8,490           300           600           16         7,133
      600          1,200          17          15,743           600         1,200           22        19,159
    1,200          2,000          19          28,405         1,200         2,000           15        22,987
    2,000          4,000          15          43,377         2,000         4,000           23        61,288
    4,000          8,000           8          44,833         4,000         8,000           10        59,335
    8,000         20,000           1          18,070         8,000        20,000            2        27,265
   20,000         40,000           1          21,155        20,000        40,000           --            --
                              ------        --------                                  -------     ---------

    Total                        172         186,887         Total                        187       205,410
                              ======        ========                                  =======     =========
</TABLE>

                  (*)   Net of specific allowances for doubtful debts.

                  (**)  Credit,  excluding designated deposits, the repayment of
                        which is subject to the collection of the credit.

                  (***) Number  of  borrowers,  according  to total  credit  and
                        credit risk.

            E.    Credit to the moshavim

                  On  March  4,  1992,  the   Arrangements  Law  in  the  Family
                  Agricultural  Sector, 1992 was enacted. The ensuing obligating
                  regulations  were partly  determined  during 1994. In December
                  1997, the regulation for the realization of assets,  which are
                  not  agricultural  assets was  completed,  including  land and
                  which  deals  with  the  modus  operandi  for  those  who  are
                  recovering.  Within  the  framework  of  the  regulation,  the
                  agriculture assets, which are not realizable, were temporarily
                  determined.

                  The regulations not yet amended refer to the  distributions of
                  the  proceeds,   realization   of   agricultural   assets  and
                  collateral  for the  settlement of the debts.  The proposal of
                  the  regulations  to distribute the proceeds was considered by
                  several sessions of the economic committee of the Knesset, and
                  during the most  recent  session  held on March 5,  2001,  the
                  members of the  committee  voted  against the  approval of the
                  regulations according to the text submitted by the ministers.


                                      -24-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 3 - Credit to the Public (Less - Allowance for Doubtful Debts) (Cont.)

            E.    Credit to the moshavim (Cont.)

                  In the absence of the above  regulations,  the  settlement  of
                  debts in this segment can only be completed by a comprehensive
                  creditor arrangement which is acceptable to the Moshav and all
                  the  creditors.  Commencing  with the end of the first half of
                  1997,  "wraparound  plans"  which  constitute  the basis for a
                  comprehensive  arrangement  were  formulated.  The sources for
                  that  arrangement  are the members'  debts and the sale of the
                  moshav assets, mainly by extended appropriation of residential
                  plots  (in  line  with  Resolution  737  of  the  Israel  Land
                  Administration)  and from changes in the  designation  of land
                  initiated   by  the   moshav,   according   to   Israel   Land
                  Administration (hereinafter "ILA") decisions.

                  These  arrangements  are  supposed  to make  the  need to sell
                  agricultural assets  superfluous,  however at the beginning of
                  1999, the performance of Resolution 737 of the ILA was frozen,
                  and since then the issue of the freeing of  agricultural  land
                  has come up for  discussion  over the years in the  committees
                  and in other contexts.

                  On August 29,  2002,  the Supreme  Court ruled that  decisions
                  717,727 and 737 of the ILA are void since they do not meet the
                  reasonability  criteria.  However,  this determination did not
                  receive  immediate force since the decisions  concern numerous
                  transactions  for which the  procedure  in their  respect  and
                  their  economic  and  social  implications  are  far-reaching.
                  Therefore,  the  Board  of  the  ILA  should  have  formulated
                  transitional  provisions  that  would  determine  which of the
                  transactions  would be carried  out.  Only on October 2, 2003,
                  the  Minister of Finance  signed the  transitional  provisions
                  which were  approved by the Board of the ILA on  September  2,
                  2003.

                  This uncertainty,  that has persisted since 1999, inhibits any
                  progress in finalizing arrangements,  even causes the collapse
                  of  arrangements  agreed on in the past and the search for new
                  resources,   among  them  the  linkage  of  the  framework  of
                  agreements to individual level.

                  Settlements  which  comply  with the  transitional  provisions
                  conditions make efforts to meet the timetable  allotted in the
                  provisions and thereby promote the repayment of the debts.

                  On December 19, 2005, the Minister of Finance and the chairman
                  of the Board of ILA,  Mr. Ehud Olmert  signed the  decision of
                  ILA  according  to which  an  extension  will be  given  until
                  December 31, 2006, to execute  expansion  transactions  in the
                  Moshavim in a way which is designated to cover debts according
                  to recovery judgments on condition that the request to execute
                  the transaction  will be submitted prior to November 30, 2006.
                  The  condition  for  giving  an  extension  according  to this
                  decision is the  transfer of all the revenue  from selling the
                  lots to the creditors after deducting development expenses.


                                      -25-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 3 - Credit to the Public (Less - Allowance for Doubtful Debts) (Cont.)

            E.    Credit to the moshavim (Cont.)

                  In the current  decision  an  extension  was also  granted for
                  executing  transactions  according to previous decisions (727,
                  717) according to the  transitional  provisions until December
                  31, 2006.  On condition of  submitting a request for execution
                  prior to April 10, 2005.

                  In the decision it was resolved that no additional  extensions
                  will be given for the transitional provisions.

                  As a  result  of the  events  of the  war  in the  North,  the
                  Attorney  General  recently  recommended  to the  Israel  Land
                  Administration to extend the transitional provisions,  however
                  this  recommendation  requires the approval of the Israel Land
                  Administration.

                  On June 6, 2000, an  inter-bank  agreement was reached for the
                  distribution  of the  proceeds,  where  until  the date of the
                  financial statements, several additional creditors joined and,
                  thereby  since the end of 2001,  it is  somewhat  possible  to
                  promote the distribution of the proceeds that were accumulated
                  at the  administration  of  arrangements  in the  agricultural
                  sector.

                  As of the  date  of  these  financial  statements,  there  are
                  approximately 36 moshavim in respect of which their debts have
                  not yet been  granted,  and 89  moshavim  for  which  recovery
                  judgments had been given. In part of them, they are already in
                  stages of being executed, and the proceeds are being channeled
                  to  the   creditors   or  to  the  Moshav   account  with  the
                  Administration of arrangements in the agricultural sector, and
                  there are moshavim that are not complying with the arrangement
                  and  it  will  be   necessary   to   deal   with   alternative
                  arrangements.

                  During the reported  year, the Bank continued to implement the
                  directives of the  Supervisor of Banks dated October 16, 1994,
                  regarding  the  non-recording  of interest  income  (including
                  linkage and exchange rate  differentials)  and on that portion
                  of the  moshavim  debt for which the  allowance  for  doubtful
                  debts is made on a collective basis.

            F.    Credit to the Kibbutzim

                  On August 15, 1991,  the Bank signed the first  agreement  for
                  the settlement of the kibbutzim  debts.  On April 5, 1995, the
                  Government  decided to approve in  principle  a  supplementary
                  agreement to the kibbutzim based on the recommendations of the
                  Suari  Commission  and,  on March 20,  1996,  a  supplementary
                  kibbutzim  agreement was reached between the  Government,  the
                  two kibbutz movements,  Bank Hapoalim and Bank Leumi, with the
                  remaining banks joining on May 6, 1996.


                                      -26-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 3 - Credit to the Public (Less - Allowance for Doubtful Debts) (Cont.)

            F.    Credit to the Kibbutzim (Cont.)

                  The  supplementary  agreement is intended to resolve the debts
                  of  the   kibbutzim,   their   companies   and  two   regional
                  organizations which,  following the full implementation of the
                  first  agreement,  there is still a debt which they are unable
                  to repay  according to their  annual  repayment  power,  ("the
                  Balloon"),  as well as kibbutzim  regarding which the ratio of
                  their annual repayment power to their debt exceeds 10 and they
                  do not have an abundant  amount of  property.  The latter will
                  join the Balloon kibbutzim to receive incentives. An incentive
                  is a conditional  debt annulment and will be extended upon the
                  kibbutz  having  fulfilled  the  repayment of the  arrangement
                  debts over a period of a number of years.

                  The origins of the  supplementary  agreement  (including debts
                  written off) as referred to above, are as follows:

                  -     From  the  contribution   made  by  the  banks  and  the
                        Government - Effected through the annulment of the debts
                        by the banks and the  Government's  cash  transfers at a
                        ratio of 65%  (banks) and 35%  (Government)  (except for
                        the  peripheral  kibbutzim  and  "incentive"  kibbutzim,
                        regarding  which the annulment of the debts by the banks
                        will be at a rate of 75% and Government participation of
                        25%).

                  -     From contributions by kibbutzim entering the arrangement
                        - Effected  through a waiver of rights to  alternatively
                        designated  land which the ILA is interested in the land
                        being  returned to it. The  Government  will provide the
                        banks with letters of commitment stating the amounts for
                        the repayment of the debts from the proceeds of the sale
                        of the land. The share of each bank in the proceeds will
                        be in proportion to their share in the total debt of the
                        kibbutzim to the banks.

                  The parties  agreed that if a transaction  is carried out with
                  respect to kibbutz real estate,  and a first priority mortgage
                  has been imposed over the land in the bank's favor, or that it
                  has in respect  thereto  any lawful  other  fixed  lien,  of a
                  nature and quality identical or similar to the  aforementioned
                  mortgage, there will be an increase of 20% of the bank's share
                  in the amounts of the Government  letters of liability  and/or
                  the amounts of the financial bank  guarantees and the share of
                  the other banks in the aforementioned  amounts will be reduced
                  accordingly pari pasu.

                  In the context of the  supplementary  agreement,  61 kibbutzim
                  entered and, in addition,  an arrangement was also implemented
                  in the  central  organizations.  In respect to the real estate
                  kibbutzim,  a survey was conducted  pursuant to which the land
                  for the ILA was earmarked. The survey was concluded,  however,
                  the  alternative  value  of  the  land  cannot  be  estimated.
                  Therefore,  a financial  alternative  was proposed,  following
                  which, on April 11, 1999, a supplementary  agreement (amended)
                  was  reached  between  the  Accountant  General and the banks,
                  including  the Bank,  which became  effective  pursuant to the
                  notice of the director of the Kibbutz Arrangement Board on May
                  25, 1999.


                                      -27-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 3 - Credit to the Public (Less - Allowance for Doubtful Debts) (Cont.)

            F.    Credit to the Kibbutzim (Cont.)

                  This alternative relies on the separation,  both time-wise and
                  financially - between the arrangement  regarding the "Balloon"
                  and  the  realization  of  land  - the  financial  arrangement
                  regarding the "Balloon" will be executed  immediately with the
                  entrance  of the  kibbutz  to the  arrangement  (65%  by  debt
                  annulment by the banks and 35% from Government  sources).  The
                  treatment of the  restored  land will be carried out after the
                  financial  arrangement  is executed,  while  distributing  the
                  yields  from  the  change  in  the  designation   between  the
                  Government and the banks, in proportion to the debt annulment.

                  At the stage  when the  kibbutz  enters the  arrangement,  the
                  Government  and  the  ILA  will  furnish  the  banks  with  an
                  unlimited  letter of  commitment  which  does not  specify  an
                  amount,  pursuant to which the ILA confirms its agreement that
                  the land will be returned to it and  undertakes to only market
                  the land  following  a change in the  designation  against the
                  receipt of a cash consideration. The banks will be entitled to
                  record a caveat at the Land  Registry  Office with  respect to
                  the aforementioned letter of commitment.

                  Lately,  the  entrance  of a  Kibbutz  to  an  arrangement  is
                  executed  by  individual  arrangement,  which  is based on the
                  principal  of  the  supplementary   agreement   (amended)  and
                  adjusted  to  each  kibbutz  with   considering  its  economic
                  position at the time of the entrance, the financing sources it
                  has or will have while the part of the debt which  exceeds the
                  repayment  power at the time of the arrangement is recorded as
                  a "Deferred debt" without a maturity date and will be paid off
                  from future property transactions, if any.

                  As of the  signing  of  the  amendment  to  the  supplementary
                  agreement,  a  further  45  kibbutzim  have  entered  into the
                  arrangement,   among  them  are   peripheral   kibbutzim   and
                  "incentive"   Kibbutzim  and  41  kibbutzim  which  have  been
                  classified  as real estate and  therefore,  all the  Kibbutzim
                  have entered into the arrangement.

                  The  "write-off"  in the  Bank's  books  with  respect  to the
                  "Balloon"   for  the  real   estate   kibbutzim   amounts   to
                  approximately  NIS 170 million  and, in exchange for the write
                  off of the  "Balloon"  by all  of  the  banks,  the  kibbutzim
                  returned  approximately  13,366  dunam  of land to the ILA and
                  committed to comply with the  conditions of the  supplementary
                  agreement   should  a  neighborhood   be  established  on  the
                  kibbutz's section of land. In addition,  approximately,  3,111
                  dunams were  expropriated  for the purpose of the cross-Israel
                  highway,  where the indemnification will be transferred to the
                  banks and the Government in accordance  with the principles of
                  the  agreement.

                  As of 31.1.07,  the  balance of  write-offs  mentioned  above,
                  after receipts  relating to returns and  forfeitures  totaling
                  approximated 166 million NIS.


                                      -28-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 4 - Credit to the Government of Israel (including deposits)

<TABLE>
<CAPTION>
                                                                            December 31
                                                                         -------------------
                                                                           2006       2005
                                                                         --------   --------
                                                                         In thousands of NIS
                                                                         -------------------

<S>                                                                        <C>        <C>
            Credit in respect of participation in write-off of Balloon
             and  incentive                                                 8,692      9,956
            Write-offs against deferred deposits                            7,665      6,109
                                                                         --------   --------
            Total credit to the Government (including deposits)            16,357     16,065
                                                                         ========   ========
</TABLE>

Note 5 - Investment in an Affiliate

<TABLE>
<CAPTION>
                                                                            December 31
                                                                         --------   --------
                                                                           2006       2005
                                                                         --------   --------
                                                                         In thousands of NIS
                                                                         -------------------
<S>                                                                        <C>        <C>
            (a)    Composition:
                   Cost of shares                                          22,529     22,529
                   Post acquisition losses                                (21,476)   (21,497)
                                                                         --------   --------
                   Total investment                                         1,053      1,032
                                                                         ========   ========
</TABLE>

            (b)    Details of the Company:

                    Name of company:    The  Palestine  Agricultural  Settlement
                                        Association Ltd. Agricultural  financial
                                        institution

<TABLE>
<CAPTION>
                                                                           2006        2005
                                                                         --------   --------
<S>                                                                         <C>         <C>
            Details about the company:

              Equity in capital providing rights for dividends
              percentage of holdings                                         50.0%       50.0%

              Equity in capital providing voting rights - percentage
              holdings                                                       49.9%       49.9%

              Investments in shares - equity basis (NIS in thousand)        1,053       1,032

              Contribution to net operating profit (loss) (NIS in
              thousand)                                                        21         (26)
</TABLE>


                                      -29-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 6 - Building and Equipment

<TABLE>
<CAPTION>
                                                        Cost                                        Depreciation
                                  -----------------------------------------------  -------------------------------------------------
                                                                         In thousands of NIS
                                  --------------------------------------------------------------------------------------------------
                      Rate of     Beginning    Additions    Disposals              Accumulated   Allowance   Disposals   Accumulated
                    depreciation     of         during       during       End of   at beginning   during      during       at end
                         %          year       the year     the year       year      of year       year        year        of year
                    ------------  ----------  -----------  -----------  ---------  -----------  -----------  ---------  ------------
<S>                    <C>             <C>             <C>          <C>     <C>          <C>             <C>        <C>       <C>
Building (*)             4%              367           --           --        367          210           13         --          223

Equipment and
   Furniture           6-20%           1,465           --           --      1,465        1,357           31         --        1,388
                                  ----------  -----------  -----------  ---------  -----------  -----------  ---------  -----------
Total building and
   Equipment                           1,832           --           --      1,832        1,567           44         --        1,611
                                  ==========  ===========  ===========  =========  ===========  ===========  =========  ===========

<CAPTION>

                      Depreciated Balance
                    ------------------------
                       In thousands of NIS
                    ------------------------
                    Beginning of   End of
                       Year         year
                    -----------  -----------
<S>                         <C>          <C>
Building (*)                157          144

Equipment and
   Furniture                108           77
                    -----------  -----------
Total building and
   Equipment                265          221
                    ===========  ===========
</TABLE>

(*)   Building: Built-up area - 2,621 square meters.

      Until  31.12.06 the area which was occupied by the bank and other  tenants
      was 2,160 square meters and the balance was unoccupied. Commencing 1.1.07,
      the other  tenants  vacated  the  premises  they  occupied,  and the total
      unoccupied area became 1,300 square meters.

      During  recent  years,  the bank has been in the process of  changing  the
      municipal  Building  Plan for the  building  and this was  approved by the
      local  counsel.  The bank's  decision to privatize and sell its assets has
      halted the continuation of this process - matters regarding all aspects of
      real estate are transferred to the Company's Authority to be dealt with by
      the government administrator of dwellings.

      The bank is performing  on-going methodical and proper follow-up regarding
      its  assets and their  recording  in the bank's  books,  in the  Municipal
      Building plan and in any other  relevant  location in accordance  with the
      law.


                                      -30-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 7 - Other Assets

<TABLE>
<CAPTION>
                                                                                  December 31
                                                                             -------------------
                                                                                2006      2005
                                                                             --------  ---------
                                                                             In thousands of NIS
                                                                             -------------------
<S>                                                                             <C>       <C>
         Refund of payroll tax                                                  1,034     3,018
         Other accounts receivable                                                184       291
                                                                             --------  ---------
               Total other assets                                               1,218     3,309
                                                                             ========  =========
</TABLE>

Note 8 - Deposits from the Public

<TABLE>
<CAPTION>
                                                                                 December 31
                                                                             -------------------
                                                                               2006      2005
                                                                             --------  ---------
                                                                             In thousands of NIS
                                                                             -------------------
<S>                                                                                <C>       <C>
         Time deposits                                                             17        17
         Designated deposits                                                       36        33
                                                                             --------  ---------
                                                                                   53        50
                                                                             ========  =========
         Includes deposits the repayment of which to the
          depositor is dependent on collection of the related
          credit with margin                                                       36        33
                                                                             ========  =========
</TABLE>

Note 9 - Deposits from the Government

<TABLE>
<CAPTION>
                                                                                December 31
                                                                             -------------------
                                                                               2006      2005
                                                                             --------  ---------
                                                                             In thousands of NIS
                                                                             -------------------
<S>                                                                           <C>       <C>
          Designated and other deposits **                                    456,294   456,047
                                                                             ========  =========
         (**) Includes deposits for which the repayment to the depositor is
              stipulated on the collection of the credit (without any
              margin)                                                          69,341    67,616
                                                                             ========  =========
</TABLE>


                                      -31-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 10 - Other Liabilities

                                                              December 31
                                                        -----------------------
                                                         2006              2005
                                                        ------            -----
                                                           In thousands of NIS
                                                        -----------------------
            Accrued severance pay (1)                    1,279            1,279
            Accrued vacation pay and sick leave (2)      5,358            5,473
            Accrued payroll differences                    180              180
            Other accounts payable credit balances         522              487
                                                         -----            -----
            Total other liabilities                      7,339            7,419
                                                         =====            =====

            1.    The Banks' liabilities for the payment of severance or pension
                  pay to the  employees  are  calculated  on  the  basis  of the
                  employees'  most  recent  salary as of balance  sheet date and
                  pursuant to the  Severance  Pay Law, and are fully  covered by
                  deposits with a pension fund and a severance pay fund, as well
                  as the balance for the liability for severance pay.

                  The  amounts  that  were  accrued  in the  pension  fund and a
                  severance  pay  fund  on  behalf  of  the  employees  and  the
                  liability  in their  respect are not  presented in the balance
                  sheet since they are not under the  control or the  management
                  of the Bank.

            2.    Employees who retire are entitled to a partial compensation in
                  respect of unutilized  sick leave.  A full  provision for this
                  compensation  was recorded  only for those  employees who have
                  reached the age of 55. As for those employees who have not yet
                  reached the age of 55, a partial  provision  has been recorded
                  taking into  consideration  the uncertainty as to the scope of
                  the entitlement to this compensation.

                  The Bank's  employees are entitled to special  vacations  upon
                  the  completion of 15 years of  employment.  This  entitlement
                  increases  at the end of every five years  until the  employee
                  has  been  employed  for  35  years.  These  vacations  can be
                  utilized in addition to the annual vacation. In addition, such
                  vacation  can be redeemed  or,  alternatively,  accrued  until
                  retirement, at the employee's discretion. The Banks' liability
                  to cover this entitlement amounts to NIS 1,605 thousand, on an
                  actuarial  basis  at an  annual  interest  rate  of 4%.  As of
                  balance  sheet  date,  there  is  a  provision  to  cover  the
                  entitlement that can be utilized at that date.

            3.    In the  framework of the  decision to  privatize  the Bank and
                  cease its  activities,  negotiations  are being  held with the
                  employees  of the bank  regarding  additional  payments to the
                  employees beyond the current agreement.  A draft agreement has
                  been prepared but not yet discussed by the Board of Directors.


                                      -32-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 11 - Deferred Government Deposits and Deferred Capital Notes

            (a)   Deferred Government deposits

                                          Weighted            December 31
                                        Interest rate    -----------------------
                                         December 31,      2006           2005
                                             2006        --------      ---------
                                               %           (In thousands NIS)
                                        -------------    -----------------------
            In Israeli currency:
            Not linked                    10.5-28.5        701,300       588,181
            Linked to the Index              3.66          537,807       520,078
            Linked to foreign currency       6.22            1,929         1,976
                                                         ---------     ---------
                                                         1,241,036     1,110,235
                                                         =========     =========

            In accordance with the Deposit  Agreement,  as described in Note 1A,
            the  interest  on each of the  three  deposits  will be the  average
            weighted  interest rate of all the Government  deposits which became
            deferred  deposits,  computed  quarterly,  and  will be added to the
            principal.

            In the case of  dissolution of the Bank prior to April 30, 2007, the
            deferred  deposits will be repaid only after the Bank has repaid all
            its liabilities,  including liabilities to the Government of Israel,
            except for Government  deferred deposits and prior to liabilities to
            shareholders  at the time of  dissolution,  in  accordance  with the
            Articles  of  Association  of the Bank  (excluding  liabilities  for
            distribution  of  earnings  to  foreign  shareholders).

            As to the repayment date, see Note 1 A (2) a.

      (b)   Deferred capital notes

            U.S.  dollar  denominated  capital notes,  repayable on December 31,
            2003, bear interest at 7.5%.

            The  capital   notes  are  deferred  in  relation  to  both  secured
            liabilities and other liabilities of the Bank, whose terms guarantee
            that they have preference over the capital notes.

            Pursuant to the letter from the  Treasury  dated  February 12, 2003,
            commencing  in 2004,  the Bank will file a  request  on a  quarterly
            basis to extend  the time for the  payment of the  deferred  capital
            notes held by the Government.

            On February 21, 2007, the Accountant  General approved the extension
            of the maturity date to April 30, 2007.


                                      -33-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 12 - Share Capital

            a)    Share capital of the Bank (in nominal values)

<TABLE>
<CAPTION>
                                                                               Reported amounts
                                                                             In thousands of NIS
                                                                            ----------------------
                                                                              2006         2005
                                                                            ----------  ----------
                                                                Authorized  Issued and Outstanding
                                                                ----------  ----------------------
<S>                                                                <C>         <C>          <C>
                  Ordinary Shares of NIS 0.0001                    37,970      13,505       13,505

                  8% Cumulative and Participating
                      Preferred "A" Shares of NIS 0.001           201,530     195,768      195,768

                  7.5% Cumulative and Redeemable
                         Preferred "C" Shares of of
                         NIS 0,042, linked to the U.S. dollar
                         (see d. below)                            10,500      10,500       10,500
                                                                  -------     -------      -------
                                                                  250,000     219,773      219,773
                                                                  =======     =======      =======
</TABLE>

            b)    Ordinary Shares

                  In case of a resolution  to  distribute  dividends on Ordinary
                  Shares,  the Preferred "A" Shares and the Preferred "C" Shares
                  will first be  entitled  to their  dividends  (see (c) and (d)
                  below).  The  Ordinary  Shares  will  then  be  entitled  to a
                  dividend  of  3%  on  outstanding  capital.   Thereafter,  the
                  Ordinary  Shares will rank pari passu in the  distribution  of
                  the  balance  of the  earnings  in  respect  of  which  it was
                  resolved to distribute dividends,  together with the Preferred
                  "A" Shares.

            c)    8% "A" Cumulative and Participating Shares

                  These shares entitle their holders to the following:

                  1)    The right to  receive a fixed and  cumulative  preferred
                        dividend for each financial year, at a rate of 8% of the
                        outstanding, or deemed to be outstanding capital.

                  2)    The right to receive,  out of profits to be  distributed
                        as  dividends,  after a  dividend  at the rate of 3% was
                        distributed  to  the  holders  of  Ordinary   Shares,  a
                        supplemental non cumulative dividend,  at the rate of 2%
                        of outstanding, or deemed to be outstanding capital.

                  3)    The right to  participate,  pari passu with the Ordinary
                        Shares,  in the distribution of earnings  resolved to be
                        distributed  as  dividends  after  distribution  of  the
                        dividend as mentioned in paragraph (2) above.

                  4)    In the event of  dissolution,  the excess of assets,  if
                        any,   is  to  be   distributed   equally   between  the
                        shareholders,  except for holders of 7.5%  Preferred "C"
                        Shares,  according to the  outstanding,  or deemed to be
                        outstanding capital.


                                      -34-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 12 - Share Capital (Cont.)

            (d)   7.5%  "C"  Cumulative  Preferred  shares,  linked  to the U.S.
                  dollar

                  7.5% "C" Cumulative  Preferred Shares,  linked to the exchange
                  rate of the U.S. dollar,  redeemable,  nominal value NIS 0.042
                  (issued at $ 1 = NIS 0.00042).

                  The  shares  are  redeemable  at dates as to be elected by the
                  Bank,  with  additional  premium of 5.625%  and an  additional
                  dividend,  accrued to redemption  date of 7.5% per annum.  The
                  redemption   is  subject  to  the   advance   consent  of  the
                  Comptroller  of Foreign  Currency at the  Ministry of Finance.
                  The shares do not  provide  their  holders  with the rights to
                  receive  notification of general meetings of the Company,  and
                  to attend or vote at such meetings.

                  The amount  payable upon  redemption of these shares  (without
                  premium - see  above),  at the U.S.  dollar  exchange  rate on
                  balance   sheet  date,   exceeds   their   nominal   value  by
                  approximately NIS 115 million. Such excess is not reflected in
                  the  financial  statements,  as the  Ministry  of Finance  had
                  undertaken  to cover any  liabilities,  which may  accrue,  or
                  shall  accrue,  as a result of changes in the rate of the U.S.
                  dollar.

            (e)   Dividend to holders of Preferred "A" and "C" Shares

                  On July 27, 1999, the Board of Directors  decided,  based on a
                  legal opinion which it obtained, to terminate the payment of a
                  dividend in respect to "A" and "C" shares.  A report regarding
                  this decision was  communicated to the Accountant  General and
                  the Company's Authority.

                  The  Bank did not  record  a  liability  with  respect  to the
                  cumulative dividend since its distribution is contingent upon:

                  1.    The   existence   of  income   (in  other   words,   the
                        distribution   will  not  be  in  contravention  of  the
                        Company's  Law).

                  2.    As per a decision of the Board of Directors.

                  The cumulative dividend which was not paid with respect to the
                  years  1999 -  2006,  amounted  to  NIS  63,500  thousand.  In
                  addition,  the Treasury of the State of Israel has a liability
                  to   cover   the   linkage   differences   included   in   the
                  aforementioned  amount which amount to NIS 63,369 thousand. In
                  years preceding 1999 a dividend was paid.


                                      -35-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 13 - Related Parties

            (a)   Balance sheet balances:

<TABLE>
<CAPTION>
                                               Affiliate                            General manager
                                  ---------------------------------       ---------------------------------
                                   Balance as of    Highest balance       Balance as of     Highest balance
                                    December 31,        during              December 31,        during
                                  ---------------   ---------------       ---------------   ---------------
                                  2006       2005   2006       2005       2006       2005   2006       2005
                                  ----       ----   ----       ----       ----       ----   ----       ----
                                                             In thousands of NIS
                                  -------------------------------------------------------------------------
<S>                                 <C>        <C>    <C>        <C>        <C>        <C>    <C>        <C>
The following include
 balances of the affiliate:
    Assets - credit to the
      public                        --         --     --         15         --         --     --         --
    Liabilities - deposits
      from the public               --         --     --         20         --         --     --         54
</TABLE>

            (b)   Summary of the operating results with related parties:

<TABLE>
<CAPTION>
                                                                         Year ended December 31
                                                                  -------------------------------------
                                                                   2006           2005           2004
                                                                         In thousands of NIS
                                                                  -------------------------------------
<S>                                                                 <C>            <C>             <C>
                  Participation in expenses by the affiliate        98             96              95
</TABLE>

            (c)   The Bank is a Government  Company as defined in the Government
                  Companies Law - 1975.

                  Balances of the Government of Israel are stated  separately in
                  the  balance  sheet.  The Bank has  dealings  in the  ordinary
                  course of business,  and at customary  commercial  terms, with
                  entities that may be considered related parties.


                                      -36-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 13 - Related Parties (Cont.)

            (c)   (Cont.)

                  The following  balance  sheet items include  balances of these
                  entities:

                                                             December 31
                                                      -------------------------
                                                       2006              2005
                                                      -------          --------
                                                         In thousands of NIS
                                                      -------------------------
                  Assets:
                    Credit to the public              11,956            14,382

                  The  State of Israel  is the main  related  party to the Bank.
                  Adjustments including reconciliation of discrepancies with the
                  Ministry of Finance  with  respect to the  liabilities  of the
                  Bank to the  State of  Israel  are done in  writing  once in a
                  period.  Liabilities  of the  state of  Israel to the Bank are
                  based  on  the  supplementary   agreement  (amended)  for  the
                  Kibbutzim, and the agreement regarding deferred deposits.

            (d)   Benefits to related parties:

<TABLE>
<CAPTION>
                                                                   Year ended December 31,
                                                  ----------------------------------------------------------
                                                             2006                           2005
                                                  ----------------------------  ----------------------------
                                                    Total          Number of        Total         Number of
                                                   Benefits     beneficiaries     Benefits     beneficiaries
                                                  ----------    --------------   ----------   ---------------
                                                      In                             In
                                                  thousands                      thousands
                                                    of NIS                         of NIS
                                                  ---------                      ----------
<S>                                                   <C>             <C>            <C>             <C>
            Related party employed by the Bank        493             1              477             1
            Directors not employed by the Bank         52             6               89             6
                                                  -------                        -------
                                                      545                            566
                                                  =======                        =======
</TABLE>


                                      -37-
<PAGE>
                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 14 - Loss from  Financing  Activities  Before  Allowance for Doubtful Debts
          (expenses are shows in negative numbers).

<TABLE>
<CAPTION>
                                                                         Year ended December 31
                                                                   --------------------------------
                                                                      2006        2005        2004
                                                                   ---------   ---------   --------
                                                                           In thousands of NIS
                                                                    -------------------------------
<S>                                                                   <C>         <C>        <C>
           In respect to assets
            From credit to the public                                 31,850      29,035     24,543
            From credit to the Government of Israel                      461         722        538
            From deposits with the Bank of Israel                         --       1,381      2,132
            From deposits with banks                                   3,663         901          1

           In respect to liabilities
            On deposits from the:
             Public                                                       (2)         (8)       (15)
             Government                                              (17,818)    (27,969)   (20,632)

           On respect to deferred deposits and capital notes:
             On deferred Government deposits                        (130,801)   (118,316)   (96,247)
             On deferred capital notes:
             Held by the Government                                   (5,601)     (5,888)    (5,674)

           Other
            Other financing (expenses) income                          6,737      (5,049)     1,294
                                                                   ---------   ---------   --------
           Total loss from financing activities before
            allowance for doubtful debts                            (111,511)   (125,191)   (94,060)
                                                                   =========   =========   ========
</TABLE>

                  The cases where the financing income or expenses on non-linked
                  NIS or  foreign  currency  balances  was lower than the annual
                  increase in the Index are included as expenses with respect to
                  assets, or income for liabilities.


                                      -38-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 15 - Commissions and Other Income

                                                 Year ended December 31
                                         ------------------------------------
                                          2006           2005           2004
                                         ------        --------       -------
                                                  In thousands of NIS
                                         ------------------------------------

          Bookkeeping                      --             17             35
          Collections and transfers        --             11             22
          Other                             9             57             72
                                         ----           ----           ----
                                            9             85            129
                                         ====           ====           ====

Note 16 - Salaries and Related Expenses

<TABLE>
<CAPTION>
                                                                   Year ended December 31
                                                                 --------------------------
                                                                  2006     2005       2004
                                                                 ------  --------   -------
                                                                     In thousands of NIS
                                                                 --------------------------
<S>                                                               <C>      <C>        <C>
          Salaries                                                5,184    5,220      5,053
          Severance pay, pension, provident fund
           contributions and sick pay                             1,046    1,082      1,136
          National Insurance, employees tax and salary tax          322      301        319
                                                                  -----    -----      -----
                                                                  6,552    6,603      6,508
                                                                  =====    =====      =====
</TABLE>

Note 17 - Other Expenses

                                                        Year ended December 31
                                                       -------------------------
                                                        2006     2005     2004
                                                       ------   -------  -------
                                                          In thousands of NIS
                                                       -------------------------

          Professional services                          533      738      345
          Communications                                  82      100      116
          Computer services                               80       79       77
          Office expenses                                 43       56       64
          Promotion and advertising                       13       13       16
          Insurance                                      275      290      289
          Director fees                                   52       89       58
          Commissions                                      2        4       11
          Trustee commissions due to shares and
           capital notes                                  41       --       57
          Taxes and toll fees                             36       37       81
          Participation in the budget of kibbutzim
           management                                     50       73      105
          Participation in the budget of Moshavim
           management                                    120      107      112
          Others                                          62       55      109
                                                       -----    -----    -----
                                                       1,389    1,641    1,440
                                                       =====    =====    =====


                                      -39-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 18 - Income Taxes

            (a)   The  Bank  has  received  final  tax  assessments  up  to  and
                  including the year ended December 31, 2001.

            (b)   The  Bank's tax loss carry  forwards  amount to NIS  1,655,792
                  thousand  (2005 - NIS  1,536,557  thousand).  A  deferred  tax
                  benefit  in the net  amount of NIS  513,296  thousand  was not
                  included  in the balance  sheet (2005 - NIS 532,836  thousand)
                  since the Bank does not expect that it will be able to utilize
                  it  in  the  foreseeable  future.  The  adjusted  amounts  for
                  buildings,  for which the  depreciation  in their respect will
                  not be allowed in the future, are immaterial.

Note 19 - Reconciliation Between Israel GAAP and U.S. GAAP

            The financial  statements of Israel Bank of Agriculture are prepared
            in  accordance  with  accounting  principles  generally  accepted in
            Israel ("Israel GAAP"),  which differ in certain respects from those
            generally  accepted in the United States ("U.S.  GAAP") as described
            below:

            (a)   Effect of inflation:

                  In accordance with Israeli GAAP:

                  The financial  statements of Israel Bank of  Agriculture  were
                  expressed  in terms of uniform  monetary  unit- the  inflation
                  adjusted Israel Shekel - which is after  adjustment in respect
                  of the changes in the Consumer  Price Index until December 31,
                  2003.  From January 1, 2004,  the  adjustment of the financial
                  statements   for  the  effect  of   inflation  in  Israel  was
                  discontinued.  In view of the  inflation  in Israel,  this was
                  considered  a  more  meaningful  presentation  than  financial
                  reporting  based on  historical  cost until  December 31, 2003
                  (See Note 1C for principles of the adjustment).

                  In  accordance  with US GAAP:

                  The  financial  statements  are  expressed in current  nominal
                  historical monetary terms.

                  Measurement on the basis of reported  amounts,  which reflects
                  the  effect  of  changes  in the  general  price  level in the
                  Israeli economy (mainly in prior years), provides a very valid
                  picture of the financial  position,  results of operations and
                  the cash  flows of the  Israel  Bank of  Agriculture  for both
                  Israel and US accounting purposes.

                  In view of the above, no data on the effect of the differences
                  between  measurements on the basis of cost adjusted to the CPI
                  or on the basis of historical cost, were included.

                  As  permitted  by the United  States  Securities  and Exchange
                  Commission  rules for foreign  private issuers whose financial
                  statements  comprehensively  include the effects of inflation,
                  price  level   adjustments  have  not  been  reversed  in  the
                  accompanying  reconciliation of Israeli accounting  principles
                  to U.S. accounting principles.


                                      -40-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 19 - Reconciliation Between Israel GAAP and U.S. GAAP (Cont.)

            (b)   Depreciation method:

                  In accordance with the banking  regulations in Israel prior to
                  April 1, 1984,  the Bank  wrote-off all of its  investments in
                  the building  and  equipment  to the  statement of  operations
                  immediately   upon  making  the  investment.   The  matter  is
                  contradictory to the directives of both Israeli and U.S. GAAP.

                  Commencing  with 1984,  the Bank  records its  investments  in
                  assets and  depreciates  those  investments  over their useful
                  lives.

                  Since all of the  equipment  purchased  until  1984 is, in any
                  event, fully depreciated,  the aforementioned equipment has no
                  effect on the financial statements.

                  With respect to the  building in which the Bank's  offices are
                  located,   the  aforementioned  was  purchased  in  1956  and,
                  therefore,   in  effect  it  would  have  been   substantially
                  depreciated,  if they would have  depreciated it commencing at
                  that time.

                  With  respect to land on which the  building is  located,  its
                  adjusted  historical cost amounts to  approximately  NIS 2,408
                  thousand.

                  The  reconciliation  to U.S. GAAP requires the addition of the
                  amount to fixed  assets on the one hand,  and to equity on the
                  other  hand.  Otherwise,  there  is no  effect  on  U.S.  GAAP
                  reconciliation.  The change in equity as described  above does
                  not effect loss per share.

            (c)   Accrued severance pay

                  According to U.S. GAAP,  accrued  severance pay is included in
                  the  balance  sheet at the total  obligation  amount and total
                  amounts funded through  provident funds and through  insurance
                  policies.

                  According to Israeli  GAAP,  the net accrued  severance pay is
                  included in the balance sheets.

                  The  difference  between  the two methods  described  above is
                  immaterial  with respect to the  financial  statements  of the
                  Bank.

            (d)   Statement of cash flows

                  The  Bank  reports  on  cash  flows  in  accordance  with  the
                  Statements of the Institute of Certified Public Accountants in
                  Israel and  subject to the  directives  of the  Supervisor  of
                  Banks.  In the  statements of cash flows,  the cash flows from
                  transactions in assets and liabilities,  excluding investments
                  in the Bank's  building and equipment,  are presented in their
                  net amounts.


                                      -41-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 19 - Reconciliation Between Israel GAAP and U.S. GAAP (Cont.)

            (d)   Statement of cash flows (Cont.)

                  The cash item  includes  unrestricted  cash and bank  deposits
                  held with banks and the Bank of Israel for which the  original
                  term of deposit is short-term and does not exceed three months
                  from the date of the investment therein.

                  Under U.S. GAAP, items that qualify for net reporting (because
                  their  turnover is quick,  their amounts are large,  and their
                  maturities   are  short)  are  cash   receipts   and  payments
                  pertaining to (a) investments  (other than cash  equivalents),
                  (b)  loans  receivable,  and  (c)  debt,  providing  that  the
                  original maturity of the asset or liability is three months or
                  less.

                  Cash flows from collection of accounts  receivable (credit) is
                  reported in cash flow from operating activities.

                  Below  is a  summary  of the Cash  Flow  showing  the  amounts
                  described  in Note 1L that are  presented in their net amount,
                  and herein is disclosed as gross amounts:

<TABLE>
<CAPTION>
                                                                                 Year ended December 31
                                                                        ----------------------------------------
                                                                           2006           2005           2004
                                                                        ---------       ----------     ---------
                                                                                Reported               Adjusted
                                                                                 amounts                amounts
                                                                        --------------------------     ---------
                                                                                 (In thousands of NIS)
                                                                        ----------------------------------------
<S>                                                                     <C>             <C>            <C>
                  Cash flows from operating activities:
                  Loss for the year                                     (122,548)       (134,006)      (102,616)
                  Adjustments to reconcile the cash flows
                   used in operating activities:
                  Equity in the profits of an affiliate                      (21)             26            (33)
                  Depreciation on the bank's building and
                    equipment                                                 44              45             44
                                                                        --------        --------       --------
                  Net cash used in operating activities                 (122,525)       (133,935)      (102,605)
                                                                        --------        --------       --------
                  Cash flows from investing activities
                  Decrease (increase) in credit to the public            (18,561)        (27,791)       (20,842)
                  Collection from the public                              35,849          27,573         34,088
                  Decrease (increase) in credit to the
                   Government of Israel                                   (1,556)         (2,187)        (3,964)
                  Collection from the Government of Israel                 1,264           8,244         11,681
                  Purchase of equipment                                       --             (11)            --
                  Other assets                                             2,091          (1,117)           (74)
                                                                        --------        --------       --------
                  Net cash provided by investing activities               19,087           4,711         20,889
                                                                        --------        --------       --------

                  Net cash provided by financing activities              124,492         135,124         99,551
                                                                        ========        ========       ========
                  (Decrease)  increase in cash on hand and
                  deposits with banks                                     21,054           5,900         17,835
                  Balance of cash on hand and deposits
                   with banks at the beginning of the year                62,321          56,421         38,586
                                                                        --------        --------       --------
                  Balance of cash on hand and deposits
                   with banks at the end of the year                      83,375          62,321         56,421
                                                                        ========        ========       ========
</TABLE>


                                      -42-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 19 - Reconciliation Between Israel GAAP and U.S. GAAP (Cont.)

            (e)   Earnings per share

                  The  computation  of earnings per share,  as it relates to the
                  Company, is not different than that under US GAAP.

Note 20 - Subsequent events

                  On May 13,  2007,  the  Accountant  General at the Ministry of
                  Finance  approved  the defer the  redemption  of the  deferred
                  deposits and the  principal  of the capital  notes held by the
                  government  until  June 30,  2007  (see  note  1A(2)  and Note
                  11(c)).

Note 21 - Information on the basis of Nominal Historical Data for tax purposes

            (a)   Balance sheets:

<TABLE>
<CAPTION>
                                                                             December 31
                                                                      --------------------------
                                                                         2006            2005
                                                                      ----------      ----------
                                                                         (In thousands of Nis)
                                                                      --------------------------
<S>                                                                      <C>             <C>
                  ASSETS

                  Cash on hand and deposits with banks                    83,375          62,321
                  Credit to the public                                   221,302         238,590
                  Credit to the Government of Israel                      16,357          16,065
                  Investment in an affiliate                               1,053           1,032
                  Bank building and equipment                                124             154
                  Other assets                                             1,218           3,309
                                                                      ----------      ----------

                  Total assets                                           323,429         321,471
                                                                      ==========      ==========

                  LIABILITIES AND SHAREHOLDERS' DEFICIENCY

                  Deposits from the public                                    53              50
                  Government of Israeli deposits                         456,294         456,047
                  Other liabilities                                        7,339           7,419
                                                                      ----------      ----------
                                                                         463,686         463,516

                  Deferred deposits from the Government of Israel      1,241,036       1,110,235

                  Deferred capital notes:
                    Held by the Government                                72,412          78,891
                                                                      ----------      ----------

                  Total liabilities                                    1,777,134       1,652,642
                  Shareholders' deficiency                            (1,453,705)     (1,331,171)
                                                                      ----------      ----------

                  Total liabilities and shareholders' deficiency         323,429         321,471
                                                                      ==========      ==========
</TABLE>


                                      -43-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 21 - Information on the basis of Nominal  Historical  Data for tax purposes
          (Cont.)

            (b)   Statements of operations:

<TABLE>
<CAPTION>
                                                                              Year ended December 31
                                                                      -------------------------------------
                                                                         2006          2005          2004
                                                                      ---------      --------      --------
                                                                              (In thousands of Nis)
                                                                      -------------------------------------
<S>                                                                    <C>           <C>            <C>
                  Loss from financing activities
                  Loss from financing activities before
                   allowance for doubtful debts (*)                    (111,511)     (125,191)      (94,060)
                  Allowance for doubtful debts                           (2,677)           --            --
                                                                      ---------     ---------      --------
                  Loss from financing activities after
                   allowance for doubtful debts                        (114,188)     (125,191)      (94,060)
                                                                      ---------     ---------      --------
                  Operating and other income
                   Rental income                                            402           389           426
                   Commissions and other income                               9            85           129
                                                                      ---------     ---------      --------

                   Total operating and other income                         411           474           555
                                                                      ---------     ---------      --------

                  Operating and other expenses
                   Salaries and related expenses                          6,552         6,603         6,508
                   Depreciation for building and equipment                   30            30            29
                   Maintenance of building and equipment                    807           974         1,152
                   Other expenses                                         1,389         1,641         1,440
                                                                      ---------     ---------      --------

                  Total operating and other expenses                     (8,778)       (9,248)       (9,129)
                                                                      =========     =========      ========

                  Operating loss                                       (122,555)     (133,965)     (102,634)
                  Equity in (losses) profits of an affiliate                 21           (26)           33
                                                                      ---------     ---------      --------
                  Net loss for the year                                (122,534)     (133,991)     (102,601)
                                                                      =========     =========      ========
                  Loss per NIS 1 nominal value of share
                   capital - operating loss                             (585.50)      (640.20)      (490.30)
                                                                      =========     =========      ========
                  (*) Income (loss) from financing activities
                  before allowance for doubtful debts, interest on
                  Government deposits and deferred capital notes         24,891          (987)        7,861
                   Interest on Government deposits and
                  deferred capital notes                               (136,402)     (124,204)     (101,921)
                                                                      ---------     ---------      --------
                  Loss from financing activities before
                  allowance for doubtful debts                         (111,511)     (125,191)      (94,060)
                                                                      =========     =========      ========
</TABLE>


                                      -44-
<PAGE>
                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2006 (Cont.)
--------------------------------------------------------------------------------

Note 21 - Information on the basis of Nominal  Historical  Data for tax purposes
          (Cont.)

            (c)   Statements of Changes in Shareholders' Deficiency

<TABLE>
<CAPTION>
                                                                Receipts on
                                                   Share        account of     Accumulated
                                                  Capital         shares        deficit          Total
                                                 ----------     -----------    -----------     ----------
                                                                     (In thousands)
                                                 --------------------------------------------------------
<S>                                                     <C>         <C>        <C>             <C>
                  Balance at January 1, 2004            220         91,893     (1,186,692)     (1,094,579)
                    Loss for the year                    --             --       (102,601)       (102,601)
                                                 ----------     ----------     ----------      ----------
                  Balance at January 1, 2005            220         91,893     (1,289,293)     (1,197,180)
                    Loss for the year                    --             --       (133,991)       (133,991)
                                                 ----------     ----------     ----------      ----------
                  Balance at January 1, 2006            220         91,893     (1,423,284)     (1,331,171)
                    Loss for the year                    --             --       (122,534)       (122,534)
                                                 ----------     ----------     ----------      ----------

                  Balance at
                    December 31, 2006                   220         91,893     (1,545,818)     (1,453,705)
                                                 ==========     ==========     ==========      ==========
</TABLE>

                  Note: The  above  nominal  data  provide  the  basis  for  the
                        company's  Adjustments Report for Tax Purposes,  and are
                        presented within these statements for that reason alone.
                        These data are based on the company's accounting records
                        that are maintained in  nominal-historical  shekels. The
                        accounting  policies that are applied in drawing-up  and
                        presenting the above nominal data are identical to those
                        that  serve  as the  basis  for  the  drawing-up  of the
                        financial statements.

Note 22 - Other Information in Nominal Values

<TABLE>
<CAPTION>
                                                                                Issued and Outstanding
                                                                                ----------------------
                                                                                   2006        2005
                                                                                ---------    ---------
<S>                                                                               <C>         <C>
                  Ordinary shares NIS 0.0001 par value                             13,505       13,505

                  8% "A" Cumulative and Participating shares                      195,768      195,768
                  7.5% "C" Cumulative Preferred shares linked to the exchange
                    Of the U.S. Dollar convertible to NIS 0.042 par
                     value (see Note 12)                                           10,500       10,500
                                                                                ---------    ---------
                                                                                  219,773      219,773
                                                                                =========    =========
</TABLE>


                                      -45-