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, 2003

                         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% Registered Subordinated Capital Notes due 2003
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.

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

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 which financial statement item the Registrant has elected
to follow:

      Item 17 |X|               Item 18 |_|


                                      -1-
<PAGE>

TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                           Pages
                                                                                           -----
<S>                                                                                        <C>
PART I
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
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                                                                                   25
Item 17    Financial Statements                                                            26
Item 18    Exhibits                                                                        26
Item 19    Signatures                                                                      26
           Certifications                                                                  27
</TABLE>


                                      -2-
<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):

<TABLE>
<CAPTION>
                                                                 December 31,
                                             ----------------------------------------------------
                                               2003       2002       2001       2000       1999
                                             --------   --------   --------   --------   --------
<S>                                           <C>        <C>        <C>        <C>        <C>
            Rate of Exchange -
                   1US$ = NIS                   4.379      4.737      4.416      4.041      4.153

            Consumer Price Index (points)      432.34     440.65     413.77     408.00     408.00

            ASSETS
                                             --------   --------   --------   --------   --------

            Cash in hand and deposits with
              Banks                            38,586     57,637     35,343     23,311     12,756

            credit to the public              251,618    278,078    323,694    366,412    406,142

            credit to the Government of
              Israel *                         29,839     30,159     25,459     31,407     27,135

            Investment in affiliate             1,025        969        951        914        837

            Bank premises and equipment           343        375        329        377        421

            Other assets                        2,118      1,629      1,505      1,305      2,198
                                             --------   --------   --------   --------   --------

            Total assets                      323,529    368,847    387,281    423,726    449,489
                                             ========   ========   ========   ========   ========
</TABLE>


                                      -3-
<PAGE>

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                             December 31,
                                                  ------------------------------------------------------------------
                                                     2003          2002          2001          2000          1999
                                                  ----------    ----------    ----------    ----------    ----------

<S>                                               <C>             <C>           <C>           <C>           <C>
Deposits from the public                               1,022         1,077         1,834         1,519         2,418
Deposits from banks                                       --            --            --            --        32,760
Deposits from the Government
  of Israel                                          438,291       436,946       440,144       439,516       439,888
Other liabilities                                      7,930         7,442         7,963        27,265         7,747
Deferred deposits from the
  Government of Israel *                             895,672       799,118       743,838       681,868       619,564
Deferred capital notes
  Held by the public                                      --        39,435        39,387        37,231        38,646
  Held by the Government                              75,052        79,602        78,792        72,436        74,060
Non-participating preference
  shares                                                  11            11            12            11            11
Shareholders' deficiency                          (1,094,449)     (994,784)     (924,689)     (836,120)     (765,605)
                                                  ----------    ----------    ----------    ----------    ----------

Total liabilities and shareholders' equity           323,529       368,847       387,281       423,726       449,489
                                                  ==========    ==========    ==========    ==========    ==========

LOSS FROM FINANCING ACTIVITIES

     Loss from financing activities before
         allowance for doubtful debts:
         Interest expense                           (118,202)      (82,106)      (96,012)      (86,141)      (81,504)
         Interest income                              31,143        20,238        23,051        25,074        24,829
                                                  ----------    ----------    ----------    ----------    ----------

                                                     (87,059)      (61,868)      (72,961)      (61,067)      (56,675)
       Increase in allowance for doubtful debts       (3,500)           --        (6,269)           --       (23,695)
                                                  ----------    ----------    ----------    ----------    ----------

       Loss from financing activities after
        allowance for doubtful debts                 (90,559)      (61,868)      (79,230)      (61,067)      (80,370)
                                                  ==========    ==========    ==========    ==========    ==========

Net loss for the year                                (99,665)      (70,095)      (88,569)      (70,516)      (89,323)
                                                  ==========    ==========    ==========    ==========    ==========

Net loss per ordinary share

Loss per NIS 1 nominal value
  of share capital                                   (476.20)      (334.90)      (423.20)      (337.00)      (426.80)
                                                  ==========    ==========    ==========    ==========    ==========
</TABLE>

*     Reclassified


                                      -4-
<PAGE>

Share Capital

Share capital of the Bank (in nominal values)

                                                                December 31,
                                                        ------------------------
                                                           2003          2002
                                                        ----------    ----------
                                          Authorized     Issued and Outstanding
                                         ------------   ------------------------
                                                          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.


                                      -5-
<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.

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.


                                      -6-
<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.


                                      -7-
<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, 2003 and the current collection anticipated in 2004 from the
payment arrangement with the moshavim and the kibbutzim will allow the Bank in
2004, subject to what is stated above, to pay the ongoing operating expenses
(primarily salaries) and make interest payments (primarily 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:


                                      -8-
<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, 2003: Ordinary shares 100%, Preferred A shares - 99.52%, Preferred
C shares - 92.46%) 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 - 2003
amounted to NIS 41,131 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 41,049 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                                       2,619
                                                                          =====

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

      Space for rent                                                      1,462
                                                                          -----

                                                                          2,619
                                                                          =====


                                      -9-
<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 form 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.


                                      -10-
<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, 2003 and the current collection anticipated in 2004 from the
payment arrangement with the moshavim and the kibbutzim will allow the Bank in
2004, subject to what is stated above, to pay the ongoing operating expenses
(primarily salaries) and make interest payments (primarily to the Government).

Arrangements in the Agricultural Sector

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.

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.


                                      -11-
<PAGE>

Arrangements in the Agricultural Sector (Cont.)

Credit to the Moshavim (Cont.)

It should be assumed that settlements complying with the transitional provisions
conditions will make efforts to meet the timetable which was allotted in the
provisions and thereby promote the repayment of the debts.

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 possible to a certain
degree 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 62
moshavim in respect of which recovery judgments have not yet been granted, and
71 settlements that were agreed upon. 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.

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:

-     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.


                                      -12-
<PAGE>

Arrangements in the Agricultural Sector (Cont.)

Credit to the Kibbutzim (Cont.)

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 and until
December 31, 2003, a further 40 kibbutzim have entered into the arrangement,
among them are peripheral kibbutzim and "incentive" kibbutzim and 34 kibbutzim
which have been classified as real estate, and there remain 6 kibbutzim which
have not yet joined.

The "write-off" in the Bank's books with respect to the "Balloon" for the real
estate kibbutzim amounts to approximately NIS 133 million and, in exchange for
the write off of the "Balloon" by all of the banks, the kibbutzim returned
approximately 11,213 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, 1,927
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.

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, 2003
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


                                      -13-
<PAGE>

amounts are to 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, 2003, the total amount of loans
outstanding to Kibbutzim, net of specific allowances and of Government "grants",
received to that date amounted to NIS 97 million.

Deposits to finance the said restructuring of long-term loans are 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).

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 July 1, 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).

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. The loss resulting from this erosion
is included in the loss from financing activities in the statement of
operations.

Results of Operations

Major factors affecting results of operations in 2003 were:

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

o     The high interest rate at the expense of the deferred deposits.

The Bank's loss from financing activities, before allowances for doubtful debts,
was NIS 87.1 million in 2003 as compared to NIS 61.9 million in 2002. The Bank
recorded allowance for doubtful debts in the amount of 3.5 million NIS on the
Kibbutzim debts. Loss from financing activities, after allowance for doubtful
debts, was NIS 90.6 million, compared to NIS 61.9 million in 2002.

The general allowance and the additional allowance together represent 20.42% of
the borrowers' debt, under the Bank's responsibility, as of December 31, 2003.

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.    0.5% 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 NIS 0.7 million in 2003, as compared to NIS
0.6 million in 2002. Operating and net loss in 2003 was NIS 99.7 million, as
compared to NIS 70.1 million in 2002. Net loss per NIS 1 par value Ordinary and
Preference "A" share was NIS 476.2 in 2003 (NIS 334.9 in 2002).

Shareholders' Equity

The shareholders' deficiency increased from NIS 994.8 million at the end of
2002, to a deficiency of NIS 1,094.4 million at the end of 2003.


                                      -14-
<PAGE>

On December 31, 1991, Government deposits in the amount of NIS 180 million were
converted (December 31, 2003 - NIS 896 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 June 21, 2004, their
maturity date was deferred until October 1, 2004, 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 June 21, 2004 the Accountant General approved the extension of the
maturity date to October 1, 2004.

The ratio of capital to credit risk components, computed according to the
provisions of the Supervisor of Banks, is negative and, at the end of December
2003, amounted to (83.20%).

Principal Balance Sheet Items

The assets and liabilities of the Bank at the end of 2003 and 2002 were as
follows (in thousands of NIS):

                                                       Year ended December 31,
                                                      -------------------------
                                                         2003           2002
                                                      ----------     ----------
Total Balance Sheet                                      323,529        368,847
Credit to the Public                                     251,618        278,078
Credit loans to the Government of Israel                  29,839         30,159
Cash and Bank Deposits                                    38,586         57,637
Deposits from the Public                                   1,022          1,077
Deposits from the Government                             438,291        436,946
Capital Notes and Deferred Deposits                      970,724        918,155
Shareholders' Equity (deficit)                        (1,094,449)      (994,784)

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.

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, 2003 for more details.

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, 2003 for more details.

Aggregate Contractual Obligations

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


                                      -15-
<PAGE>

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.    Board of Directors

In the course of 2003, 3 Board meetings were held, as well as 4 meetings of
various Board Committees.

Board changes in 2003 and as of June 2004 were - Directors whose term began:

Name                              Begining Date
------------------------------    ----------------------------------

Grinfeld Elisha                   February 18, 2004
Dadon-Israeli-Bar                 February 3, 2004
Kulas Eliezer                     May 30, 2004
Medleg Gamal                      May 30, 2004

Directors whose term ceased:

Name                              Termination Date
------------------------------    ----------------------------------

Freeman Menahem                   May 30, 2003
Kauffman Doron                    November 22, 2003
Haberman Clara                    September 4, 2003

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

<TABLE>
<CAPTION>
Name                             Principal Occupation                  Other Directorship
------------------------------   --------------------------------      ---------------------------------

<S>                              <C>                                   <C>
Helmaliah Dorit                  General manager of business           --
                                 development center in Kiryat
                                 Shmone and Ezba Hagalil

Grinfeld Elisha                  Attorney                              The company for the
                                                                       reconstruction & Development
                                                                       of the Jewish Quarter.

Dadon-Israeli-Bar                Education Program Manager in          --
                                 Microsoft

Lamdani Ariel                    Economist, Ministry of                --
                                 Agriculture

Fredkin Israel                   Self employed - agriculturist         --

Kulas Eliezer                    Attorney                              --

Medleg Gamal                     Economical Planner                    --
</TABLE>


                                      -16-
<PAGE>

Bank's Management

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

Patalovsky Lea                   General Manager

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

Littman Amnon (*)                Secretary of the Bank, Director of
                                 Human Resources, Personnel and
                                 the Computer Unit

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

(*)   Retired in March 2004.

Remuneration

Salaries, benefits and provisions of the five highest paid executives among the
Bank's officers (adjusted to December, 2003 CP Index - all amounts NIS in
thousands).

                             Provisions for Severance
                               Pay, Provident Funds,
                               Pensions, Continuing     Total-Salary
                             Education Programs, Sick     and Other      Other
    Name           Salary      Pay, Leave Pay, etc.       Benefits      Payments
--------------------------------------------------------------------------------

In 2003
Patalovsky Lea       381              105                   486           --
Sitton Moshe         328               96                   424            1
Littman Amnon        315               84                   399            1
Levi Noah            284               82                   366            1
Cohen Yacov          243               65                   308            1

In 2002
Patalovsky Lea       391               55                   446           --
Sitton Moshe         333               57                   390            1
Littman Amnon        315               65                   380            1
Levi Noah            282               72                   354            2
Cohen Yakov          249               48                   297            1

Personnel

At the end of 2003, 28 persons were employed by the Bank (25.75 full-time
positions), as compared with 29 persons (26.5 full-time positions) at the end of
2002.


                                      -17-
<PAGE>

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A summary of the operating results with related parties:

                                                         Year ended December 31,
                                                         -----------------------
                                                          2003            2002
                                                            Adjusted NIS (in
                                                               thousands)
                                                         -----------------------

Participation in expenses by the affiliate                 95              130
Management fees to shareholders                            --               10

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,
                                                                    ---------------------------
                                                                        2003           2002
                                                                    ------------   ------------
                                                                         (NIS in thousands)
                                                                    ---------------------------
<S>                                                                    <C>            <C>
      (a)  Investment in shares

           Cost of shares                                               22,533         22,533
           Post acquisition losses                                     (21,508)       (21,564)
                                                                      --------       --------

           Total investment                                              1,025            969
                                                                      ========       ========

<CAPTION>
      (b)  Details of subsidiaries                                      Affiliated Company
                                                                    ---------------------------

                                                                    The Palestine Agricultural
          Name of company:                                          Settlement Association Ltd.

          Company details:                                             Agricultural Financial
                                                                            Institution
                                                                        2003           2002
                                                                    ------------   ------------
<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                             1,025            969
          Contribution to net profit (loss) on ordinary activities          56             19
</TABLE>


                                      -18-
<PAGE>

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

<TABLE>
<CAPTION>
      Balance Sheet                                                  December 31,
                                                                 --------------------
                                                                   2003        2002
                                                                  (NIS in thousands)
                                                                 --------------------
<S>                                                                <C>         <C>
      Assets

      Loans out of designated deposits by the State of Israel       6,518       8,267

      Loans out of designated deposits by the Jewish Agency         3,991       5,896

      Other loans                                                   2,715       2,930

      Cash and deposits with banks                                  2,198       1,962

      Other assets                                                     18          32
                                                                 --------    --------

                                                                   15,440      19,087
                                                                 ========    ========

      Liabilities and Shareholders' Equity

      Designated deposits from the Government of Israel             6,692       8,526

      Designated deposits from the Jewish Agency                    6,574       8,511

      Other liabilities                                               124         112

      Shareholders' Equity                                          2,050       1,938
                                                                 --------    --------

                                                                   15,440      19,087
                                                                 ========    ========
</TABLE>

      The Bank's share in equity, 50% of NIS 2,050 thousand, namely in the
amount of NIS 1,025 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.

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.


                                      -19-
<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 21, 2004, their
maturity date was deferred until October 1, 2004, 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 June 21,
2004 the Accountant General approved the extension of the maturity date to
October 1, 2004.

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.


                                      -20-
<PAGE>

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.

General Corporate Tax Structure

Israeli companies are generally subject to corporate tax at the rate of 36% of
their taxable income.

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. The basic capital gains tax rate applicable to
corporations effective until December 31, 2002 had been 36% and the maximum tax
rate for individuals had been 50%. Effective January 1, 2003, the capital gains
tax rate imposed upon sale of capital assets acquired after that date has been
reduced to 25%; capital gains accrued from assets acquired before that date are
subject to a blended tax rate based on the relative periods of time before and
after that date that the asset was held.

In addition, if the ordinary shares are traded on the Tel Aviv Stock Exchange
(or listed on a stock exchange recognized by the Israeli Ministry of Finance),
gains on the sale of ordinary shares held 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.

The U.S.-Israeli Tax Treaty exempts U.S. residents who hold an interest of less
than 10% in an Israeli company, and who held an interest of less than 10% 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.

Under the United States - Israel Tax Treaty, the maximum tax on dividends paid
to a holder of ordinary shares who is a Treaty United States Resident will be
25%.

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 - 2003
amounts to NIS 41,131 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 41,049 thousand. In prior years, a dividend was paid
as noted in Note 12 to the financial statements.


                                      -21-
<PAGE>

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. 450 Fifth Street, N. W., 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.


                                      -22-
<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.) and
      the guidelines of the Supervisor of Banks.

(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, 2003, the general and additional
allowances represent 20.42% 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.

As aforementioned, the Bank recorded a special allowance in the amount of NIS
6,000 thousands. The special allowance will be maintained in its nominal amount,
subject to the aforesaid.

Foreign currency exchange risk

The Bank has both assets and 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, would not affect the
fair value of the assets. Liabilities would be effected by about adjusted NIS
7.5 million.


                                      -23-
<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 June 21, 2004 the Accountant
      General approved the extension of the maturity date to October 1,
      2004.

(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.


                                      -24-
<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. 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 thereunder, 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

      The Supervisor of Banks intends to adopt the directives of the Audit
      Committee Financial Expert of Israel Securities Authority, which presently
      do not apply to Banks. The Bank intends to adopt the above directives when
      they become applicable to banks.

ITEM 16B. CODE OF ETHICS

      The Israel Securities Authority executed a draft directive regarding a
      Code of Ethics. The draft has been sent to the Finance Committee of the
      Knesset but has yet to be discussed. The Bank of Israel also intends to
      adopt the above draft directives which will take effect as of September 30
      ,2004 if approved by the Knesset. The Bank is in a process of instituting
      a Code of Ethics.

ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

      On August 14, 2002 the Board of Directors of the Bank approved audit fees
      to the independent auditors for the year ended December 31, 2002 in an
      amount not to exceed NIS 165,000 (plus VAT).

      On August 20, 2003, the Companies Authority approved the above
      amount for the year 2002.

      On February 25, 2003, the Board of Directors of the Bank approved
      audit fees to the independent auditors for the year ended December
      31, 2003 in an amount not to exceed NIS 165,000 (plus VAT).

      After finishing all the audit work for the year 2003, a final
      approval will be given by the Companies Authority.

      There were no other services provided.

      The fees for professional services for the 2 years ended December
      31, 2003 were as follows (in 2003 the professional services rendered
      by Rosenblum - Holtzman and in 2002 Rosenblum - Holtzman served as
      independent auditors jointly with Kost Forer & Gabbay a member
      practice of Ernst & Young Global):

                ===========================================
                                        2003         2002
                                        NIS          NIS
                -------------------------------------------
                Audit fees             165,000      165,000
                ===========================================


                                      -25-
<PAGE>

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: July 8, 2004


                                      -26-
<PAGE>

                         ISRAEL BANK OF AGRICULTURE LTD.

                              FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2003

<PAGE>

                         ISRAEL BANK OF AGRICULTURE LTD.

                              FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2003

                        ADJUSTED TO NIS OF DECEMBER 2003

                                      INDEX

                                                                          Page
                                                                        --------

Report of Independent Auditors                                             2

Balance Sheets                                                             8

Statements of Operations                                                   10

Statements of Changes in Shareholders' Deficiency                          11

Statements of Cash Flows                                                   12

Notes to the Financial Statements                                          13


                                      -1-
<PAGE>

                       [LETTERHEAD OF ROSENBLUM-HOLTZMAN]

                         Report of Independent Auditors
                               To the Shareholders

                                       of

                         ISRAEL BANK OF AGRICULTURE LTD.

      We have audited the accompanying balance sheet of Israel Bank of
Agriculture Ltd. ("the Bank") as of December 31, 2003, and the related statement
of operations, changes in equity (deficiency) and cash flows for the year ended
December 31, 2003. 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 1,025 thousand as of
December 31, 2003, and the Bank's share in the net income of which totaled NIS
56 thousand, for the year ended December 31, 2003. 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 the standards of the Public
Company Accounting Oversight Board (United States) and in accordance with
generally accepted auditing standards in Israel, including those prescribed by
the Israeli Auditors' Regulations (Mode of Performance), 1973. These standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits 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,
2003 and the results of its operations, and its cash flows for the year ended
December 31, 2003, in conformity with generally accepted accounting principles
in Israel which differ in certain respects from Accounting Principles Generally
Accepted in the United States (See Note 20).


                                      -2-
<PAGE>

      As explained in Note 1C, the aforementioned financial statements have been
prepared on the basis of historical cost adjusted to the reflect changes in the
general purchasing power of Israeli currency, in accordance with Statements of
the Institute of Certified Public Accountants in Israel.

      The accompanying financial staements 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
and interest (mainly to the Government) as stated in Note 1A(2) (c). The Bank
has a shareholder's deficiency amounting to NIS 1,094 million as of December 31,
2003 and the ratio of capital to credit risk components, calculated according to
the provisions of the Supervisor of Banks is negative and amounts to (83.20%).
Further, the maturity date of the Government deposits and the principal of the
capital notes held by the government was postponed to April 1, 2004. 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 as 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.

                                                     Rosenblum-Holtzman
                                             Certified Public Accountants (Isr.)

Tel Aviv, Israel
February 29 ,2004
Except for Note 22, as to which the date is June 21, 2004.


                                      -3-
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS

                             TO THE SHAREHOLDERS OF

                         ISRAEL BANK OF AGRICULTURE LTD.

      We have audited the accompanying balance sheet of Israel Bank of
Agriculture Ltd. ("the Bank") as of December 31, 2002 , and the related
statement of operations, changes in equity (deficiency) and cash flows for the
year ended December 31, 2002. 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 988 thousand as of
December 31, 2002, and the Bank's share in the net income of which totaled NIS
19 thousand, for the year ended December 31, 2002. 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 the standards of the Public
Company Accounting Oversight Board (United States) and in accordance with
generally accepted auditing standards in Israel, including those prescribed by
the Israeli Auditors' Regulations (Mode of Performance), 1973. These standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits 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,
2002, and the results of its operations, and its cash flows for the year ended
December 31, 2002, in conformity with generally accepted accounting principles
in Israel which differ in certain respects from Accounting Principles Generally
Accepted in the United States (See Note 21).

      As explained in Note 1C, the aforementioned financial statements have been
prepared on the basis of historical cost adjusted to the reflect changes in the
general purchasing power of Israeli currency, in accordance with Statements of
the Institute of Certified Public Accountants in Israel.


                                      -4-
<PAGE>

      The accompanying financial staements 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 on the basis that current cash collections of
the Bank will enable it to pay operating expenses and interest (mainly to
Government) and for the payment of the principal of capital notes held by the
public as stated in Note 1A(2)(c). The Bank has a shareholder's deficiency
amounting to NIS 1,014 million as of December 31, 2002 and the ratio of capital
to credit risk components, calculated according to the provisions of the
Supervisor of Banks is negative and amounts to (59.85%). Further, the maturity
date of the Government deposits was postponed to April 1, 2003. The Government
intends, during the period until the maturity date, 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
as 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 recovereability and
classification of assets and the amount and classification of liabilities that
they may result from the outcome of this uncertainty.

           ROSENBLUM HOLTZMAN                      KOST FORER & GABBAY
   Certified Public Accountants (Isr.)     Certified Public Accountants (Isr.)

Haifa, Israel
March 2, 2003
Except for Note 22, as to which the date is June 24, 2003.


                                      -5-
<PAGE>

                          [LETTERHEAD OF ERNST & YOUNG]

                         Report of Independent Auditors
                             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, 2001 and 2000, 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, 2001. 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 910 thousand and NIS 875
thousand as of December 31, 2001 and 2000, respectively, and the Bank's share in
the net income of which totaled NIS 35 thousand, NIS 74 thousand and NIS 62
thousand for the years ended December 31, 2001, 2000 and 1999, 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 the standards of the Public
Company Accounting Oversight Board (United States) and in accordance with
generally accepted auditing standards in Israel, including those prescribed by
the Israeli Auditors' Regulations (Mode of Performance), 1973. These standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits 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,
2001 and 2000, and the results of its operations, and its cash flows for each of
the three years in the period ended December 31, 2001, in conformity with
generally accepted accounting principles in Israel which differ in certain
respects from Accounting Principles Generally Accepted in the United States (See
Note 21).

      As explained in Note 1C, the aforementioned financial statements have been
prepared on the basis of historical cost adjusted to the reflect changes in the
general purchasing power of Israeli currency, in accordance with Statements of
the Institute of Certified Public Accountants in Israel.

        Kost Forer & Gabbay is a member practice of Ernst & Young Global


                                      -6-
<PAGE>

                          [LETTERHEAD OF ERNST & YOUNG]

      The accompanying financial staements 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)(a), and on the basis that current cash collections
of the Bank will enable it to pay operating expenses and interest (mainly to
government) as stated in Note 1a(2) (a). The Bank has a shareholder's deficiency
amounting to NIS 885 million as of December 31, 2001 and the ratio of capital to
credit risk components, computed according to the provisions of the Supervisor
of Banks is negative and amounts to (61.12%). Further, the maturity date of the
Government deposits was postponed to September 1, 2002. The Government intends,
during the period until the maturity date, 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 as 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 recovereability and classification
of assets and the amount and classification of liabilities that they may result
from the outcome of this uncertainty.

<TABLE>
<S>                                                           <C>
Haifa, Israel                                                         KOST FORER & GABBAY
February 24, 2002                                             Certified Public Accountants (Isr.)
except for Note 23, as to which the date is July 11, 2002
</TABLE>

        Kost Forer & Gabbay is a member practice of Ernst & Young Global


                                      -7-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

BALANCE SHEETS
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

                                                               December 31
                                                         -----------------------
                                                           2003          2002
                                                Note        Thousands of NIS
                                               ------    -----------------------

ASSETS

    Cash on hand and deposits with banks          2        38,586         57,637

    Credit to the public                          3       251,618        278,078

    Credit to the Government of Israel            4        29,839         30,159

    Investment in affiliate                       5         1,025            969

    Bank building and equipment                   6           343            375

    Other assets                                  7         2,118          1,629
                                                         --------       --------

TOTAL ASSETS                                              323,529        368,847
                                                         ========       ========

 /s/ Mr. E. Grinfeld           /s/ Mr. A. Lamdani         /s/ Ms. L. Patalovsky
---------------------       -----------------------     ------------------------
   Mr. E. Grinfeld               Mr. A. Lamdani             Ms. L. Patalovsky
      Director                      Director                 General Manager

Date of approval of the financial statements: February 29, 2004

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


                                      -8-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

BALANCE SHEETS
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

<TABLE>
<CAPTION>
                                                                    December 31
                                                            --------------------------
                                                               2003             2002
                                                    Note         Thousands of NIS
                                                   ------   --------------------------
<S>                                                  <C>    <C>              <C>
LIABILITIES AND SHAREHOLDERS'
 DEFICIENCY

Deposits from the public                              8          1,022           1,077
Government of Israel deposit                          9        438,291         436,946
Other liabilities                                    10          7,930           7,442
                                                            ----------      ----------
                                                               447,243         445,465

Deferred deposits from the Government of Israel      11        895,672         799,118

Deferred capital notes:
    Held by the public                                              --          39,435
    Held by the Government                           11         75,052          79,602
                                                            ----------      ----------

Total liabilities                                            1,417,967       1,363,620

Non-participating Preferred Shares                                  11              11

Shareholders' deficiency                                    (1,094,449)       (994,784)
                                                            ----------      ----------

Total liabilities and shareholders' equity                     323,529         368,847
                                                            ==========      ==========
</TABLE>


                                      -9-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

<TABLE>
<CAPTION>
                                                                                               December 31
                                                                                    ----------------------------------
                                                                                      2003         2002         2001
                                                                         Note              In thousands of NIS
                                                                        ------      ----------------------------------
<S>                                                                       <C>        <C>          <C>          <C>
Loss from financing activities
Loss from financing activities before allowance for
  doubtful debts (*)                                                      15         (87,059)     (61,868)     (72,961)
Increase in allowance for doubtful debts                                  3c          (3,500)          --       (6,269)
                                                                                    --------     --------     --------
Loss from financing activities after allowance for doubtful debts                    (90,559)     (61,868)     (79,230)
                                                                                    --------     --------     --------

Operating and other income
Rental income                                                                            534          508          762
Other income                                                              16             117           87           93
                                                                                    --------     --------     --------
Total operating and other income                                                         651          595          855
                                                                                    --------     --------     --------

Operating and other expenses
Salaries and related expenses                                             17           7,058        6,616        7,173
Depreciation on bank building and equipment                                               43           34           61
Building and equipment maintenance                                                     1,103          667        1,496
Other expenses (Note 21)                                                  18           1,609        1,524        1,502
                                                                                    --------     --------     --------
Total operating and other expenses                                                    (9,813)      (8,841)     (10,232)
                                                                                    --------     --------     --------

Operating loss                                                                       (99,721)     (70,114)     (88,607)
Equity in profits of an affiliate                                                         56           19           38
                                                                                    --------     --------     --------

Net loss for the year                                                                (99,665)     (70,095)     (88,569)
                                                                                    ========     ========     ========

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                                                                (476.20)     (334.90)     (423.20)
                                                                                    --------     --------     --------

Income from financing activities before allowance for doubtful
  debts, interest on Government deposits                                              10,461        3,253        6,451

Interest on Government deposits and deferred capital notes                           (97,520)     (65,121)     (79,412)
                                                                                    --------     --------     --------
(*) Loss from financing activities before expense before
allowance for doubtful debts                                                         (87,059)     (61,868)     (72,961)
                                                                                    ========     ========     ========
</TABLE>


                                      -10-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIENCY
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

<TABLE>
<CAPTION>
                                                                 Total
                                                               outstanding
                                 Outstanding    Receipts on   share capital      Total
                                    share       account of     and capital    Accumulated    shareholders'
                                   capital        shares        reserves        deficit       deficiency
                                                              Adjusted NIS
                                                             (In thousands)
                                 ------------------------------------------------------------------------

<S>                                 <C>            <C>          <C>           <C>             <C>
Balance at January 1, 2001          864,568        308,479      1,173,047     (2,009,167)       (836,120)

Loss for the year                        --             --             --        (88,569)        (88,569)
                                 ----------     ----------     ----------     ----------      ----------

Balance at January 1, 2002          864,568        308,479      1,173,047     (2,097,736)       (924,689)

Loss for the year                        --             --             --        (70,095)        (70,095)
                                 ----------     ----------     ----------     ----------      ----------

Balance at January 1, 2003          864,568        308,479      1,173,047     (2,167,831)       (994,784)

  Loss for the year                      --             --             --        (99,665)        (99,665)
                                 ----------     ----------     ----------     ----------      ----------

Balance at December 31, 2003        864,568        308,479      1,173,047     (2,267,496)     (1,094,449)
                                 ==========     ==========     ==========     ==========      ==========
</TABLE>


                                      -11-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

<TABLE>
<CAPTION>
                                                                                    December 31
                                                                         ----------------------------------
                                                                           2003         2002         2001
                                                                                In thousands of NIS
                                                                         ----------------------------------
<S>                                                                       <C>          <C>          <C>
Cash flows from operating activities:
Loss for the year                                                         (99,665)     (70,095)     (88,569)

Adjustments to reconcile the cash flows used in operating activities:
 Equity in the profits of an affiliate                                        (56)         (19)         (36)
 Depreciation on the bank's building and equipment                             43           34           61
                                                                         --------     --------     --------
Net cash used in operating activities                                     (99,678)     (70,080)     (88,544)
                                                                         --------     --------     --------

Cash flows from investing activities
Credit to the public                                                       26,460       45,616       42,718
Credit to the Government of Israel                                            320       (4,701)       5,949
Purchase of equipment                                                         (11)         (80)         (13)
Other assets                                                                 (489)        (123)        (198)
                                                                         --------     --------     --------
Net cash provided by investing activities                                  26,280       40,712       48,456
                                                                         --------     --------     --------

Cash flows from financing activities:
Deposits from the public, net                                                 (55)        (756)         315
Deposits from the Government, net                                           1,345       (3,199)         627
Other liabilities, net                                                        488         (520)     (19,302)
Deferred Government deposits                                               96,554       55,280       61,971
Deferred capital notes, net                                               (43,985)         857        8,511
                                                                         --------     --------     --------
Net cash provided by financing activities                                  54,347       51,662       52,122
                                                                         --------     --------     --------

(Decrease) increase in cash on hand and deposits with banks               (19,051)      22,294       12,034
Balance of cash on hand and deposits with banks
  at the beginning of the year                                             57,637       35,343       23,309
                                                                         --------     --------     --------
Balance of cash on hand and deposits with banks
  at the end of the year                                                   38,586       57,637       35,343
                                                                         ========     ========     ========
</TABLE>


                                      -12-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

                                 INDEX TO NOTES

<TABLE>
<CAPTION>
Note                                                                            Page
----                                                                            ----
<S>                                                                             <C>
1.     The Bank, Its Main Activities and Significant Accounting Policies        14-20

2.     Cash on Hand and Deposits with Banks                                      20

3.     Credit to the Public (Less Allowances for Doubtful Debts)                21-29

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.    Contingent Liabilities, Claims and Commitments                            35

14.    Related Parties                                                          36-37

15.    Loss from Financing Activities Before Allowance for Doubtful Debts        37

16.    Commissions and Other Income                                              38

17.    Salaries and Related Expenses                                             38

18.    Other Expenses                                                            38

19.    Income Taxes                                                              39

20.    Reconciliation Between Israel GAAP and U.S. GAAP                         39-41

21.    Pro forma financial statements                                           42-43

22.    Subsequent events                                                         44

23.    Financial Statements in Nominal (Historical) NIS                         44-46

24.    Other Information in Nominal Values                                       46
</TABLE>


                                      -13-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      A.    General

            1.    The financial statements have been prepared in accordance with
                  the directives of the Supervisor of Banks, regarding the
                  preparation of annual financial statements by banking
                  corporations and in accordance with accounting principles
                  generally accepted in Israel ("Israel GAAP"). 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 (see note 20).

            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.

                        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 December 22, 2003,
                        their maturity date was deferred until April 1, 2004.
                        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.


                                      -14-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      A.    General (Cont.)

                  (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 pace of its collections.

                        In the opinion of the Bank's management, the cash and
                        cash equivalents balance as of December 31, 2003, and
                        the current collection anticipated in 2004 from the
                        payment arrangement with the moshavim and the kibbutzim
                        will allow the Bank in 2004, subject to what is stated
                        above, to pay the ongoing operating expenses (primarily
                        salaries) and make interest payments (primarily to the
                        Government).

      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.


                                   -15-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      C.    Principles of adjustment

            (1)   General

                  All of the financial data in these financial statements
                  (including comparative data) are expressed in adjusted
                  NIS of identical purchasing power. The purchasing power
                  of the adjusted NIS reflects the average prices for
                  December 2003 according to the Consumer Price Index
                  ("CPI") published on January 15, 2004 (112.95 points
                  based on an average of 1998 = 100). A summary of the
                  financial statements in nominal (historical) Israeli
                  shekels, which served as a basis for the Bank's adjusted
                  statements, is presented in Note 23.

            (2)   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.

            (3)   Statement of operations

                  a.    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).

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

                  c.    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.

                  d.    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.


                                   -16-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      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
                                                  2003     2002      2001      2003      2002     2001
                                                                                 %         %        %
                                                 ------   ------    ------    ------    ------   ------
<S>                                              <C>       <C>      <C>       <C>        <C>      <C>
                Rate of exchange of the U.S.
                 dollar                           4.379    4.737    4.4160    (7.56)     7.27     9.27
                Consumer Price Index (in
                 points *) for the month of
                  November                       113.20    115.4    108.20    (1.91)     6.65     1.40
                  December                       112.95    115.1    108.10    (1.87)     6.48     1.40
</TABLE>

      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.


                                   -17-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      H.    Basis of recognition of revenues and expenses

            (1)   Revenues and expenses are recognized on an accrued
                  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 and Kibbutz sectors, for
                  those Kibbutzim and 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.)
                        and the guidelines of the Supervisor of Banks.

                  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, 2003, the general and additional allowances
                  represent 20.42% 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.


                                   -18-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      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.

      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 and subject to the directives of the Supervisor of
            Banks.

            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.


                                   -19-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      O.    Adoption of recently issued Accounting Standards and their
            impact on the financial statements

            In October 2001, the Israel Accounting Standards Board
            published Accounting Standard No. 12 which deals with the
            discontinued adjustment of financial statements. In accordance
            with this Standard and Accounting Standard No. 17 with respect
            to the deferral of the implementation of Standard No. 12,
            financial statements will cease to be adjusted for inflation
            in Israel commencing January 1, 2004.

            Until December 31, 2003, the Bank will continue to prepare its
            adjusted financial statements in accordance with Opinion No.
            36 of Institute of Certified Public Accountants in Israel. The
            adjusted amounts, which are included in the financial
            statements as of December 31, 2003, will serve as the starting
            point for the nominal financial reporting commencing January
            1, 2004.

            The implementation of the above standard will mainly affect
            financing income and expenses items.

            With respect to the pro forma financial statements, they will
            include the statements as of December 31, 2003 and 2002 as if
            the Standard is in force as of January 1, 2001, see Note 21.

Note 2. Cash on Hand and Deposits with Banks

<TABLE>
<CAPTION>
                                                                   December 31
                                                             ----------------------
                                                               2003          2002
                                                                  Adjusted NIS
                                                                 (In thousands)
                                                             ----------------------

<S>                                                            <C>           <C>
      Cash on hand and deposits with the Bank of Israel        38,553        22,153
      Deposits with banks                                          33        35,484(*)
                                                             --------      --------
      Total                                                    38,586        57,637
                                                             ========      ========
      Cash and deposits for an original period of up to
       three months in the Bank of Israel and banks            38,586        57,637
                                                             ========      ========
</TABLE>

(*)   Includes a balance in the amount of NIS 35,273 in foreign currency
      (in U.S. Dollars).


                                   -20-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      A.    Composition:

<TABLE>
<CAPTION>
                                                                            December 31
                                                                      -----------------------
                                                                        2003           2002
                                                                            Adjusted NIS
                                                                           (In thousands)
                                                                      -----------------------
<S>                                                                    <C>            <C>
         Credit (*)                                                    127,217        131,785
         Credit from designated deposits (**)                           95,946        119,697
                                                                      --------       --------

         Total credit to the public for which the bank is
          responsible                                                  223,163        251,482

         Less - general and additional allowances for doubtful
          debts                                                        (24,869)       (24,869)
         Special allowance                                              (6,000)        (5,887)
                                                                      --------       --------

         Total                                                         192,294        220,726
                                                                      --------       --------

         Credit from designated deposits, repayment of which
          to the depositor is conditional upon the collection of
          the loan and includes a margin                                59,324         57,352
                                                                      --------       --------

         Total credit to the public                                    251,618        278,078
                                                                      ========       ========
</TABLE>

The specific allowance for doubtful debts was deducted from the
appropriate credit items.

(*)   An amount of NIS 60,136 thousand (2002 - NIS 54,139 thousand) 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.

(**)  With respect to kibbutzim which have not yet arranged their credit
      balances (net of specific allowances) and were financed by
      Government deposits, part of which were included under designated
      deposits and part under deferred deposits.


                                   -21-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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
                                                                    ----------------------
                                                                      2003          2002
                                                                         Adjusted NIS
                                                                        (In thousands)
                                                                    ----------------------
<S>                                                                  <C>           <C>
         1. Credit to the agricultural sector

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

             Kibbutzim (including factories and regional and
             national organizations)                                  95,455       119,103

             Moshavim  (including factories and regional and
             national organizations)                                 127,708       132,376
                                                                    --------      --------

             Total credit to the Agricultural Sector for which
             the Bank is responsible (**)                            223,163       251,479

         (b) Credit for which the Bank is not responsible (*):
                  Balance as of balance sheet date                    40,829        36,534
                                                                    --------      --------

             Total credit to the Agricultural Sector                 263,992       288,013
                                                                    ========      ========
</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 60,131 thousand (2002 - NIS 54,134 thousand) 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.


                                   -22-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

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

<TABLE>
<CAPTION>
                                                                                   December 31
                                                                             ----------------------
                                                                                2003          2002
                                                                                   Adjusted NIS
                                                                                  (In thousands)
                                                                             ----------------------
<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                               4,142         5,139

              (2) Credit which was rescheduled during the current year
                  without waiver of income -
                  Balance as of balance sheet date                               5,388         4,564

         (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                                     89,628       110,054

         (c)  Credit in temporary arrears, balance at balance sheet date         3,615         3,019

         (d)  Credit under special supervision:
              Balance as of balance sheet date                                  69,950        46,661

         (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 2,735 thousand (2002 - NIS 4,022 thousand)                    50,440        82,042
                                                                              --------      --------

         Total                                                                 223,163       251,479
                                                                              ========      ========
</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.

      2.    Credit to local authorities

                                                                December 31
                                                          ----------------------
                                                            2003          2002
                                                               Adjusted NIS
                                                              (In thousands)
                                                          ----------------------

         Total loans (**)                                       --             3
                                                          ========      ========

(**)  Not included within the framework of credit to problematic
      borrowers.


                                   -23-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      C.    Allowances for doubtful debts

<TABLE>
<CAPTION>
                                                December 31, 2003                           December 31, 2002
                                    ----------------------------------------    -----------------------------------------
                                                    Allowance                                   Allowance
                                    ----------------------------------------    -----------------------------------------
                                    Specific(*)   Additional(**)     Total      Specific(*)   Additional(**)      Total
                                    -----------   --------------  ----------    -----------   --------------   ----------
<S>                                     <C>             <C>          <C>            <C>             <C>           <C>
Balance at the beginning
  of the year                           118,373         30,756       149,129        136,911         31,138        168,049
                                     ----------     ----------    ----------     ----------     ----------     ----------

Allowance during the current year         3,500             --         3,500             --             --             --
Decrease in allowances                       --             --            --            (25)            --            (25)
                                     ----------     ----------    ----------     ----------     ----------     ----------

Amount charged to statement of
operations                                3,500             --         3,500            (25)            --            (25)
                                     ----------     ----------    ----------     ----------     ----------     ----------

Write offs                              (14,425)            --       (14,425)       (16,458)            --        (16,458)

Erosion and adjustment
  of balances                             1,563            113         1,676         (2,055)          (382)        (2,437)
                                     ----------     ----------    ----------     ----------     ----------     ----------

Balance at the end of the year          109,011         30,869       139,880        118,373         30,756        149,129
                                     ==========     ==========    ==========     ==========     ==========     ==========

<CAPTION>
                                                  December 31, 2001
                                      ----------------------------------------
                                                      Allowance
                                      ----------------------------------------
                                      Specific (*)  Additional(**)     Total
                                      ------------  --------------  ----------
<S>                                       <C>             <C>          <C>
Balance at the beginning
  of the year                             164,579         24,869       189,448
                                       ----------     ----------    ----------

Allowance during the current year              --          6,269         6,269
Decrease in allowances                         --             --            --
                                       ----------     ----------    ----------

Amount charged to statement of
operations                                     --          6,269         6,269
                                       ----------     ----------    ----------

Write offs                                (18,137)            --       (18,137)

Erosion and adjustment
  of balances                              (9,531)            --        (9,531)
                                       ----------     ----------    ----------

Balance at the end of the year            136,911         31,138       168,049
                                       ==========     ==========    ==========
</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.


                                   -24-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

                                                    December 31
                 Credit to        ----------------------------------------------
                 borrowers                 2003                     2002
            -------------------   ---------------------    ---------------------
                                   No. of                   No. of
                                  borrowers                borrowers
              From        To        (***)       Credit       (***)       Credit
            --------   --------   ---------    --------    ---------    --------

                  7         18           58          17          68
                  7         18           11         162          10          124
                 18         35           18         464          19          474
                 35         70           21       1,063          22        1,100
                 70        140           20       2,008          20        1,987
                140        285           23       4,822          25        5,156
                285        530           23       9,338          23        8,776
                530      1,060           26      20,111          24       16,974
              1,060      1,770           20      27,161          20       27,201
              1,770      3,500           34      83,240          32       76,635
              3,500      7,100            7      33,663          13       63,457
              7,100     17,700            4      41,073           4       30,988
             17,700     35,000           --          --           1       18,543
                                    -------    --------     -------     --------
              Total                     225     223,163         230      251,483
                                    =======    ========     =======     ========

(*)   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.


                                   -25-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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.

            It should be assumed that settlements complying with the
            transitional provisions conditions will make efforts to meet
            the timetable which was allotted in the provisions and thereby
            promote the repayment of the debts.

            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 possible to a certain
            degree to promote the distribution of the proceeds that were
            accumulated at the administration of arrangements in the
            agricultural sector.


                                   -26-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      E.    Credit to the moshavim (Cont.)

            As of the date of these financial statements, there are
            approximately 62 moshavim in respect of which recovery
            judgments have not yet been granted, and 71 settlements that
            were agreed upon. 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.

            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.


                                   -27-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      F.    Credit to the Kibbutzim (Cont.)

            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 and until December 31, 2003, a further 40 kibbutzim
            have entered into the arrangement, among them are peripheral
            kibbutzim and "incentive" Kibbutzim and 34 kibbutzim which
            have been classified as real estate, and there remain 6
            kibbutzim which have not yet joined.


                                   -28-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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

      F.    Credit to the kibbutzim (Cont.)

            The "write-off" in the Bank's books with respect to the
            "Balloon" for the real estate kibbutzim amounts to
            approximately NIS 133 million and, in exchange for the write
            off of the "Balloon" by all of the banks, the kibbutzim
            returned approximately 11,213 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,
            1,927 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.

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

<TABLE>
<CAPTION>
                                                                        December 31
                                                                   ---------------------
                                                                     2003          2002
                                                                        Adjusted NIS
                                                                       (In thousands)
                                                                   ---------------------
<S>                                                                  <C>          <C>
Credit in respect of deferred capital notes                              --        1,672
Credit in respect of participation in write-off of Balloon and
  incentive                                                          24,410       24,310
Write-offs against deferred deposits                                  5,429        4,177
                                                                   --------     --------
Total credit to the Government (including deposits)                  29,839       30,159
                                                                   ========     ========
</TABLE>

Note 5. Investment in an Affiliate

<TABLE>
<CAPTION>
                                                                                            December 31
                                                                                      -----------------------
                                                                                        2003           2002
                                                                                            Adjusted NIS
                                                                                           (In thousands)
                                                                                      -----------------------
<S>                                                                                    <C>            <C>
      (a) Composition:
          Cost of shares                                                                22,533         22,533
          Post acquisition losses                                                      (21,508)       (21,564)
                                                                                      --------       --------
          Total investment                                                               1,025            969
                                                                                      ========       ========

<CAPTION>
      (b) Details of the Company:
          Name of company: The Palestine Agricultural Settlement Association Ltd.
                           Agricultural financial institution
                                                                                        2003           2002
                                                                                      --------       --------
<S>                                                                                      <C>             <C>
          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)                         1,025            969
          Contribution to net operating profit (loss) (NIS in thousand)                     56             19
</TABLE>


                                   -29-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 6. Building and Equipment

<TABLE>
<CAPTION>
                                                         Cost
                                    -----------------------------------------------
                       Rate of      Beginning   Additions     Disposals
                     depreciation      of        during        during       End of
                          %           year      the year      the year       year
                     ------------   ---------   ---------     ---------    --------
<S>                       <C>          <C>             <C>          <C>       <C>
Building                      4%         367           --           --          367

Equipment and
   Furniture              6-20%        1,443           11           --        1,454
                                    --------     --------     --------     --------

Total building and
   Equipment                           1,810           11           --        1,821
                                    ========     ========     ========     ========

<CAPTION>
                                        Depreciation                         Depreciated Balance
                     ----------------------------------------------------   ---------------------
                     Accumulated at  Allowance                Accumulated   Beginning
                      beginning of    during      Disposals     at end         of         End of
                          year         year      during year    of year       Year         year
                     --------------  ---------   -----------  -----------   ---------    --------
<S>                        <C>             <C>          <C>       <C>            <C>          <C>
Building                     174           12           --          186          193          181

Equipment and
   Furniture               1,261           31           --        1,292          182          162
                        --------     --------     --------     --------     --------     --------

Total building and
   Equipment               1,435           43           --        1,478          375          343
                        ========     ========     ========     ========     ========     ========
</TABLE>


                                   -30-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 7. Other Assets

                                                                 December 31
                                                            --------------------
                                                              2003        2002
                                                                Adjusted NIS
                                                               (In thousands)
                                                            --------------------

     Refund of payroll tax                                     1,992         995
     Other accounts receivable                                   126         634
                                                            --------    --------
            Total other assets                                 2,118       1,629
                                                            ========    ========

Note 8. Deposits from the Public

                                                                 December 31
                                                            --------------------
                                                              2003        2002
                                                                Adjusted NIS
                                                               (In thousands)
                                                            --------------------

     Demand deposits                                             974       1,033
     Time deposits                                                17          17
     Designated deposits                                          31          27
                                                            --------    --------
                                                               1,022       1,077
                                                            ========    ========

     Includes deposits the repayment of which to the
     depositor is dependent on collection of the related
     credit with margin                                           31          27
                                                            ========    ========

Note 9. Deposits from the Government

                                                                 December 31
                                                            --------------------
                                                              2003        2002
                                                                Adjusted NIS
                                                               (In thousands)
                                                            --------------------

      Designated and other deposits **                       438,291     436,946
                                                            ========    ========

     (**) Includes deposits for which the repayment to the
          depositor is stipulated on the collection of the
          credit (without any margin)                         62,246      59,462
                                                            ========    ========


                                   -31-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 10. Other Liabilities

                                                                 December 31
                                                            --------------------
                                                              2003         2002
                                                                 Adjusted NIS
                                                                (In thousands)
                                                            --------------------

      Accrued severance pay (1)                                1,279       1,255
      Accrued vacation pay and sick leave (2)                  5,359       5,282
      Accrued payroll differences                                180         177
      Accrued recuperation payment and bonus payable             399          --
      Other accounts payable credit balances                     713         728
                                                            --------    --------
      Total other liabilities                                  7,930       7,442
                                                            ========    ========

      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 1,444 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.


                                   -32-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 11. Deferred Government Deposits and Deferred Capital Notes

      (a)   Secondary capital

            The Supervisor of Banks agreed to recognize the entire amount
            of the capital notes held by the Government (as owner of the
            Bank) as "Secondary Capital" for the purpose of computing the
            ratio of capital to risk components.

      (b)   Deferred Government deposits

                                           Weighted
                                         interest rate         December 31
                                          December 31,    ----------------------
                                              2003          2003          2002
                                                               Adjusted NIS
                                                %             (In thousands)
                                         -------------    --------      --------
            In Israeli currency:
            Not linked                      11.2-28.5      427,349       347,154
            Linked to the Index                3.66        466,661       450,306
            Linked to foreign currency         6.22          1,662         1,658
                                                          --------      --------
                                                           895,672       799,118
                                                          ========      ========

            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 1, 2004,
            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.

      (c)   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 December 16, 2003 the Accountant General approved the
            extension of the maturity date to April 1, 2004.


                                   -33-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 12. Share Capital

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

<TABLE>
<CAPTION>
                                                                             December 31
                                                                      ------------------------
                                                                         2003          2002
                                                        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, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

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 109 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 - 2003, amounted to NIS 41,131 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 41,049 thousand. In
            prior years, a dividend was paid.

Note 13. Contingent Liabilities, Claims and Commitments

                                                                December 31
                                                            --------------------
                                                              2003        2002
                                                                Adjusted NIS
                                                               (In thousands)
                                                            --------------------
      Off balance sheet financial instruments
        Transactions for which the
        amount stated constitutes a credit risk:
             Unutilized lines of credit                          213         394
                                                            ========    ========


                                   -35-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 14. 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
                                             --------------   -----------------      --------------   -----------------
                                             2003     2002      2003      2002       2003      2002     2003      2002
                                                       Adjusted NIS                             Adjusted NIS
                                                      (In thousands)                           (In thousands)
                                             ----------------------------------      ----------------------------------
<S>                                           <C>       <C>       <C>       <C>       <C>       <C>       <C>       <C>
            The following include
            balances of the affiliate:
              Assets - credit to the
                public                        --        --         4        --        --        --        --        --
              Liabilities - deposits
                from the public               16        12        26        22        51        33        53        34
</TABLE>

      (b)   A summary of the operating results with related parties:

<TABLE>
<CAPTION>
                                                                Year ended December 31
                                                           ------------------------------
                                                            2003        2002        2001
                                                                    Adjusted NIS
                                                                   (In thousands)
                                                           ------------------------------
<S>                                                          <C>        <C>         <C>
            Participation in expenses by the affiliate       95         130         123
            Management fees to shareholders                  --          10          --
</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.

            The following balance sheet items include balances of these
            entities:

                                                               December 31
                                                         ----------------------
                                                           2003          2002
                                                              Adjusted NIS
                                                             (In thousands)
                                                         ----------------------
            Assets:
              Credit to the public                         18,495        20,818

            The State of Israel is the main related party to the bank.
            Adjustments including rotation 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.


                                   -36-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 14. Related Parties (Cont.)

      (d)   Benefits to related parties:

<TABLE>
<CAPTION>
                                                                  Year ended December 31,
                                                  ---------------------------------------------------------
                                                            2003                           2002
                                                  --------------------------     --------------------------
                                                   Total         Number of        Total         Number of
                                                  Benefits     beneficiaries     benefits     beneficiaries
                                                  --------     -------------     --------     -------------
                                                                        Adjusted NIS
                                                                       (In thousands)
                                                  ---------------------------------------------------------
<S>                                                  <C>             <C>            <C>             <C>
             Related party employed by the Bank      486             1              446             1
             Directors not employed by the Bank       19             4               28             5
                                                  ------                         ------
                                                     505                            474
                                                  ======                         ======
</TABLE>

Note 15. Loss from Financing Activities Before Allowance for Doubtful
         Debts (expenses are shows in negative numbers).

<TABLE>
<CAPTION>
                                                                    Year ended December 31
                                                              ----------------------------------
                                                                2003         2002         2001
                                                                         Adjusted NIS
                                                                        (In thousands)
                                                              ----------------------------------
<S>                                                            <C>          <C>          <C>
      In respect to assets
       From credit to the public                                26,988       18,059       21,025
       From credit to the Government of Israel                     908          866          605
       From deposits with the Bank of Israel                     3,211         (423)         897
       From deposits with banks                                 (1,600)      (1,258)          --
       From other assets                                            36          (18)         (26)

      In respect to liabilities On deposits from the:
        Public                                                     (54)          28          (20)
        Government                                             (18,279)     (15,285)     (16,553)
        On other liabilities                                        (1)           6            2

      On respect to deferred deposits and capital notes:
        On deferred Government deposits                        (96,457)     (55,265)     (62,024)
        On deferred capital notes:
        Held by the public                                          --       (3,265)      (5,795)
        Held by the Government                                  (1,063)      (6,592)     (11,594)

      Other
       Other financing  (expenses) income                         (748)       1,279          522
                                                              --------     --------     --------

      Total loss from financing activities before
       allowance for doubtful debts                            (87,059)     (61,868)     (72,961)
                                                              ========     ========     ========
</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.


                                   -37-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 16. Commissions and Other Income

<TABLE>
<CAPTION>
                                                            Year ended December 31
                                                         -----------------------------
                                                          2003        2002      2001
                                                                  Adjusted NIS
                                                                 (In thousands)
                                                         -----------------------------
<S>                                                          <C>         <C>        <C>
      Bookkeeping                                             47         55         70
      Collections and transfers                               17         17         17
      Management fees from affiliated company                 --         10         --
      Other                                                   53          5          6
                                                         -------    -------    -------
                                                             117         87         93
                                                         =======    =======    =======
</TABLE>

Note 17. Salaries and Related Expenses

<TABLE>
<CAPTION>
                                                            Year ended December 31
                                                         -----------------------------
                                                           2003       2002       2001
                                                                  Adjusted NIS
                                                                 (In thousands)
                                                         -----------------------------
<S>                                                        <C>        <C>        <C>
      Salaries                                             5,519      5,530      5,574
      Severance pay, pension, provident fund
       contributions and sick pay                          1,235        784      1,324
      National Insurance, employees tax and salary tax       304        302        275
                                                         -------    -------    -------
                                                           7,058      6,616      7,173
                                                         =======    =======    =======
</TABLE>

Note 18. Other Expenses

<TABLE>
<CAPTION>
                                                             Year ended December 31
                                                         -----------------------------
                                                           2003       2002       2001
                                                                  Adjusted NIS
                                                                 (In thousands)
                                                         -----------------------------

<S>                                                        <C>        <C>        <C>
      Professional services                                  335        192        288
      Communications                                         114        119        118
      Computer services                                       80         74         81
      Office expenses                                         53         64         62
      Promotion and advertising                               10         16         11
      Insurance                                              263        211        157
      Professional training and extension courses              1          4          4
      Director fees                                           19         28         36
      Commissions                                             30         19         24
      Trustee commissions due to shares and capital
       notes                                                 252        288        220
      Taxes and toll fees                                     80         66         70
      Participation in the budget of kibbutzim
       management                                            158        108        139
      Participation in the budget of Moshavim
       management                                            114        238        166
      Others                                                 100         97        126
                                                         -------    -------    -------
                                                           1,609      1,524      1,502
                                                         =======    =======    =======
</TABLE>


                                   -38-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 19. Income Taxes

      (a)   The Bank has received final tax assessments up to and
            including the year ended December 31, 1999.

      (b)   The Bank's tax loss carry forwards amount to NIS 1,268,655
            thousand (2002 - NIS 1,215,417 thousand). A deferred tax
            benefit in the net amount of NIS 456,716 thousand was not
            included in the balance sheet (2002 - NIS 437,550 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 20. 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 are
            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. (See Note 1C for
            principles of the adjustment).

            In accordance with US GAAP:

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

            Measuring on the basis of the change in the CPI, which
            reflects the effect of changes in the general price level in
            the Israeli economy, 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 measurement 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.

      (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.


                                   -39-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 20. Reconciliation Between Israel GAAP and U.S. GAAP (Cont.)

      (b)   Depreciation method (Cont.):

            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 2,324
            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.

            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.


                                   -40-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 20. Reconciliation Between Israel GAAP and U.S. GAAP (Cont.)

      (d)   Statement of cash flows (Cont.)

            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
                                                                ----------------------------------
                                                                  2003         2002         2001
                                                                           Adjusted NIS
                                                                          (In thousands)
                                                                ----------------------------------
<S>                                                              <C>          <C>          <C>
            Cash flows from operating activities:
            Loss for the year                                    (99,665)     (70,095)     (88,569)
            Adjustments to reconcile the cash flows
             used in operating activities:
            Equity in the profits of an affiliate                    (56)         (19)         (36)
            Depreciation on the bank's building and
              equipment                                               43           34           61
                                                                --------     --------     --------
            Net cash used in operating activities                (99,678)     (70,080)     (88,544)
                                                                --------     --------     --------

            Cash flows from investing activities
            Decrease (increase) in credit to the public           (7,580)        (878)      (4,403)
            Collection from the public                            34,040       46,494       47,121
            Decrease (increase) in credit to the
             Government of Israel                                (14,205)     (15,626)      (8,702)
            Collection from the Government of Israel              14,525       10,925       14,651
            Purchase of equipment                                    (11)         (80)         (13)
            Other assets                                            (489)        (123)        (198)
                                                                --------     --------     --------
            Net cash provided by investing activities             26,280       40,712       48,456
                                                                --------     --------     --------

            Net cash provided by financing activities             54,347       51,662       52,122
                                                                --------     --------     --------

            (Decrease) increase in cash on hand and deposits
            with banks                                           (19,051)      22,294       12,034
            Balance of cash on hand and deposits with
             banks at the beginning of the year                   57,637       35,343       23,309
                                                                --------     --------     --------
            Balance of cash on hand and deposits
             with banks at the end of the year                    38,586       57,637       35,343
                                                                ========     ========     ========
</TABLE>


                                   -41-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 21. Pro forma financial statements

      Below are the pro forma data of the condensed financial statements
      as of December 31, 2003, and the condensed statement of operations
      for the year ended as of that date assuming that the directives of
      the Standards No. 12 and No. 17 of the Israel Accounting Standards
      Board with respect to the discontinuation of the adjustment of
      financial statements is effective as of January 1, 2001 and not
      January 1, 2004, as was determined by the Standard, and the adjusted
      amounts which were included in the financial statements as of
      December 31, 2000 were used as the starting point for the
      preparation of the these pro forma financial statements.

      Balance sheets

                                                              December 31
                                                       ------------------------
                                                         2003             2002
                                                              Adjusted NIS
                                                             (In thousands)
                                                       ------------------------
      ASSETS

         Cash on hand and deposits with banks              38,586        58,745
         Credit to the public                             251,618       283,424
         Credit to the Government of Israel                29,839        30,739
         Investments in an affiliate                        1,025           988
         Bank building and equipment                          330           359
         Other assets                                       2,118         1,660
                                                       ----------    ----------
      TOTAL ASSETS                                        323,516       375,915
                                                       ==========    ==========

      LIABILITIES AND SHAREHOLDERS' DEFICIENCY

      Deposits from the public                              1,022         1,098
      Government of Israel deposit                        438,291       445,346
      Other liabilities                                     7,930         7,586
                                                       ----------    ----------
                                                          447,243       454,030

      Deferred deposits from the Government of Israel     895,672       814,481

      Deferred capital notes:
         Held by the public                                    --        40,193
         Held by the Government                            75,052        81,131
                                                       ----------    ----------

      TOTAL LIABILITIES                                 1,417,967     1,389,835

      Non-participating Preferred Shares                       11            11

      Shareholders' deficiency                         (1,094,462)   (1,013,931)
                                                       ----------    ----------

      TOTAL LIABILITIES AND SHAREHOLDERS'
       DEFICIENCY                                         323,516       375,915
                                                       ==========    ==========


                                   -42-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 21. Pro forma financial statements (Cont.)

      Statements of operations

<TABLE>
<CAPTION>
                                                                                    December 31
                                                                               ---------------------
                                                                                 2003         2002
                                                                                    Adjusted NIS
                                                                                   (In thousands)
                                                                               ---------------------
<S>                                                                             <C>         <C>
      Loss from financing activities

      Loss from financing activities before allowance for doubtful
       debts                                                                    (67,918)    (120,297)
      Allowance for doubtful debts                                               (3,500)          --
                                                                               --------     --------

      Loss from financial activities after the allowance for doubtful debts     (71,418)    (120,297)
                                                                               --------     --------

      Operating and other income                                                    655          600
                                                                               --------     --------

      Operating and other expenses                                               (9,805)      (9,330)
                                                                               --------     --------

      Operating loss                                                            (80,568)    (129,027)

      Equity in earnings of an affiliate                                             37           78
                                                                               --------     --------

      Net loss for the year                                                     (80,531)    (128,949)
                                                                               ========     ========
</TABLE>

      Statements of Shareholders' Deficiency

<TABLE>
<CAPTION>
                                                                      Total
                                                                   outstanding
                                                                      share
                                   Outstanding     Receipts on      capital and       Total
                                      share         account of       capital       Accumulated      shareholders'
                                     capital          shares         reserves        deficit         deficiency
                                                                   Adjusted NIS
                                                                  (In thousands)
                                   -----------     -----------    --------------   -----------      ------------
<S>                                    <C>             <C>           <C>            <C>                <C>
      Balance at January 1, 2002       815,939         291,128       1,107,067      (1,992,049)        (884,982)

      Loss for the year                     --              --              --        (128,949)        (128,949)
                                    ----------      ----------      ----------      ----------       ----------

      Balance at January 1, 2003       815,939         291,128       1,107,067      (2,120,998)      (1,013,931)

      Loss for the year                     --              --              --         (80,531)         (80,531)
                                    ----------      ----------      ----------      ----------       ----------

      Balance at
       December 31, 2003               815,939         291,128       1,107,067      (2,201,529)      (1,094,462)
                                    ==========      ==========      ==========      ==========       ==========
</TABLE>


                                   -43-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 22. Subsequent events

      1.    On June 21, 2004, 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 October 1, 2004 (see note 1A(2) and Note
            11(c)).

      2.    As for the distribution of the payments which the
            administration received from the Moshavim, regulations which
            settle the matter were not yet regulated and, therefore, the
            distribution of the amounts to the creditors is made in
            certain instances conditioned on letters of reimbursement.

Note 23. Financial Statements of the Bank in Nominal (Historical) NIS

      (a)   Balance sheets:

<TABLE>
<CAPTION>
                                                                      December 31
                                                               -------------------------
                                                                  2003           2002
                                                                      Adjusted NIS
                                                                     (In thousands)
                                                               -------------------------
<S>                                                            <C>            <C>
            ASSETS

            Cash on hand and deposits with banks                   38,586         58,745
            Credit to the public                                  251,618        283,424
            Credit to the Government of Israel                     29,839         30,739
            Investment in an affiliate                              1,025            988
            Bank building and equipment                               202            219
            Other assets                                            2,118          1,660
                                                               ----------     ----------

            Total assets                                          323,388        375,775
                                                               ==========     ==========

            LIABILITIES AND SHAREHOLDERS' DEFICIENCY

            Deposits from the public                                1,022          1,098
            Government of Israeli deposits                        438,291        445,346
            Other liabilities                                       7,930          7,586
                                                               ----------     ----------
                                                                  447,243        454,030

            Deferred deposits from the Government of Israel       895,672        814,481

            Deferred capital notes:
              Held by the Public                                       --         40,193
              Held by the Government                               75,052         81,131
                                                               ----------     ----------

            Total liabilities                                   1,417,967      1,389,835
            Shareholders' deficiency                           (1,094,579)    (1,014,060)
                                                               ----------     ----------

            Total liabilities and shareholders' deficiency        323,388        375,775
                                                               ==========     ==========
</TABLE>


                                   -44-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 23. Financial Statements of the Bank in Nominal (Historical) NIS
        (Cont.)

      (b)   Statements of operations:

<TABLE>
<CAPTION>
                                                                      Year ended December 31
                                                                ----------------------------------
                                                                  2003         2002         2001
                                                                           Adjusted NIS
                                                                          (In thousands)
                                                                ----------------------------------
<S>                                                              <C>         <C>           <C>
            Loss from financing activities
            Loss from financing activities before
             allowance for doubtful debts*                       (67,918)    (120,296)     (80,909)
            Allowance for doubtful debts                          (3,500)          --       (6,000)
                                                                --------     --------     --------
            Loss from financing activities after
             allowance for doubtful debts                        (71,418)    (120,296)     (86,909)
                                                                --------     --------     --------
            Operating and other income
             Rental income                                           542          511          724
             Commissions and other income                            113           89           88
                                                                --------     --------     --------

             Total operating and other income                        655          600          812
                                                                --------     --------     --------
            Operating and other expenses
             Salaries and related expenses                         7,019        7,093        6,923
             Depreciation for building and equipment                  28           19           40
             Maintenance of building and equipment                 1,117          659        1,428
             Other expenses                                        1,629        1,545        1,434
                                                                --------     --------     --------

            Total operating and other expenses                    (9,793)      (9,316)      (9,825)
                                                                --------     --------     --------

            Operating loss                                       (80,556)    (129,012)     (95,922)
            Equity in profits of an affiliate                         37           78           47
                                                                --------     --------     --------

            Net loss for the year                                (80,519)    (128,934)     (95,875)
                                                                ========     ========     ========

            Loss per NIS 1 nominal value of share
             capital - operating loss                            (384.80)     (616.10)     (458.10)
                                                                ========     ========     ========
            (*) Income (loss) from financing activities
            before allowance for doubtful debts, interest on
            Government deposits and deferred capital notes        21,598       (8,578)      (4,336)
             Interest on Government deposits and
            deferred capital notes                               (89,516)    (111,718)     (76,573)
                                                                --------     --------     --------
            Loss from financing activities before
            allowance for doubtful debts                         (67,918)    (120,296)     (80,909)
                                                                ========     ========     ========
</TABLE>


                                   -45-
<PAGE>

                                                 ISRAEL BANK OF AGRICULTURE LTD.

NOTES TO THE FINANCIAL STATEMENTS - As of December 31, 2003 (Cont.)
--------------------------------------------------------------------------------
Adjusted to NIS of December 2003

Note 23. Financial Statements of the Bank in Nominal (Historical) NIS
(Cont.)

      (c)   Statements of Changes in Shareholders' Deficiency

<TABLE>
<CAPTION>
                                                           Receipts
                                             Share        account of     Accumulated
                                            capital         shares         deficit          Total
                                           ----------     ----------     -----------     ----------
<S>                                               <C>         <C>          <C>             <C>
            Balance at January 1, 2001            220         91,893       (881,364)       (789,251)
              Loss for the year                    --             --        (95,875)        (95,875)
                                           ----------     ----------     ----------      ----------

            Balance at January 1, 2002            220         91,893       (977,239)       (885,126)
              Loss for the year                    --             --       (128,934)       (128,934)
                                           ----------     ----------     ----------      ----------

            Balance at January 1, 2003            220         91,893     (1,106,173)     (1,014,060)
              Loss for the year                    --             --        (80,519)        (80,519)
                                           ----------     ----------     ----------      ----------

            Balance at
              December 31, 2003                   220         91,893     (1,186,692)     (1,094,579)
                                           ==========     ==========     ==========      ==========
</TABLE>

Note 24. Other Information in Nominal Values

<TABLE>
<CAPTION>
                                                                              2003          2002
                                                                                     NIS
                                                                                (In thousands)
                                                                            ---------------------
<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>


                                   -46-