|  ̈ | REGISTRATION      STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT      OF 1934 |
|--------|----------------------------------------------------------------------------------------------------------|

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

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

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

| BLUE SQUARE-ISRAEL LTD.                                                                    |
|------------------------------------------------------------------------------------------------------|
|  (Exact name of Registrant as specified in its charter) |

| Israel                                                                    |
|---------------------------------------------------------------------------|
|  (Jurisdiction of incorporation or organization) |

| 2 Amal Street, Rosh Ha’ayin 48092, Israel |
|-------------------------------------------------------------------------------|
|  (Address of principal executive offices)            |

| Elli Levinson-Sela, General Counsel & Corporate Secretary;       |
|---------------------------------------------------------------------------------------------------------|
| Tel: (972)-3-9282670; Fax: (972)-3-9282498                                               |
|  (Name,      Telephone, E-mail and/or Facsimile number and Address of Company Contact      Person) |

| Title of class                                                                                                 |   | Name of each exchange on which registered |
|--------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------|
| American Depositary Shares, each       representing one Ordinary Share (1)  |   | New York Stock Exchange, Inc.                       |
|                                                                                                                     |   |                                                                    |
| Ordinary      Shares, par value NIS 1.0 per share      (2)                                                               |   | New      York Stock Exchange, Inc.                                      |

| (1) | Evidenced      by American Depositary Receipts. |
|-----|-------------------------------------------------|

| (2) | Not      for trading, but only in connection with the listing of the American      Depositary Shares. |
|-----|-------------------------------------------------------------------------------------------------------|

| None                        |
|-----------------------------|
|  (Title      of Class) |

| None                        |
|-----------------------------|
|  (Title      of Class) |

----

----

----

----

TABLE OF CONTENTS 

|           |   |                                                                                   | Page |
|----------------|--------|----------------------------------------------------------------------------------------|------|
| PART      I    |   |                                                                                   | 2    |
| ITEM      1.   |   | IDENTITY      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS                             | 2    |
| ITEM      2.   |   | OFFER      STATISTICS AND EXPECTED TIMETABLE                                           | 2    |
| ITEM      3.   |   | KEY      INFORMATION                                                                   | 2    |
| ITEM      4.   |   | INFORMATION      ON THE COMPANY                                                        | 27   |
| ITEM      4A.  |   | UNRESOLVED      STAFF COMMENTS                                                         | 71   |
| ITEM      5.   |   | OPERATING      AND FINANCIAL REVIEW AND PROSPECTS                                      | 72   |
| ITEM      6.   |   | DIRECTORS,      SENIOR MANAGEMENT AND EMPLOYEES                                        | 107  |
| ITEM      7.   |   | MAJOR      SHAREHOLDERS AND RELATED PARTY TRANSACTIONS                                 | 132  |
| ITEM      8.   |   | FINANCIAL      INFORMATION                                                             | 154  |
| ITEM      9.   |   | THE      OFFER AND LISTING                                                             | 160  |
| ITEM      10.  |   | ADDITIONAL      INFORMATION                                                            | 163  |
| ITEM      11.  |   | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                        | 180  |
| ITEM      12.  |   | DESCRIPTION      OF SECURITIES OTHER THAN EQUITY SECURITIES                            | 183  |
| PART      II   |   |                                                                                   | 183  |
| ITEM      13.  |   | DEFAULTS,      DIVIDEND ARREARAGES AND DELINQUENCIES                                   | 183  |
| ITEM      14.  |   | MATERIAL      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF      PROCEEDS | 183  |
| ITEM      15.  |   | CONTROLS      AND PROCEDURES                                                           | 184  |
| ITEM      16.  |   | [RESERVED]                                                                             | 185  |
| ITEM      16A. |   | AUDIT      COMMITTEE FINANCIAL EXPERT                                                  | 185  |
| ITEM      16B. |   | CODE      OF ETHICS                                                                    | 185  |
| ITEM      16C. |   | PRINCIPAL      ACCOUNTANT FEES AND SERVICES                                            | 185  |
| ITEM      16D. |   |  EXEMPTIONS      FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.                 | 186  |
| ITEM      16E. |   |  PURCHASES      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED    PURCHASERS.  | 186  |
| ITEM      16F. |   |  CHANGE      IN REGISTRANT'S CERTIFYING ACCOUNTANT                                | 187  |
| ITEM      16G. |   |  CORPORATE      GOVERNANCE                                                        | 187  |
| Part      III  |   |                                                                                   | 189  |
| ITEM      17.  |   |  FINANCIAL      STATEMENTS                                                        | 189  |
| ITEM      18.  |   | FINANCIAL      STATEMENTS                                                              | 189  |
| ITEM      19.  |   | EXHIBITS                                                                               | 189  |

----

| ITEM      1. | IDENTITY      OF DIRECTORS, SENIOR MANAGEMENT ANDADVISERS |
|--------------|-----------------------------------------------------------|

| ITEM      2. | OFFER      STATISTICS AND EXPECTED TIMETABLE |
|--------------|----------------------------------------------|

| ITEM      3. | KEY      INFORMATION |
|--------------|----------------------|

|   | A. | Selected      Financial Data. |
|--------|----|-------------------------------|

----

|                                                                                                                      |   | For the year ended December 31,                                         |       |
|---------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------|------------|
|                                                                                                                      |   | 2007                                                                                             |       |   | 2008 |   |   | 2009 |   |   | 2009 |   |
|                                                                                                                      |   | NIS (In thousands, except per ordinary shareor ADS data) |       |   |  | $(1) |   |
| Statement      of Income Data:In      accordance with IFRS                                                                |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |
| Sales                                                                                                                     |   |                                                                                             | 6,981,984  |   |   |   | 7,429,121 |   |   |   | 7,349,076 |   |   |   | 1,946,775 |   |
| Cost      of sales                                                                                                        |   |                                                                                             | 5,129,578  |   |   |   | 5,369,149 |   |   |   | 5,291,012 |   |   |   | 1,401,593 |   |
| Gross      profit                                                                                                         |   |                                                                                             | 1,852,406  |   |   |   | 2,059,972 |   |   |   | 2,058,064 |   |   |   | 545,182 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selling,      general and administrative expenses                                                                         |   |                                                                                             | 1,563,208  |   |   |   | 1,794,720 |   |   |   | 1,817,099 |   |   |   | 481,351 |   |
| Operating      profit before other gain and losses and net gain from adjustment of      investment property to fair value |   |                                                                                             | 289,198    |   |   |   | 265,252 |   |   |   | 240,965 |   |   |   | 63,831 |   |
| Other      gains                                                                                                          |   |                                                                                             | 15,835     |   |   |   | 12,233 |   |   |   | 4,699 |   |   |   | 1,245 |   |
| Other      losses                                                                                                         |   |                                                                                             | (12,755    | ) |   |   | (14,716 | ) |   |   | (32,803 | ) |   |   | (8,690 | ) |
| Net      gain from adjustment of investment property to fair value                                                        |   |                                                                                             | 10,456     |   |   |   | 19,067 |   |   |   | 20,775 |   |   |   | 5,503 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating      profit                                                                                                     |   |                                                                                             | 302,734    |   |   |   | 281,836 |   |   |   | 233,636 |   |   |   | 61,889 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Finance      income                                                                                                       |   |                                                                                             | 60,978     |   |   |   | 60,700 |   |   |   | 64,780 |   |   |   | 17,160 |   |
| Finance      expenses                                                                                                     |   |                                                                                             | (118,297   | ) |   |   | (166,295 | ) |   |   | (177,454 | ) |   |   | (47,006 | ) |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Finance      expenses, net                                                                                                |   |                                                                                             | 57,319     |   |   |   | 105,595 |   |   |   | 112,674 |   |   |   | 29,846 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Share      in profit (loss) of associates                                                                                 |   |                                                                                             | 186        |   |   |   | (33 | ) |   |   | (37 | ) |   |   | (10 | ) |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income      before taxes on income                                                                                        |   |                                                                                             | 245,601    |   |   |   | 176,208 |   |   |   | 120,925 |   |   |   | 32,033 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Taxes      on income                                                                                                      |   |                                                                                             | 69,779     |   |   |   | 43,806 |   |   |   | 23,124 |   |   |   | 6,125 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Profit      for the year                                                                                                  |   |                                                                                             | 175,822    |   |   |   | 132,402 |   |   |   | 97,801 |   |   |   | 25,908 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Attributable      to:                                                                                                     |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity      holders of the company                                                                                        |   |                                                                                             | 143,628    |   |   |   | 104,586 |   |   |   | 77,163 |   |   |   | 20,441 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Minority      interests                                                                                                   |   |                                                                                             | 32,194     |   |   |   | 27,816 |   |   |   | 20,638 |   |   |   | 5,467 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Earnings      per Ordinary share or ADS attributable to equity holders of the      Company:                               |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Basic                                                                                                                     |   |                                                                                             | 3.39       |   |   |   | 2.41 |   |   |   | 1.77 |   |   |   | 0.47 |   |
| Diluted                                                                                                                   |   |                                                                                             | 3.39       |   |   |   | 1.62 |   |   |   | 1.77 |   |   |   | 0.47 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      dividends declared per ordinary share or ADS                                                                    |   |                                                                                             | 6.52       |   |   |   | 3.46 |   |   |   | - |   |   |   | - |   |
| Number      of Ordinary Shares Outstanding at the end of each year:                                                       |   |                                                                                             | 43,372,819 |   |   |   | 43,372,819 |   |   |   | 43,717,058 |   |   |   | 43,717,058 |   |
|                                                                                                                      |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Selected      Operating Data:                                                                                             |   |                                                                                             |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Number      of supermarket stores (at year end)                                                                           |   |                                                                                             | 185        |   |   |   | 194 |   |   |   | 203 |   |   | N.A. |   |
| Increase      (decrease) in same store sales(2)                                                                           |   |                                                                                             | 1.20       | % |   |   | 1.10 | % |   |   | (3.9 | %) |   | N.A. |   |
| Total      square meters (at year end)                                                                                    |   |                                                                                             | 342,705    |   |   |   | 354,531 |   |   |   | 365,000 |   |   | N.A. |   |
| Supermarket      sales per square meter (in NIS)(3)                                                                       |   |                                                                                             | 19,905     |   |   |   | 19,898 |   |   |   | 19,023 |   |   |   | 5,039 |   |
| Supermarket      sales per employee (in thousands)                                                                        |   |                                                                                             | 937        |   |   |   | 954 |   |   |   | 997 |   |   |   | 264 |   |

----

|                                                               |   | For the year endedDecember 31,                                         |       |
|--------------------------------------------------------------------|--------|--------------------------------------------------------------------------------------------|------------|
|                                                               |   | 2005                                                                                       |       |   | 2006 |   |
|                                                               |   | NIS (In thousands, exceptper ordinary share orADS data) |       |
| Statement      of Income Data:In      accordance with Israeli GAAP |   |                                                                                       |       |   |   |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Sales                                                              |   |                                                                                       | 5,797,018  |   |   |   | 6,515,035 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Cost      of sales                                                 |   |                                                                                       | 4,298,211  |   |   |   | 4,812,952 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Gross      profit                                                  |   |                                                                                       | 1,498,807  |   |   |   | 1,702,083 |   |
| Selling,      general and administrative expenses                  |   |                                                                                       | 1,269,760  |   |   |   | 1,396,877 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Operating      income                                              |   |                                                                                       | 229,047    |   |   |   | 305,206 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Financial      expenses, net                                       |   |                                                                                       | (59,529    | ) |   |   | (42,368 | ) |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Amortization      of goodwill                                      |   |                                                                                       | (6,508     | ) |   |   | - |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Other      income, net                                             |   |                                                                                       | 690        |   |   |   | 78,022 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Income      before taxes on income                                 |   |                                                                                       | 163,700    |   |   |   | 340.860 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Taxes      on income                                               |   |                                                                                       | 58,490     |   |   |   | 96,660 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Share      in profit of associate                                  |   |                                                                                       | 498        |   |   |   | 1,284 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Minority      interest                                             |   |                                                                                       | 15,717     |   |   |   | 31,573 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Net      income                                                    |   |                                                                                       | 89,991     |   |   |   | 213,911 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Earnings      per ordinary share or ADS (basic)                    |   |                                                                                       | 2.32       |   |   |   | 5.46 |   |
| Earnings      per ordinary share or ADS (fully diluted)            |   |                                                                                       | 2.26       |   |   |   | 4.92 |   |
| Cash      dividends declared per ordinary share or ADS             |   |                                                                                       | 2.35       |   |   |   | 2.81 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| In      accordance with U.S. GAAP:                                 |   |                                                                                       |       |   |   |   |   |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Net      income                                                    |   |                                                                                       | 88,340     |   |   |   | 166,724 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Earnings      per ordinary share or ADS (basic)                    |   |                                                                                       | 2.27       |   |   |   | 4.25 |   |
| Earnings      per ordinary share or ADS (fully diluted)            |   |                                                                                       | 2.27       |   |   |   | 4.23 |   |
| Number      of Ordinary Shares Outstanding:                        |   |                                                                                       | 38,950,091 |   |   |   | 39,692,983 |   |
| Selected      Operating Data:                                      |   |                                                                                       |       |   |   |   |   |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Number      of supermarket stores (at year end)                    |   |                                                                                       | 168        |   |   |   | 175 |   |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Increase      in same store sales (2)                              |   |                                                                                       | 1.7        | % |   |   | 5.3 | % |
|                                                               |   |                                                                                       |       |   |   |   |   |   |
| Total      square meters (at year end)                             |   |                                                                                       | 312,000    |   |   |   | 323,304 |   |
| Supermarket      sales per square meter (in NIS)(3)                |   |                                                                                       | 18,621     |   |   |   | 19,739 |   |
| Supermarket      sales per employee (in thousands)                 |   |                                                                                       | 899        |   |   |   | 938 |   |

----

----

| (1) | The      translation of the NIS amounts into dollars has been made for the      convenience of the reader at the representative exchange rate prevailing      at December 31, 2009 (NIS 3.775 =$1.00), as      published by the Bank of Israel. During 2009, the US dollar depreciated in      value vis-à-vis the NIS by approximately(0.7)%. |
|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (2) | The      percentage in same store sales is the percentage change in sales of those      stores that operated continuously during the entire reporting period of      both the current year and that preceding it. Stores are not deemed to have      operated continuously (and therefore not included as “same stores”) if      such stores were permanently closed during the reporting period or the      preceding period, were resized significantly during the period or were      significantly renovated or expended during the period. Store resizing is      considered significant if it exceeds 5% or more of the store’s original      size. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| (3) | Based      on an average total square meters at month end during the relevant      year. |
|-----|------------------------------------------------------------------------------------------|

|                                                                                   |   | At      December 31,    |      |
|----------------------------------------------------------------------------------------|--------|-------------------------|-----------|
|                                                                                   |   | 2007                    |      |   | 2008 |   |   | 2009 |   |   | 2009 |   |
|                                                                                   |   | NIS      (in thousands) |      |   | $(1) |   |
|        Balance Sheet Data:                                                        |   |                    |      |   |   |   |   |   |   |   |   |   |   |
| In      accordance with IFRS                                                           |   |                    |      |   |   |   |   |   |   |   |   |   |   |
| Working      capital (deficit)                                                         |   |                    | 62,436    | * |   |   | (48,333 | )* |   |   | 492,156 |   |   |   | 130,372 |   |
| Total      assets                                                                      |   |                    | 4,219,071 |   |   |   | 4,445,027 |   |   |   | 5,163,277 |   |   |   | 1,367,756 |   |
| Short-term      credit from banks and others and current maturities of      debentures |   |                    | 240,869   |   |   |   | 236,900 |   |   |   | 351,296 |   |   |   | 93,059 |   |
| Long-term      debt, net of current maturities                                         |   |                    | 1,202,858 |   |   |   | 1,497,880 |   |   |   | 2,009,243 |   |   |   | 532,250 |   |
| Total      equity                                                                      |   |                    | 1,247,680 |   |   |   | 1,096,002 |   |   |   | 1,221,830 |   |   |   | 323,664 |   |

|                                                                                   |   | At December 31, |                 |
|----------------------------------------------------------------------------------------|--------|---------------------------|----------------------|
|                                                                                   |   | 2005                      |                 |   | 2006 |   |
|                                                                                   |   | NIS      (in thousands)   |                 |
| Balance      Sheet Data:                                                               |   |                      |                 |   |   |   |
| In      accordance with Israeli GAAP:                                                  |   |                      |                 |   |   |   |
| Working      capital (deficit)                                                         |   |                      | (450,044             | ) |   |   | 335,376 |   |
| Total      assets                                                                      |   |                      | 3,683,035            |   |   |   | 4,071,733 |   |
| Short-term      credit from banks and others and current maturities of      debentures |   |                      |    359,316 |   |   |   |   264,858 |   |
| Long-term      debt, net of current maturities                                         |   |                      | 1,102,810            |   |   |   | 1,161,926 |   |
| Shareholders’      equity                                                        |   |                      | 865,308              |   |   |   | 992,922 |   |
| In      accordance with U.S. GAAP:                                                     |   |                      |                 |   |   |   |   |   |
| Total      assets                                                                      |   |                      | 3,757,640            |   |   |   | 4,247,394 |   |
| Shareholders’      equity                                                        |   |                      | 928,504              |   |   |   | 1,003,384 |   |

| (1) | The      translation of the NIS amounts into dollars has been made for the      convenience of the reader at the representative exchange rate prevailing      at December 31, 2009 (NIS 3.775= $1.00), as published by the Bank of      Israel. |
|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | B. | Capitalization      and Indebtedness. |
|--------|----|---------------------------------------|

----

|   | C. | Reasons      for the Offer and Use of Proceeds. |
|--------|----|-------------------------------------------------|

|   | D. | Risk      Factors. |
|--------|----|--------------------|

----

----

----

----

----

----

----

----

----

----

----

|   | · | actual      or anticipated variations in our quarterly operating results or those of      our competitors; |
|--------|--------|------------------------------------------------------------------------------------------------------------|

|   | · | changes      in financial estimates by securitiesanalysts; |
|--------|--------|------------------------------------------------------------|

|   | · | conditions      or trends in our business; |
|--------|--------|--------------------------------------------|

|   | · | changes      in the market valuations of ourcompetitors; |
|--------|--------|----------------------------------------------------------|

|   | · | announcements      by us or our competitors of significant  acquisitions; |
|--------|--------|---------------------------------------------------------------------------|

----

|   | · | entry      into strategic partnerships or joint ventures by us or our      competitors; |
|--------|--------|-----------------------------------------------------------------------------------------|

|   | · | the      political, economic, security and military conditions in      Israel; |
|--------|--------|--------------------------------------------------------------------------------|

|   | · | additions      or departures of key personnel; and |
|--------|--------|----------------------------------------------------|

|   | · | sales      of ordinary shares by Blue Square’s controlling    shareholder. |
|--------|--------|----------------------------------------------------------------------------------|

----

----

----

----

----

----

----

|   | (i) | in      relation to the Share Transfer (a) the Treasury Shares will remain held by      Dor Alon indefinitely from the date of the Transfer or will be erased; (b)      Dor Alon will take no action in relation to the Treasury Shares, including      any sale of the Treasury Shares (including an involuntary sale), any      encumbrance of the Treasury Shares or issuance of the Treasury Shares in      the future as capital; and (c) for at least two years from the date of the      transfer there will be no change in Dor Alon’s rights in Dorgas subject to      section 104 of the Israeli Tax Ordinance;and |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (ii) | in      relation to the Split (a) for at least two years from the date of the      Split, both of Dor Alon Natural Gas Exploration Ltd. and Dor Alon will      have independent and separate economic activity the income from which is      subject to tax in accordance with Section 2(1) to the Israeli Tax      Ordinance, and that originated in Dor Alon’s activity prior to the Split;      (b) for at least two years from the date of the Split there will not be      any loans between Dor Alon and Alon Natural Gas Exploration Ltd., except      for loans given and/or taken in the ordinary course of business; (c) for      at least two years from the date of the Split, most of the assets (as      defined in the Israeli Tax Ordinance) of Dor Alon after the Split and most      of the assets (as defined in the Israeli Tax Ordinance), which were      transferred Alon Natural Gas Exploration Ltd. through the Split, will not      be sold by any of those companies and will be used as customary in the Dor      Alon's ordinary course of business; (d) Dor Alon's primary economic      activities that occurred during the two years prior to the split will      continue to be performed by  Dor Alon or Alon Natural Gas      Exploration Ltd. have continued for a period of at least two years from      the date of the Split; (e) immediately after the Split, and for two years      thereafter, the shareholders of Dor Alon and Alon Natural Gas Exploration      Ltd. will maintain the same rights and portions thereof that they held in      Dor Alon (not including the Acquisition) all subject to the date of the      Split and Section 105c(a)(8) of the Israeli Tax Ordinance; (f) for at      least two years from the date of the Split, there will be no transfer of      cash or assets, guarantees or any other activities between Dor Alon and      Alon Natural Gas Exploration Ltd., except as customary in Dor Alon's      ordinary course of business. |
|--------|------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | (a) | for      a period commencing on the closing date of the Acquisition and ending two      years from the end of the fiscal year in which the closing date of the      Acquisition took place, or the Required Term, we will continue to hold all      the rights in Dor Alon that it held on the effective date of the      acquisition; |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (b) | most      of the assets (as defined in section 103c(a)(2) of the Israeli Tax      Ordinance) transferred from Dor Alon to Blue Square in the framework of      the acquisition and most of the assets held by Blue Square on the date of      the acquisition, were not sold during the Required Term, and during such      term the assets were used  properly, under ordinary      circumstances, and as is customary in Dor Alon's ordinary course of      business; and |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | (c) | each      rights' holder in Blue Square (other than those rights' holders that hold      rights tradable on the TASE and are not deemed to be controlling      shareholders on the date of the acquisition) maintains during the Required      Term all the rights that he/she held in Blue Square immediately following      the acquisition, subject to Sections 103c(a)(9), (9a) in the Israeli Tax      Ordinance. |
|--|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | failure      to pursue other beneficial opportunities as a result of the focus of      management of each of the companies on the acquisition, without realizing      any of the anticipated benefits of the  acquisition; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | the      market price of our ordinary shares may decline to the extent that the      current market price reflects a market assumption that the acquisition      will be completed; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | we      may experience negative reactions to the termination of the acquisition      from licensors, collaborators, suppliers, customers or other strategic      partners; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Blue      Square's costs incurred related to the acquisition, such as legal and      accounting fees, must be paid even if the acquisition is not      completed. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| ITEM      4. | INFORMATION      ON THE COMPANY |
|--------------|---------------------------------|

|   | A. | History      and Development of Blue Square. |
|--------|----|----------------------------------------------|

----

----

| · | Changes      in our store formats, including: |
|--------|-----------------------------------------------|

|   | · | The      launch of "Mega Bool", a hard discount store format.  As      of  May 31, 2010, this initiative included the conversion of 46      existing "Mega" and "Shefa-Shuk" stores of various sizes to the new brand      and the opening of an additional three new "Mega Bool"    stores; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      launch of “Mega In Town”, a discount supermarket brand designed to combine      discount prices and convenience for neighborhood shoppers. As      of  May 31, 2010, we had 121 “Mega In Town” stores; this      initiative has included the conversion of over 100 existing SuperCenter      and Mega stores to the new brand;and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      completion of the first stage of our strategy to establish our Eden Teva      format as the leader in Israel's organic/health food market by expanding      the number of organic/health food supermarkets operated by Eden Teva to      nine stores as of May 31, 2010. We announced our intention to implement      the second stage of our strategy by establishing Eden Teva branches within      our existing large store formats under the concept of a "store within a      store"; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | The      launch of a new internet sale site, Mega by Internet, in October      2009; |
|--------|--------------------------------------------------------------------------------------|

| · | The      launch of a private label called "Mega" that was expanded throughout our      "Mega Bool", "Mega in Town" and "Mega" store formats beginning in December      2008.  During the first four months of 2010, the products that      we sold under the "Mega" private label constituted approximately 6.1% of      our supermarket sales; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | As      part of our strategy to expand our presence in “Non-Food” stand alone      retail outlets, we acquired 50% of Bee Group in 2005, and by 2008 we had      increased our holdings in Bee Group to 85%.  Concurrently, Bee      Group acquired the controlling interest in Vardinon Textile Ltd. (home      textile retailer and wholesaler) and the controlling interest in Naaman      Porcelain Ltd. (houseware retailer and wholesaler).  During the      fourth quarter of 2009, we completed the concentration of our Bee Group      subsidiaries into three sectors: houseware and home textile, toys and      leisure, and baby and young children products.  We also      centralized all of the financial activity, import and information systems      of the Bee Group subsidiaries under a single headquarters in one      location;  |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The      reorganization of our real estate assets, including the transfer of all      related rights and obligations and certain liabilities (including lease      agreements of which we were lessor and Mega Retail or third parties were      lessees) to BSRE, a then new wholly owned subsidiary.  In      addition, on September 13, 2009 and effective for tax purposes as of March      31, 2009, we completed the transfer of all of the real estate held by our      wholly-owned subsidiary, Mega Retail, and its subsidiaries to      BSRE; |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The      establishment of a joint loyalty plan (the "You Plan") with Dor Alon in      2005, including the offering to our customers of a Diners Club Israel      credit card bearing the name “You”, and the acquisition, together with Dor      Alon, of 49% of the shares of Diners Club Israel Ltd., a subsidiary of      Credit Cards for Israel Ltd. (allocated 36.75% to us and 12.25% to Dor      Alon), the launching in 2009 of a new "You" Mastercard credit card and the      expansion in 2009 of our customer loyalty plan through the launching of a      new  membership card in August 2009.  As of May 31,      2010, approximately 550,000 new customers had joined the "You" club      through the membership card (see “Item 4. Information on The Company - B.      Business Overview -Related Businesses”);and |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | As      part of our strategy to increase our operational efficiency by improving      our distribution capabilities and IT systems, the investment in new IT and      logistics systems. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | B. | Business      Overview. |
|--------|----|-------------------------|

----

|                         |   | No. of Stores |   |   | Store Space(square meters) |   |
|------------------------------|--------|-------------------------|--------|--------|--------------------------------------|--------|
|                         |   |                    |   |   |                                 |   |
| As      of December 31, 2005 |   |                    | 168    |   |                                 |   | 312,000 |   |
| As      of December 31, 2006 |   |                    | 175    |   |                                 |   | 323,000 |   |
| As      of December 31, 2007 |   |                    | 185    |   |                                 |   | 342,705 |   |
| As      of December 31, 2008 |   |                    | 194    |   |                                 |   | 354,531 |   |
| As      of December 31, 2009 |   |                    | 203    |   |                                 |   | 365,000 |   |

----

----

----

----

----

| · | increasing      the pace of our growth rate and market share by opening additional store      locations, renovating, improving and enlarging existing stores, adjusting      our store formats to the needs of our customers and, if necessary,      reducing and/or closing underperformingstores; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | expanding      the geographic presence of our stores with the goal of bringing our      supermarket store formats within the shopping range of every Israeli      consumer; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | increasing      our market share of “Non-Food” and “Near-Food” products and capitalizing      on potential operating synergies between the Bee Group and the Company as      a whole; |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | solidifying      and expanding our market share in the organic/health food market with the      goal of establishing Blue Square as a leader of Israel's emerging      organic/health food market; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | expanding      our "Mega" private label line to encompass additional product categories      and increasing the percentage of our sales from our private label line,      and thus differentiating our store brands and products from those of our      competitors; |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | increasing      operational efficiency, including by improving our distribution      capabilities and IT systems; |
|--------|-------------------------------------------------------------------------------------------------------------------|

| · | focusing      on improving the availability of products in our stores and reducing the      shortage of products “on theshelves”; |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------|

| · | expanding      and improving our loyalty plan, which currently offers a new credit card      and a new membership card, through joining other businesses to the plan;      and |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | combining      our retail operations with those of Dor Alon with a view to becoming the      largest retail group in Israel, achieving a strong foothold in the      convenience store sector and capitalizing on potential operating synergies      and cost savings between Dor Alon and the  Company. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | developing      and improving existing real estate; |
|--------|-----------------------------------------------------|

| · | maximize      the leasing of existing properties to commercial  users; |
|--------|------------------------------------------------------------------------|

| · | increase      and develop unused building rights in our existing properties;      and |
|--------|---------------------------------------------------------------------------------------|

| · | acquire      additional commercial real estate and yield-generating assets in Israel      and continue to examine acquisitions abroad in light of market conditions,      while diversifying our real estate property  base. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|   | · | Until      December 31, 2007, incurred losses (if any) up to the amount of finance      expenses in connection with loans attributed to the transferred real      estate and up to the amount of lease expenses of the Company and/or BSRE      may not be deducted for tax purposes. Thereafter, no such restriction      applies. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Until      December 31, 2007, the Company and BSRE may not transfer one to the other      assets, cash or any other activity except in the ordinary course of      business. In addition, until December 31, 2010, the Company and BSRE may      not grant and/or receive loans to each other except in the ordinary course      of business. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      lease payments charged by BSRE for leasing the transferred properties to      the Company or to any related party of the Company, and the management      fees charged by the Company to BSRE, will each be at market value as would      have been obtained in arm's length transactions between non-related      parties |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In      accordance with Section 104A of the Israeli Tax Ordinance and in      connection with the Transfer Agreement, the Company was required to hold      at least 90% of each kind of right in BSRE until at least December 31,      2007. Notwithstanding the foregoing, in the following circumstances prior      to December 31, 2007, the Company was permitted to hold less than 90% of      each kind of right in BSRE, but in any event not less than 51%: (i) public      offer pursuant to a prospectus, (ii) private placement of no more than 25%      of the share capital before the placement and (iii) sale of no more than      10% of the ownership rights inBSRE. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | In      accordance with Section 105A(2) of the Israeli Tax Ordinance and in      connection with the Split Agreement, the Company was required to hold all      of its rights in BSRE for two years. Notwithstanding the foregoing, the      following circumstances would not be deemed a change in rights provided      that until December 31, 2007, the Company was not permitted to hold less      than 50% of the rights in BSRE: (i) public offer pursuant to a prospectus,      (ii) private placement of shares and (iii) sale of no more than 10% of the      rights in BSRE. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In      accordance with the Israeli Tax Ordinance, BSRE was required to hold the      transferred assets under the Transfer Agreement until December 31,      2007. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In      accordance with the Israeli Tax Ordinance, until December 31, 2007, the      Company was prohibited from selling most of the remaining assets of the      Company (i.e.,      which were not transferred under the Split Agreement), and BSRE was      prohibited from selling most of the assets transferred to BSRE under the      Split Agreement, and in each case during such period such assets would be      used for acceptable uses in light of the  circumstances. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | Until      March 31, 2011, the Company, Mega Retail and BSRE may not transfer one to      the other assets, cash, the granting of guarantees or any other      activity except in the ordinary course of business. In addition, until      March 31, 2011, Mega Retail and BSRE may not grant and/or receive loans to      each other except in the ordinary course of  business. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Until      March 31, 2011, Mega Retail and BSRE shall each conduct its economic      activity independently from the other, and the income deriving from such      economic activity shall be subject taxation according to Section 2(1) of      the Israeli Tax Ordinance, and shall originate in the activities of each      of Mega Retail and BSRE prior to thesplit. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Until      March 31, 2011, Mega Retail is prohibited from selling most of the      remaining assets of Mega Retail (i.e., which were not      transferred under the split), and BSRE is prohibited from selling most of      the assets transferred to BSRE under the split, and in each case during      such period such assets will be used for acceptable uses in the ordinary      course of business. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Until      March 31, 2011, the Company is required to hold all of the rights that it      held in BSRE prior to the split. Notwithstanding the foregoing, the      following circumstances will not be deemed a change in rights provided      that at any time until March 31, 2011, the Company may not hold less than      50% of the rights in BSRE: (i) public offer pursuant to a prospectus, (ii)      private placement of shares and (iii) sale of no more than 10% of the      rights in BSRE. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                  |   | Number      ofproperties      foruse      or rent |   |   | Area      in sq. m. forleasing      (property space) |   |   | Occupancy      rate |   |
|-------------------------------------------------------|--------|---------------------------------------------------|--------|--------|-----------------------------------------------------------|--------|--------|---------------------|--------|
| Commercial      areas, including supermarket branches |   | 216                                               |   |   | 183,600                                                   |   |   |                | 98     | % |
| Warehouses      and Logistics centers                 |   | 8                                                 |   |   | 43,800                                                    |   |   |                | 95     | % |
| Offices                                               |   | 16                                                |   |   | 16,200                                                    |   |   |                | 83     | % |
| Total      developed property                         |   | 240                                               |   |   | 243,600                                                   |   |   |                | 88     | % |
|                                                  |   |                                              |   |   |                                                      |   |   |                |   |   |
| Offices                                               |   | 1                                                 |   |   | 14,100                                                    |   |   |                |   |   |
| Warehouses                                            |   | 1                                                 |   |   | 22,000                                                    |   |   |                |   |   |
| Total      property in development                    |   | 2                                                 |   |   | 36,100                                                    |   |   |                |   |   |
|                                                  |   |                                              |   |   |                                                      |   |   |                |   |   |
| Total      unutilized building rights                 |   |                                              |   |   | 210,000                                                   |   |   |                |   |   |

----

|   | · | Hadar Shopping Mall -      BSRE owns 50% of the property, which is located in Talpiot      industrial area in Jerusalem. The other 50% is held by a third party. The      lease from the Israel Land Administration ends in 2021 with an option to      extend the lease for an additional 49 years, subject to a fee. The      two-floor mall includes 18,000 sq. meters of commercial space, including      780 parking spots.  The space is leased to third parties,      including 4,700 sq. meters to Hyper Hyper.  As of May 31, 2010,      the occupancy rate of the mall is 100%.  The property is managed      by a joint management company.  BSRE and the third party have      applied to the zoning committee for a permit for an additional commercial      floor above the existing floors of 9,000 sq. meters, an additional upper      level parking garage and an additional 6% building rights for commercial      purposes and additional floors (the "Expansion Project"). As a result of      the global economic and financial market conditions during 2009, and the      uncertainty regarding future commercial activity, the parties decided to      suspend the execution of the Expansion Project.  During 2010 the      parties intend to reassess the Expansion Project and will decide after      such assessment whether to continue with the Expansion Project. As of May      31, 2010, all conditions to receive building permits for the Expansion      Project have been met, except for payment of a  fee. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Property designated for a      shopping center in Netanya- a 19 dunam property with rights for      30,000 sq. meters of commercial spaces and offices.  The cost of      this property was approximately NIS 27 million.  BSRE intends to      build a shopping mall of approximately 14,500 sq. meters on the first and      second floors with an underground parking garage of approximately 12,000      sq. meters, as a first stage of development of the property, and BSRE      estimates that the cost of this first stage of development will be      approximately NIS 100 million and is targeting completion for 24 months      from the beginning of construction.  BSRE has begun marketing      the areas of the project for lease.  As of May 31, 2010, BSRE      had registered the property under its name; however, since BSRE acquired      the property in the framework of a foreclosure of a mortgage registered on      the property, the status of the property is still being contested in legal      proceedings. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Kiryat Arie, Petach      Tikva- BSRE, owns a property of three office buildings of total      area of 14,000 sq. meters with rights to build two more stories to the      existing building. The cost of the acquisition of this property was      approximately NIS 32 million. BSRE intends to renovate the three buildings      for office use and to add an additional two stories to the existing      building. BSRE has obtained building permits for the      construction.  BSRE estimates that the additional cost of      renovation and building of the additional floors would be approximately      NIS 45 million and is targeting completion for 18 months from the      beginning of construction. BSRE estimates that it will begin construction      on the buildings during 2010 at which point BSRE will begin to market some      or all of the spaces.  In addition, BSRE has submitted a request      to the district zoning committee to promote a zoning plan for additional      building rights on this property for commercial and office      use. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Afek Industrial Park, Rosh      Ha'ayin- during 2009, within the framework of the transfer of real      estate from Mega Retail to BSRE, Mega Retail transferred to BSRE an office      building in Afek Industrial Park. The office building, which is built on a      13,770 sq. meter property, includes two floors of offices with a total      area of 9,300 sq. meters, which are leased to the Company and serve as the      Company's executive offices.  The ground floor of the buildings      also includes a supermarket, taxi cab station and a small gas station      operated by Mega Retail.  The property also includes parking      areas for the offices and the supermarket. There are approximately 3,784      sq. meters of unutilized building rights, which are designated for light      industrial and commercial use. BSRE is currently examining the possibility      of building another office building on this portion of the      property. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | North Ra'anana – during      the first quarter of 2008, BSRE completed the acquisition of ownership      rights in an 11 dunam plot designated for commercial and office buildings      located in the northern industrial area of Ra'anana. As of May 31, 2010, a      total of 4,000 sq. meters of the property are leased for a parking lot. In      September 2009, the local zoning committee approved BSRE's application to      build a 20 story high-tech office building on the property containing a      total of 26,000 sq. meters which would include one commercial floor and an      underground parking area of 16,000 sq. meters.  BSRE is in the      process of meeting the requirements for a building permit for this office      building. BSRE is not currently able to estimate the amount of      time or the scope of the investment that will be involved in this      project. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Kibbutz Einat – BSRE      holds 50% of Einat Yield Generating Real Estate Cooperative Ltd. ("Einat      Ltd."), which has received from Kibbutz Einat its rights to lease a      property of 26 dunam of industrial use (all of which is leased to      different lessees). The cost of BSRE's share of the rights in this      property was approximately NIS 24.4 million. The property includes four      warehouses containing a total of 14,000 sq. meters which are leased to      different lessees with options to renew. On August 23, 2009, Kibbutz Einat      signed a long term lease with the Israel Land Administration, and shortly      thereafter submitted a request to the Israel Land Administration to allow      Kibbutz Einat to transfer the lease to Einat Ltd.  As of May 31,      2010, the Israel Land Administration had not yet responded to this      request. According to the assessment of BSRE's legal counsel, it is likely      that the lease will be transferred to EinatLtd. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Be'er Tuvia - BSRE owns,      through its wholly owned subsidiary Logistic Center Bee Square Real Estate      Ltd. ("Logistic Center "), a 74 dunam property of which 63 dunam are      designated for industrial (and storage) areas. BSRE estimates that it has      rights to build 72,000 sq. meters of commercial areas and office      buildings. Logistic Center has entered into an agreement with the Bee      Group to build the distribution center which would be used for storage and      distribution of Non-Food and Near-Food products for our Non Food chains      and our supermarket stores. The lease would be for a period of 12 years      from beginning of use of the property with an option to renew for      additional three year periods (but not to exceed a total renewal period of      24 years) for an annual payment equal to 9% of the total investment made      by Logistic Center in acquiring and building this distribution center,      linked to the CPI. The distribution center would be operated on a 22,000      square meter site and would be leased to Bee Group.  Including      the initial expense of NIS 19.0 million to acquire the property, BSRE      expects to invest a total of approximately NIS 105 million in building the      distribution center.  BSRE estimates that the project will be      completed and the buildings will be occupied by tenants during      2010. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Kibbutz Eyal - BSRE and      Eyal Hasharon, an agriculture cooperative society Ltd. ("Eyal Hasharon"),      signed an agreement for the development of a 57 dunam property for storage      and logistics usage. Under the agreement, BSRE and Eyal Hasharon will      jointly hold in equal parts a new company to which Kibbutz Eyal will      transfer the property. Closing of the transaction is subject to various      conditions, including the approval of the Israel Land Administration      which, as of May 31, 2010, has approved the transfer of 41 dunam      only.  Various other closing conditions have also not yet been      satisfied. The validity of the agreement is dependent on the conditions      being satisfied by November 19, 2010, and BSRE has the right to extend      this period at its sole discretion.  In addition, pursuant to      this agreement BSRE will transfer to the new company an amount based on      the purchasing costs, development costs and an additional cost, but not      less than $70,000 per dunam. In the event that the costs exceed $100,000      per dunam, BSRE will have the right to terminate the      Agreement. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Rishon LeTzion- Blue      Square's logistic center is located in the western industrial area of      Rishon Letzion.  Part of the property is an open area used by      Blue Square for container storage and as a loading area and includes      unutilized building rights of approximately 14,838 sq. meters that may be      used for industrial, commercial and storage  purposes. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

| Retail Format         |   | Number of Stores |   |   | Store Space (squaremeters) |   |
|-----------------------|--------|------------------|--------|--------|----------------------------|--------|
|                  |   |             |   |   |                       |   |
| Mega      Bool (1)    |   | 47               |   |   | 143,000                    |   |
|                  |   |             |   |   |                       |   |
| Mega      (2)         |   | 11               |   |   | 46,000                     |   |
|                  |   |             |   |   |                       |   |
| Mega      in Town (3) |   | 119              |   |   | 133,000                    |   |
|                  |   |             |   |   |                       |   |
| Shefa      Shuk (4)   |   | 17               |   |   | 29,000                     |   |
|                  |   |             |   |   |                       |   |
| Eden      Teva (5)    |   | 9                |   |   | 14,000                     |   |
| Total                 |   | 203              |   |   | 365,000                    |   |

----

| Retail Format                |   | Number ofFranchised Stores |   |   | Number of SelfOperated Stores |   |   | Total  |   |
|------------------------------|--------|----------------------------|--------|--------|-------------------------------|--------|--------|--------|--------|
|                         |   |                       |   |   |                          |   |   |   |   |
| All      for a Dollar        |   | 39                         |   |   | 1                             |   |   | 40     |   |
|                         |   |                       |   |   |                          |   |   |   |   |
| Kfar      Hasha’ashuim |   | 83                         |   |   | 1                             |   |   | 84     |   |
|                         |   |                       |   |   |                          |   |   |   |   |
| Dr.      Baby and Rav-Kat    |   | 7                          |   |   | 12                            |   |   | 19     |   |
|                         |   |                       |   |   |                          |   |   |   |   |
| Sheshet                      |   | 53                         |   |   | —                       |   |   | 53     |   |
|                         |   |                       |   |   |                          |   |   |   |   |
| Vardinon                     |   | —                    |   |   | 36                            |   |   | 36     |   |
|                         |   |                       |   |   |                          |   |   |   |   |
| Naaman                       |   | 5                          |   |   | 23                            |   |   | 28     |   |
|                         |   |                       |   |   |                          |   |   |   |   |
| Total                        |   | 187                        |   |   | 73                            |   |   | 260    |   |

----

----

----

----

----

|   | · | Reduction in the number of      suppliers.  Suppliers are prohibited from being a party      to an arrangement by which they influence the setting of the number or      identity of competing suppliers’ presence at retail chains. Decisions      regarding the number and identity of suppliers and their products      quantity, kind or location on the shelf space are to be made by the retail      chain without interference bysuppliers. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Acquisition of shelf and      off-shelf display space. A dominant supplier is prohibited to be a      part of: (i) an arrangement granting an allocation exceeding half of the      overall display area designated for the product category in which he has      dominance; (ii) an arrangement which its purpose or effect is granting      exclusivity to one or more of the supplier’s products in an off-shelf      display in which it has dominance (nevertheless, exclusive arrangement for      off-shelf display for a limited discount period will not constitute a      basis for enforcement measures under certain circumstances). In addition,      arrangements with suppliers (as opposed to dominant suppliers) regarding      allocation of shelf area or off-shelf display, if not prohibited according      to the decree, may not exceed a period of one year (the retail chain and      the supplier may enter a new arrangement at the end of the one year term,      provided the period of such new arrangement does not exceed one year and      is in accordance with the provisions of the  decree). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Category management:      Unless prior approval of the antitrust authorities is obtained, a dominant      supplier is prohibited to be party to an arrangement whose purpose or      effect is the supplier involvement (including as advisor) in the process      of category management (nevertheless, a retail chain may consult with a      supplier regarding innovations in thisarea). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Shelve      arrangements:  Whereas in his position document, the      Commissioner determined that the use of suppliers’ representatives to      physically arrange the shelves in the chains’ stores constitutes a      restrictive arrangement, the suppliers disagree with this position, and      the Commissioner agreed not to take enforcement measures with regard to      such arrangements for 30 months, so long as such arrangements satisfy      certain conditions. In February, 2009, the above period was extended by 36      months, until February 2012. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Discounts and rebates in      exchange for meeting sales targets.  A dominant supplier      may not be party to an agreement whose objective or effect is the grant of      benefits to the retail chain in connection to meeting sales targets of the      products in which the supplier has dominance, unless the benefit is given      only as a discount to the purchase of units sold in excess of the      supplier’s sales basis in the chain and is restricted to these units      alone. The prices of units sold in excess of the sales goals shall not be      lower than the production costs of these units. In addition, a dominant      supplier is prohibited from sanctioning a retail chain for failure to meet      monopolistic sales targets regarding products for which the supplier      possesses monopolistic power. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Setting market share. A      supplier is prohibited from being a party to an arrangement whose purpose      or effect is to determine the supplier’s market share (or restricting the      market share of competing suppliers) in the chain’s  sales. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Exclusivity in sales: A      supplier is prohibited from entering into the following arrangements with      retail chains without the prior approval of the antitrust authorities: (i)      an arrangement whose purpose or effect is to restrict the ability of      competing suppliers to respond to sales conducted by such supplier by way      of lowering their prices and (ii) an arrangement whose purpose or effect      is to restrict the ability of competing chains to respond to sales      conducted by another chain, including by way of commitment of the supplier      not to offer a similar sale to competingchains. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Price dictation by      supplier. A supplier is prohibited from setting the consumer price      of its products sold in the chain and from intervening in chain decisions      regarding the setting of the consumer price of its products or of its      competitors’ products.  Nevertheless, a supplier may recommend      the resale consumer price of its products to the chain, provided that the      supplier takes no action to enforce such  recommendation. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

----

----

| Company (1)                                             |   | Operations                                                                                                       |   | %      OwnershipHeld      by BlueSquare |   |
|---------------------------------------------------------|--------|------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                    |   |                                                                                                             |   |                                    |   |
| Mega      Retail Ltd.                                   |   | Supermarkets                                                                                                     |   |                                    | 100    | % |
| The      Blue Square Chain (Hyper Hyper) Ltd.           |   | Supermarkets                                                                                                     |   |                                    | 100    | %(2) |
| Blue      Square Real Estate Ltd. **               |   | Real      estate                                                                                                 |   |                                    | 78.35  | %(3) |
| Bee      Group Retail Ltd.                              |   | Retail      and wholesale of houseware and home textile, toys, leisure and baby and      young children products |   |                                    | 85     | %(4) |
| Diners      Club Israel Ltd.*                           |   | Credit      cards                                                                                                |   |                                    | 36.75  | %(5) |
| Eden      Briut Teva  Market Ltd. (Eden Teva) |   | Organic/Health      Food Products                                                                                |   |                                    | 51     | %(6) |
| Radio      Non-Stop Ltd.*                               |   | Local      radio station                                                                                         |   |                                    | 33     | %      (7) |

|  | (1) | All      companies are incorporated under Israelilaw. |
|--|-----|-------------------------------------------------------|

|  | (2) | Mega      Retail’s wholly owned subsidiary.  As part of the reorganization      of Blue Square's retail activities, Hyper Hyper is to merge into Mega      Retail. The merger was approved by the Tax Authority, and it is      anticipated that it will be completed in the next few weeks, effective as      of January 1, 2009. For a description of Blue Square's supermarket retail      and real estate activities reorganization, please see “Item      7.  Major Shareholders and Related Party Transactions - B.      Related Party Transactions”. |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (3) | The      remaining shares of BSRE are held by the public and institutional      investors and traded on the Tel Aviv Stock  Exchange. |
|--|-----|---------------------------------------------------------------------------------------------------------------------------------------|

|  | (4) | We      have the option to increase our holding in Bee Group Retail Ltd. to      100%.  For a description of this option, please see “Item      10.  Additional Information – C. Material Contracts”. As of May      31, 2010, Bee Group Retail Ltd., held approximately 66.85% of the      outstanding shares of Naaman Porcelain Ltd., which held an approximately      88.74% of the share capital in Vardinon Textile Ltd., both of which are      companies traded on the Tel Aviv StockExchange. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (5) | The      remaining shares of Diners Club Israel Ltd are held by Credit Cards for      Israel Ltd. (51%), a subsidiary of Israel Discount Bank Ltd., and by Dor-Alon      Energy In Israel (1988) LTD. (12.25%) (through a subsidiary). As of the date of this      Annual Report, the right of the Company to participate in the income of      Diners Club Israel in connection with credit card activities outside the      Loyalty Plan is subject to the satisfaction of various      conditions.  See “Item 7.  Major Shareholders and      Related Party Transactions - B. Related Party Transactions” for      information with respect to our rights as a shareholder of Diners      Israel. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (6) | Mega      Retail's 51% subsidiary. |
|--|-----|------------------------------------|

|  | (7) | Hyper      Hyper holds its interest in this company through a wholly owned      subsidiary, which holds a 33% equity interest in Radio Non-Stop      Ltd.  The remaining interests are held by unaffiliated      entities. In      2007, Radio Non-Stop Ltd., won the tender for a renewal of the franchise      for regional radio broadcasting for four years (which may be extended      without a tender for additional three four-year  periods). |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| Properties                                                             |   | Number |   |   | Space (sq. meters) |   |
|------------------------------------------------------------------------|--------|--------|--------|--------|--------------------|--------|
| Existing      Stores                                                   |   |   |   |   |               |   |
| Owned (including long term      lease from Israel Land Administration) |   |   | 95     |   |               |   | 161,000 |   |
| Leased      under 5 years                                              |   |   | 50     |   |               |   | 27,800 |   |
| Leased      between 6-10 years                                         |   |   | 60     |   |               |   | 55,400 |   |
| Leased      over 10 years                                              |   |   | 71     |   |               |   | 134,400 |   |
|                                                                   |   |   | 276    |   |               |   | 378,600 |   |
|                                                                   |   |   |   |   |               |   |   |   |
| Stores      in Development                                             |   |   |   |   |               |   |   |   |
| Owned                                                                  |   |   | -      |   |               |   | - |   |
| Leased      between 5-25 years                                         |   |   | 33     |   |               |   | 48,300 |   |
|                                                                   |   |   | 33     |   |               |   | 48,300 |   |
|                                                                   |   |   |   |   |               |   |       |   |
| Existing      Offices and Warehouses                                   |   |   |   |   |               |   |   |   |
| Owned      Office                                                      |   |   | 1      |   |               |   | 9,400 |   |
| Leased      Offices                                                    |   |   | 5      |   |               |   | 5,500 |   |
| Owned      Warehouses                                                  |   |   | 4      |   |               |   | 26,500 |   |
| Leased      Warehouses                                                 |   |   | 8      |   |               |   | 34,400 |   |
|                                                                   |   |   | 18     |   |               |   | 75,800 |   |
|                                                                   |   |   |   |   |               |   |   |   |
| Warehouses      in development                                         |   |   | 1      |   |               |   | 22,000 |   |
|                                                                   |   |   |   |   |               |   |   |   |
| Total      owned or leased for our own use                             |   |   | 328    |   |               |   | 524,700 |   |
|                                                                   |   |   |   |   |               |   |   |   |
| Properties      for Investment                                         |   |   |   |   |               |   |   |   |
| Leased      to Third Parties (1)(2)                                    |   |   | 26     |   |               |   | 27,600 |   |
| Unutilized      Properties                                             |   |   | 12     |   |               |   | 19,100 |   |
| Offices      in development                                            |   |   | 1      |   |               |   | 14,100 |   |
|                                                                   |   |   | 39     |   |               |   | 60,800 |   |
| Owned      and leased unutilized building rights:                      |   |   |   |   |               |   |   |   |
| Unutilized      building rights                                        |   |   |   |   |               |   | 210,000 |   |

|   | (1) | Including      a 50% interest owned by BSRE in a 18,000 square meter shopping mall in      Jerusalem, in which we operate a 5,000 square meter  store. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (2) | Including      a 50% interest owned indirectly by BSRE in a 14,000 square meter shopping      mall in Be’er Sheva. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

|                                                                                                                       |   | Year      Ended December 31, |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------|--------|
|                                                                                                                       |   | 2007                              |   |   | 2008 |   |   | 2009 |   |
|                                                                                                                       |   | %                                 |   |   | % |   |   | % |   |
| Sales                                                                                                                      |   |                              | 100.00 |   |   |   | 100.00 |   |   |   | 100.00 |   |
| Gross      profit                                                                                                          |   |                              | 26.5   |   |   |   | 27.7 |   |   |   | 28.0 |   |
| Selling,      general and administrative expenses                                                                          |   |                              | 22.4   |   |   |   | 24.2 |   |   |   | 24.7 |   |
| Operating      profit before other gain and losses and net gains from adjustment of      investment property to fair value |   |                              | 4.1    |   |   |   | 3.6 |   |   |   | 3.3 |   |
| Operating      profit                                                                                                      |   |                              | 4.3    |   |   |   | 3.8 |   |   |   | 3.2 |   |
| Taxes      on income                                                                                                       |   |                              | 1.0    |   |   |   | 0.6 |   |   |   | 0.3 |   |
| Profit      for the year                                                                                                   |   |                              | 2.5    |   |   |   | 1.8 |   |   |   | 1.3 |   |

----

----

----

|   | · | the      opening of ten new supermarkets in 2007, which were open for the entire      2008 and only a portion of 2007, and the opening of nine new supermarkets      in 2008 (taking into account one supermarket that closed), including the      accelerated expansion of the Eden Tevaformat; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | an      increase of 1.1% during 2008 in supermarket Same Store Sales, reflecting      the continued growth of the Mega In Town store format, partially offset by      declining sales in the Shefa Shuk store format and Mega stores before      their conversion to the Mega Bool store  format. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

|                |   | Net sales      |      |   | Operating profit before other gains andlosses and net gain from adjustment ofinvestment property to fair value |   |
|---------------------|--------|---------------------|-----------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                |   | NIS                 |      |   | PercentageofFull Year                                                                                                                                                                |   |   | NIS |   |   | PercentageofFull Year |   |
|                |   | (In thousands) |      |   |                                                                                                                                                                                      |   |   | (In thousands) |   |   |   |   |
| 2009                |   |                | 7,349,076 |   |                                                                                                                                                                                      |   | 100.0 | % |   |   | 240,965 |   |   |   | 100.0 | % |
| First      quarter  |   |                | 1,764,788 |   |                                                                                                                                                                                      |   | 24.0 | % |   |   | 60,168 |   |   |   | 25.0 | % |
| Second      quarter |   |                | 1,843,951 |   |                                                                                                                                                                                      |   | 25.1 | % |   |   | 60,685 |   |   |   | 25.2 | % |
| Third      quarter  |   |                | 1,925,473 |   |                                                                                                                                                                                      |   | 26.2 | % |   |   | 58,734 |   |   |   | 24.4 | % |
| Fourth      quarter |   |                | 1,814,864 |   |                                                                                                                                                                                      |   | 24.7 | % |   |   | 61,378 |   |   |   | 25.4 | % |
|                |   |                |      |   |                                                                                                                                                                                      |   |   |   |   |   |   |   |   |   |   |   |
|  2008          |   |                | 7,429,121 |   |                                                                                                                                                                                      |   | 100.0 | % |   |   | 265,252 |   |   |   | 100.0 | % |
| First      quarter  |   |                | 1,821,158 |   |                                                                                                                                                                                      |   | 24.5 | % |   |   | 77,487 |   |   |   | 29.2 | % |
| Second      quarter |   |                | 1,918,403 |   |                                                                                                                                                                                      |   | 25.8 | % |   |   | 83,335 |   |   |   | 31.4 | % |
| Third      quarter  |   |                | 1,936,236 |   |                                                                                                                                                                                      |   | 26.1 | % |   |   | 59,770 |   |   |   | 22.6 | % |
| Fourth      quarter |   |                | 1,753,324 |   |                                                                                                                                                                                      |   | 23.6 | % |   |   | 44,460 |   |   |   | 16.8 | % |

| Year EndedDecember 31, |   | Period End |   |   | Average Rate(1)      |   |   | High   |   |   | Low    |   |
|----------------------------------|--------|-----------------|--------|--------|---------------------------|--------|--------|--------|--------|--------|--------|--------|
|                             |   |            |   |   | (NIS per $1.00) |   |   |   |   |   |   |   |
|                             |   |            |   |   |                      |   |   |   |   |   |   |   |
| 2005                             |   |            | 4.60   |   |                      |   | 4.49   |   |   |   | 4.74   |   |   |   | 4.30 |   |
| 2006                             |   |            | 4.30   | (2)    |                      |   | 4.46   |   |   |   | 4.73   |   |   |   | 4.18 |   |
| 2007                             |   |            | 3.85   | (2)    |                      |   | 4.11   |   |   |   | 4.34   |   |   |   | 3.83 |   |
| 2008                             |   |            | 3.80   | (2)    |                      |   | 3.59   |   |   |   | 4.02   |   |   |   | 3.23 |   |
| 2009                             |   |            | 3.77   | (2)    |                      |   | 3.92   |   |   |   | 4.26   |   |   |   | 3.69 |   |

| (1) | The      average of the daily exchange rates in each  year. |
|-----|-------------------------------------------------------------|

| (2) | During      2006, 2007, 2008 and 2009, the US dollar depreciated in value vis-à-vis      the NIS by 8.2%, 8.97%, 1.2% and 0.7%,  respectively. |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------|

| Month    |   | Period End |   |   | Average Rate(1)      |   |   | High   |   |   | Low    |   |
|----------|--------|-----------------|--------|--------|---------------------------|--------|--------|--------|--------|--------|--------|--------|
|     |   |            |   |   | (NIS per $1.00) |   |   |   |   |   |   |   |
| December |   |            | 3.77   |   |                      |   | 3.79   |   |   |   | 3.82   |   |   |   | 3.77 |   |
| January  |   |            | 3.72   |   |                      |   | 3.71   |   |   |   | 3.77   |   |   |   | 3.67 |   |
| February |   |            | 3.80   |   |                      |   | 3.75   |   |   |   | 3.80   |   |   |   | 3.70 |   |
| March    |   |            | 3.71   |   |                      |   | 3.74   |   |   |   | 3.79   |   |   |   | 3.71 |   |
| April    |   |            | 3.72   |   |                      |   | 3.71   |   |   |   | 3.75   |   |   |   | 3.68 |   |
| May      |   |            | 3.83   |   |                      |   | 3.79   |   |   |   | 3.87   |   |   |   | 3.73 |   |

| (1) | The      average of the daily exchangerates. |
|-----|----------------------------------------------|

----

----

----

----

----

|                                  |   | December 31           |    |
|---------------------------------------|--------|----------------------------|---------|
|                                  |   | 2008                       |    |   | 2009 |   |
|                                  |   | NIS in thousands |    |
| Supermarkets                          |   |                       | 162,780 |   |   |   | 163,980 |   |
| Non      - Food retail and wholesale: |   |                       |    |   |   |   |   |   |
| Houseware                             |   |                       | 110,952 |   |   |   | 111,179 |   |
| Leisure                               |   |                       | 26,106  |   |   |   | 26,106 |   |
|                                  |   |                       | 299,838 |   |   |   | 301,265 |   |

----

----

----

----

----

----

----

| Date of payment |         | Amount per share |         | Total amount(1)                                |
|---------------------------|--------------|----------------------------|--------------|-----------------------------------------------------|
| February      25, 2010    |         | NIS      1.70 ($0.45)      |         | NIS      75 million (approximately $19.8 million)   |
| October      7, 2008      |         | NIS      3.46 ($0.99)      |         | NIS      150 million (approximately $42.82 million) |
| October      8, 2007      |         | NIS      5.07 ($1.27)      |         | NIS      220 million (approximately $55 million)    |
| April      19, 2007       |    | NIS      1.45 ($0.35)      |    | NIS      60 million (approximately $14.7million)    |

----

| Year of payment |         | Amount per share       |         | Total amount(1)                               |
|---------------------------|--------------|----------------------------------|--------------|----------------------------------------------------|
| 2006                      |         | NIS      2.81 ($0.62)            |         | NIS      110 million (approximately $24.4 million) |
| 2005                      |         | NIS  2.29      ($0.51) |         | NIS      89 million (approximately $20 million)    |
| 2004                      |         | NIS      6.6 ($1.48)             |         | NIS      253 million (approximately $56.7 million) |
| 2003                      |         | NIS      7.71 ($1.72)            |         | NIS      295 million (approximately $66.1 million) |
| 2002                      |    | NIS      3.35 ($0.72)            |    | NIS      128 million (approximately $27.3million)  |

----

| Date of payment |         | Amount per share |         | Total amount(1), (2)                       |
|---------------------------|--------------|----------------------------|--------------|------------------------------------------------------|
| October      8, 2007      |         | NIS      6.1 ($1.52)       |         | NIS      200 million (approximately $50 million)     |
| April      12, 2007       |         | NIS      0.76 ($0.19)      |         | NIS      25 million (approximately $5.9 million)     |
| April      11, 2005       |         | NIS      2.44 ($0.56)      |         | NIS      80 million (approximately $18.6 million)(3) |
| May      30, 2004         |    | NIS      12.21 ($2.68)     |    | NIS      400 million (approximately $87.8million)    |

| Date of payment |         | Amount per share     |         | Total amount(1) (2)                       |
|---------------------------|--------------|--------------------------------|--------------|-----------------------------------------------------|
| March      31, 2010       |         | NIS      4.6  ($1.3) |         | NIS      57.6 million (approximately $15.5 million) |
| April      20, 2009       |         | NIS      1.35 ($0.32)          |         | NIS      16.8 million (approximately $4.0 million)  |
| April      28, 2008       |         | NIS      1.58 ($0.46)          |         | NIS      19.7 million (approximately $5.7 million)  |
| April      12, 2007       |    | NIS      0.78 ($0.19)          |    | NIS      9.7 million (approximately $2.3million)    |

----

|                                       |   | December 31           |    |
|--------------------------------------------|--------|----------------------------|---------|
|                                       |   | 2008                       |    |   | 2009 |   |
|                                       |   | NIS in thousands |    |
|                                       |   |                       |    |   |   |   |
| Bank      overdrafts                       |   |                       | 12,187  |   |   |   | 493 |   |
| Bank      loans                            |   |                       | 65,801  |   |   |   | 101,774 |   |
| Commercial      paper                      |   |                       | -       |   |   |   | 40,819 |   |
| Current      maturities of long-term loans |   |                       | 132,913 |   |   |   | 131,512 |   |
|                                       |   |                       |    |   |   |   |   |   |
|                                       |   |                       | 210,901 |   |   |   | 274,598 |   |

|                                                              |   | December 31           |    |   | AnnualInterest Rate |   |
|-------------------------------------------------------------------|--------|----------------------------|---------|--------|--------------------------|--------|
|                                                              |   | 2008                       |    |   | 2009                     |   |   |  (1) |   |
|                                                              |   | NIS in thousands |    |   | %                        |   |
|                                                              |   |                       |    |   |                     |   |   |   |   |
| In      Israeli currency:                                         |   |                       |    |   |                     |   |   |   |   |
|                                                              |   |                       |    |   |                     |   |   |   |   |
| Linked      to the Israeli CPI (2)                                |   |                       | 113,880 |   |                     |   | 317,409 |   |   |   | 5.2 |   |
| Unlinked      and bearing a fixed interest rate (3)               |   |                       | 305,456 |   |                     |   | 243,324 |   |   |   | 7.1 |   |
| Unlinked      and bearing a variable  interest rate (4) |   |                       | 55,163  |   |                     |   | 167,500 |   |   |   | 3.2 |   |
|                                                              |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Total                                                             |   |                       | 474,499 |   |                     |   | 728,233 |   |   |   |   |   |
|                                                              |   |                       |    |   |                     |   |   |   |   |   |   |   |
| Less      - current maturities                                    |   |                       | 132,913 |   |                     |   | 131,512 |   |   |   |   |   |
|                                                              |   |                       |    |   |                     |   |   |   |   |   |   |   |
|                                                              |   |                       | 341,586 |   |                     |   | 596,721 |   |   |   |   |   |

----

|                             |   | December 31           |    |
|----------------------------------|--------|----------------------------|---------|
|                             |   | 2008                       |    |   | 2009 |   |
|                             |   | NIS in thousands |    |
| Convertible      debentures:     |   |                       |    |   |   |   |
| Issued      by the Company       |   |                       | 44,267  |   |   |   | 26,267 |   |
| Issued      by BSRE              |   |                       | 112,086 |   |   |   | 115,660 |   |
|                             |   |                       | 156,353 |   |   |   | 141,927 |   |
|                             |   |                       |    |   |   |   |   |   |
| Less      - current maturities   |   |                       | 25,956  |   |   |   | - |   |
|                             |   |                       | 130,397 |   |   |   | 141,927 |   |
|                             |   |                       |    |   |   |   |   |   |
| Non-convertible      debentures: |   |                       |    |   |   |   |   |   |
| Issued      by the Company       |   |                       | 199,585 |   |   |   | 211,344 |   |
| Issued      by BSRE              |   |                       | 786,259 |   |   |   | 1,116,642 |   |
|                             |   |                       | 985,844 |   |   |   | 1,327,986 |   |
|                             |   |                       |    |   |   |   |   |   |
| Less      - current maturities   |   |                       | -       |   |   |   | 76,653 |   |
|                             |   |                       | 985,844 |   |   |   | 1,251,333 |   |

----

----

----

----

----

----

| E. | Off-Balance      Sheet Arrangements. |
|----|--------------------------------------|

----

| F. | Tabular      Disclosure of ContractualObligations. |
|----|----------------------------------------------------|

|                                                               |   | Expected Maturity (NIS in thousands) |    |
|--------------------------------------------------------------------|--------|----------------------------------------------------------|---------|
|                                                               |   | 2010                                                     |    |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |   | 2015 |   |   | 2016 andthereafter |   |   | Total |   |
|                                                               |   |                                                     |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long      term loans from banks (1)                                |   |                                                     | 131,512 |   |   |   | 114,607 |   |   |   | 95,520 |   |   |   | 75,943 |   |   |   | 32,211 |   |   |   | 33,003 |   |   |   | 245,437 |   |   |   | 728,233 |   |
| Non      Convertible Debentures issued by the Company (2) (3) |   |                                                     | 75,906  |   |   |   | - |   |   |   | 50,604 |   |   |   | 50,604 |   |   |   | 50,604 |   |   |   | - |   |   |   | - |   |   |   | 227,718 |   |
| Convertible      Debentures issued by the Company (2) (4)     |   |                                                     | -       |   |   |   | 15,093 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 15,093 |   |
| Non-Convertible Debentures      issued by BSRE (5) (6)        |   |                                                     | -       |   |   |   | 22,543 |   |   |   | 22,543 |   |   |   | 234,921 |   |   |   | 234,921 |   |   |   | 234,921 |   |   |   | 400,237 |   |   |   | 1,150,086 |   |
| Convertible Debentures      issued by BSRE (5) (6)            |   |                                                     | -       |   |   |   | - |   |   |   | - |   |   |   | 27,404 |   |   |   | 27,404 |   |   |   | 27,404 |   |   |   | 27,404 |   |   |   | 109,616 |   |
| Short      term credit from banks (7)                              |   |                                                     | 102,267 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 102,267 |   |
| Commercial      paper (8)                                          |   |                                                     | 40,000  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 40,000 |   |
| Put      option granted to a minority interest                     |   |                                                     | 23,317  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 23,317 |   |
| Purchase      Obligations                                          |   |                                                     | 55,757  |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 55,757 |   |
| Non-cancelable      Long term leases                               |   |                                                     | 214,530 |   |   |   | 201,450 |   |   |   | 188,394 |   |   |   | 149,649 |   |   |   | 113,184 |   |   |   | 88,228 |   |   |   | 220,550 |   |   |   | 1,175,985 |   |
| Total      contractual cash obligations                            |   |                                                     | 643,289 |   |   |   | 353,693 |   |   |   | 357,061 |   |   |   | 538,521 |   |   |   | 458,324 |   |   |   | 383,556 |   |   |   | 893,628 |   |   |   | 3,628,072 |   |

|   | (1) | The      table above does not include payments of interest on our long-term loans      because the actual interest payments on most of the loans are dependent on      variable parameters, such as changes in the Israeli CPI, or variable      interest rates which cannot be predicted at the date of this report.      Without taking into account any changes in the Israeli CPI or changes in      foreign currency rates and assuming the relevant variable interest rate      will remain at its level as it was as of December 31, 2009 (5.3% per      annum), interest payments on the long-term loans (in thousands) would be      NIS 34,125 in 2010, NIS 28,023 in 2011, NIS 22,365 in 2012, NIS 17,589 in      2013, and NIS 14,734 in 2014, NIS 63,631 in 2015 and    beyond. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | These      debentures bear interest at an annual rate of 5.9% and are linked      (principal and interest) to the Israeli CPI, but in the event the Israeli      CPI is less than the base index (index known at date of issuance), the      amount of debentures will not be adjusted below the base index. Without      taking into account any changes to the Israeli CPI, interest payments on      the Non-Convertible Debentures (in thousands) would be NIS 13,435 in 2010,      NIS 8,957 in 2011, NIS 8,981 in 2012, NIS 8,957 in 2013, and NIS 4,478 in      2014.  Without taking into account any changes to the Israeli      CPI, based on the principal amount of the Convertible Debentures as of      December 31, 2009 and assuming no additional conversion of debentures,      interest payments on the Convertible Debentures (in thousands) would be      NIS 904 in 2010 and NIS 525 in 2011.  The table above does not      include payments of interest on our debentures because the actual interest      payments on these debentures will depend on changes in the Israeli CPI,      which cannot be predicted at the time of this  report. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | The      principal is repayable in three equal annual installments on August 5 of      each of the years 2012 to 2014.  Notwithstanding the above,      under the terms of the debentures, on August 5 of each of the years 2006,      2008 and 2010, the holders of the debentures are entitled to early      redemption of the principal provided that on each of the said dates, we      will not repay more than one third of the par value of the debentures      outstanding as of that date.  The table above assumes early      redemption of these debentures. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (4) | Under      the terms of these debentures, the principal is repayable in three equal      installments on August 5 of each of the years 2007, 2009, and      2011. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (5) | The      Non-Convertible Debentures and the Convertible Debentures (Series A,      Series B and Series C)  bear interest at an annual rate of      6.25%, 4.7% and 4.2%, respectively, and are linked (principal and      interest) to the Israeli CPI, but in the event the Israeli CPI is less      than the base index (index known at date of issuance), the amount of      debentures will not be adjusted below the base index. Without taking into      account any changes to the Israeli CPI, interest payments on the      Non-Convertible Debentures (in thousands) would be NIS 52,932 in 2010, NIS      52,551 in 2011, NIS 51,746 in 2012, NIS 50,658 in 2013, NIS 39,729 in      2014, NIS 57,136 in 2015.   Without taking into account any      changes to the Israeli CPI, based on the principal amount of the      Convertible Debentures as of December 31, 2009 and assuming no additional      conversion of debentures, interest payments on the Convertible Debentures      (in thousands) would be NIS 6,851 in each of the years 2010 to 2011, NIS      6,870 in 2012, NIS 6,851 in 2013, and NIS 5,138 in 2014, NIS 3,425 in 2015      and NIS 1,717 in 2016.  The table above does not include      payments of interest on our debentures because the actual interest      payments on these debentures will depend on changes in the Israeli CPI,      which cannot be predicted at the time of this  report. |
|--------|-----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | (6) | The      principal of the debentures (Series A and Series B) are repayable in four      equal annual installments on August 31 of each of the years 2013 to 2016.      The principal of the debentures (Series C) is repayable in eight non-equal      annual installments on October 31 of each of the years 2011 to 2018      (inclusive), where six installments each constituting 7.5% of the amount      of the principal of the debentures would be paid on October 31 of each of      the years 2011 to 2016 and two installments each constituting 27.5% of the      amount of the principal of the debentures would be paid on October 1 of      each of the years 2017 and 2018. |
|--------|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (7) | The      table above does not include interest on our short term credit from banks      (2009: 3.6% per year). |
|--------|-----|----------------------------------------------------------------------------------------------------------------|

|   | (8) | On      June 30, 2009, the Company issued commercial paper to institutional      investors in an amount of NIS 40 million for a period of four years. The      commercial paper bears annual interest at a variable rate equal to the      Bank of Israel Interest Rate plus 1.5%, payable semi-annually beginning on      December 30, 2009.  The average annual interest rate for the six      months ended December 31, 2009 was 2.21%.  Therefore, the table      above does not include the amount of interest on commercial      paper.  The principal of the commercial paper is repayable every      six months at the demand of the holders, but in any event, the last      repayment date of the principal will be June 28,  2013. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | * | The      table above does not include severance payment obligations because the      actual severance payments will depend on the dates of payment, which      cannot be predicted at the time of thisreport. |
|--------|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | ** | The      table above does not include a provision for uncertain tax positions in      the amount of NIS 4.2 million. |
|--------|----|----------------------------------------------------------------------------------------------------------------------|

----

| ITEM      6. | DIRECTORS,      SENIOR MANAGEMENT AND EMPLOYEES |
|--------------|-------------------------------------------------|

|    | A. | Directors      and Senior Management. |
|--------------|----|---------------------------------------|

| Name                          |         | Age    |         | Position                                                                                          |
|------------------------------------|--------------|--------|--------------|---------------------------------------------------------------------------------------------------|
|                               |         |   |         |                                                                                              |
| David      Wiessman (1)            |         | 55     |         | Executive      Chairman of the Board of Directors                                                 |
| Yitzhak      Bader                 |         | 64     |         | Director                                                                                          |
| Shlomo      Even                   |         | 53     |         | Director                                                                                          |
| Diana      Bogoslavsky             |         | 51     |         | Director                                                                                          |
| David      Alphandary (2)      (3) |         | 75     |         | Director                                                                                          |
| Uzi      Baram (1) (2)      (3)    |         | 73     |         | Director                                                                                          |
| Avraham      Meron (2)             |         | 71     |         | Director                                                                                          |
| Zeev      Vurembrand               |         | 59     |         | President      and Chief Executive Officer                                                        |
| Dror      Moran                    |         | 42     |         | Vice      President and Chief Financial Officer and  General Manager of      "You" Club |
| Ilan      Buchris                  |         | 58     |         | Vice      President Logistics, Planning and Maintenance Division                                  |
| Gershon      Wissman               |         | 51     |         | Vice      President Trade                                                                         |
| Elli      Levinson Sela            |         | 43     |         | General      Counsel and Corporate Secretary                                                      |
| Moshe      Shatz                   |         | 62     |         | Head      of Human Resources Division                                                             |
| Oren      Lahat                    |         | 63     |         | Head      of Real Estate Development Division                                                     |
| Odelia      Levanon                |         | 47     |         | Head      of Information Technology Division                                                      |
| Shai      Almog                    |         | 44     |         | Head      of Marketing Division                                                                   |
| Ittay      Hazan                   |         | 35     |         | Head      of  Strategy Division                                                         |
| Eliezer      Gayer                 |         | 53     |         | “Mega”      and “Mega In Town” Manager                                    |
| Rafi      Masiach                  |         | 51     |         | “Mega      Bool” and “Shefa Shuk” Manager                                 |
| Zeév      Stein               |         | 57     |         | Chief      Executive Officer of Blue Square Real Estate Ltd.                                      |
| Shmuel      Enchel                 |    | 53     |    | Chief      Executive Officer of BeeGroup                                                          |

----

----

----

----

|    | B. | Compensation. |
|--------------|----|---------------|

----

|                                                                           |   | Salaries, fees, expenses, directors’fees, commissions and bonuses |                   |    | Pension, retirementand similar benefits |    |
|--------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------|------------------------|---------|--------------------------------------------------------|---------|
|                                                                           |   | (in thousands)                                                                                   |                   |    | (in thousands)                                    |    |
|                                                                           |   |                                                                                                  |                   |    |                                                   |    |   |   |
| All      directors, senior management and      Acting Chairman as a group |   | $                                                                                                | 5,949      (NIS 22,459 | )  |                                                   | $  | 423 (NIS      1,597 | )  |

----

|    | C. | Board      Practices |
|--------------|----|----------------------|

----

----

| · | an      employment relationship; |
|--------|----------------------------------|

| · | a      business or professional relationship maintained on a regular      basis; |
|--------|----------------------------------------------------------------------------------|

| · | control;      and |
|--------|-------------------|

| · | service      as an office holder, other than service as a director who was appointed in      order to serve as an external director of a company when such company was      about to make an initial publicoffering. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | chairman      of the board of directors; |
|--------|------------------------------------------|

| · | controlling      shareholder or his relative; and |
|--------|---------------------------------------------------|

| · | any      director employed by or who provides services to the company on a regular      basis. |
|--------|------------------------------------------------------------------------------------------------|

----

----

| · | information      on the appropriateness of a given action brought for his approval or      performed by him by virtue of his position;and |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------|

| · | all      other important information pertaining to the previous      actions. |
|--------|-------------------------------------------------------------------------------|

| · | refrain      from any conflict of interest between the performance of his duties in the      company and his personal affairs; |
|--------|--------------------------------------------------------------------------------------------------------------------------------|

| · | refrain      from any activity that is competitive with the  company; |
|--------|-----------------------------------------------------------------------|

| · | refrain      from usurping any business opportunity of the company to receive a      personal gain for himself or others;and |
|--------|------------------------------------------------------------------------------------------------------------------------------|

| · | disclose      to the company any information or documents relating to a company’s      affairs which the office holder has received due to his position as an      office holder. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| · | other      than in the ordinary course ofbusiness; |
|--------|----------------------------------------------------|

| · | other      than on market terms; or |
|--------|-------------------------------------|

| · | that      is likely to have a material impact on the company’s profitability, assets      or liabilities. |
|--------|-----------------------------------------------------------------------------------------------------------------|

| · | at      least one-third of the shareholders who have no personal interest in the      transaction and who are participating in the voting, in person, by proxy      or by written ballot, at the meeting;or |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | The      total number of shares voted against the proposal by shareholders without      a personal interest does not exceed one percent (1%) of the aggregate      voting rights in the Company. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|   | · | a      breach of such Office Holder's duty of care to the Company or to another      person; |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | · | a      breach of such Office Holder's duty of loyalty to the Company, provided      that the Office Holder acted in good faith and had reasonable cause to      assume that his act would not prejudice the Company’s      interests; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      financial liability imposed upon such Office Holder in favor of another      person concerning an act performed by him in his capacity as an Office      Holder; or |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | a      breach of any duty or any other obligation, to the extent insurance may be      permitting by law. |
|--|--------|-----------------------------------------------------------------------------------------------------------|

----

|   | · | a      provision authorizing the company to indemnify an Office Holder for future      events with respect to a monetary liability imposed on him in favor of      another person pursuant to a judgment (including a judgment given in a      settlement or an arbitrator’s award approved by the court), so long as      such indemnification is limited to types of events which, in the board of      directors' opinion, are foreseeable at the time of granting the indemnity      undertaking in view of the company’s actual business, and in such amount      or standard as the board of directors deems reasonable under the      circumstances. Such undertaking must specify the events that, in the board      of directors’ opinion, are foreseeable in view of the company’s actual      business at the time of the undertaking and the amount or the standards      that the board of directors deemed reasonable at the  time; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      provision authorizing the company to indemnify an Office Holder for future      events with respect to reasonable litigation expenses, including counsel      fees, incurred by an Office Holder or which he is ordered to pay by a      court, in proceedings that the company institutes against him or      instituted on behalf of the company or by another person, or in a criminal      charge from which he was acquitted, or a criminal charge in which he was      convicted for a criminal offense that does not require proof of criminal      intent; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | a      provision authorizing the company to indemnify an Office Holder for future      events with respect to reasonable litigation fees, including attorney’s      fees, incurred by an Office Holder in consequence of an investigation or      proceeding filed against him by an authority that is authorized to conduct      such investigation or proceeding, and that resulted without filing an      indictment against him and without imposing on him financial obligation in      lieu of a criminal proceeding, or that resulted without filing an      indictment against him but with imposing on him a financial obligation as      an alternative to a criminal proceeding in respect of an offense that does      not require the proof of criminal intent;and |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | a      provision authorizing the company to retroactively indemnify an Office      Holder. |
|--------|--------|--------------------------------------------------------------------------------------------|

|   | · | a      breach by the Office Holder of his duty of loyalty unless the Office      Holder acted in good faith and had a reasonable basis to believe that the      act would not prejudice thecompany; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | a      breach by the Office Holder of his duty of care if the breach was done      intentionally or recklessly (a recent change to the Israeli Companies Law      clarifies that this provision does not apply if the breach was solely as a      result of negligence); |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | any      act or omission done with the intent to derive an illegal personal      benefit; or |
|--------|--------|----------------------------------------------------------------------------------------------|

|   | · | any      fine imposed on the Office Holder. |
|--------|--------|---------------------------------------------|

----

|   | · | The      issuance of securities, including the offering of securities to the public      according to a prospectus, a circular, a private offering or any other      manner of security offering; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Any      transaction, as defined in section 1 of the Israeli Companies Law,      including a transfer, sale or purchase of assets or liabilities, including      securities or the receipt of any right in any of the above, and any action      related, directly or indirectly, to such  transaction; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An      action, including handing over information and papers, in connection with      sale of our shares or assets, by theCo-Op; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      filing of a report or announcement required by the Israeli Companies Law      or the Israeli Securities Law, 1968, the rules and regulations of a stock      exchange in or outside Israel, or any law of any other country pertaining      to these issues, and/or omission to file such a report or      announcement; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Any      change or reorganization of us, including any related decision, including      without limiting the generality of the foregoing, splitting, dividing or      modifying our share capital, establishment of subsidiaries or their      liquidation or sale and issuance ofshares; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Oral      or written statements, including the expression of an opinion or a      position conveyed in good faith by an Office Holder, in his capacity as      such, during his term of office, including statements made in meetings of      the board of directors or anycommittee; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An      action in the line of business of us in relation with the following      issues: building and planning, licensing of businesses, safety in work      places, environment and recycling and protection of the consumer;      or |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Each      one of the circumstances stated above, all in connection with the Office      Holder’s service on behalf of our subsidiaries or affiliated      companies. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 1. | A      breach of fiduciary duty, which was acted not in good faith or that the      officer had reasonable grounds to believe that the act would cause the      company any harm; |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | A      breach of the duty of care, which was committed intentionally or      recklessly; |
|--------|----|------------------------------------------------------------------------------------------|

|   | 3. | An      act committed with the intention to realize a personal illegal profit;      or |
|--------|----|----------------------------------------------------------------------------------------|

|  | 4. | A      fine or monetary composition imposed on such officers and      directors. |
|--|----|----------------------------------------------------------------------------------|

----

|   | · | Issue      of securities, including, an offering of securities to the public pursuant      to a prospectus, private placement, tender offer or offering of securities      in any other manner; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An      event connected with the making of an investment by the Company before,      during and after the effecting of the investment, in the course of      negotiations, contractual arrangement, signature, development and      monitoring the investment, including actions performed on behalf of the      Company as an officer, employee or observer in the corporation in which      the investment is made; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A      transaction or arrangement, including a transfer, sale or purchase of      assets or liabilities, and including, goods, real estate, securities, or      rights, or the giving or receiving of a right in any one of them and any      action connected, directly or indirectly with such transaction, and      including a tender offer of any sort and another transaction in securities      which the Company has issued, whether or not the Company is a party      thereto; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | A      report or notice filed or submitted according to any law, including, an      event arising from the fact of the Company being a public company or      arising from the fact of its securities having been offered to the public,      or arising from the fact of its securities being traded on a stock      exchange, and including, a report or notice in accordance with the      Companies Law - 1999 or the Securities Law - 1968, or the tax laws      including regulations or directives made pursuant thereto, or in      accordance with laws or provisions that apply outside of Israel or a      report or notice lodged or submitted in accordance with rules, directives      or instructions customarily practiced on the stock exchange in Israel or      abroad and/or failure to submit such report or  notice; |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | An      act in connection with voting rights in investee  companies; |
|--------|--------|----------------------------------------------------------------------|

|   | · | An      act in connection with the management of market  risks. |
|--------|--------|-----------------------------------------------------------------|

|   | · | A      change in the structure of the Company or its reorganization or any      resolution relating thereto, including, a merger, split, alteration of the      capital of the Company, setting up of subsidiaries, winding-up or sale      thereof. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Action      connected directly or indirectly with employer-employee relationships in      the Company and/or the commercial relations of the Company, including      employees, external contractors, customers, suppliers and service      providers, including negotiations, entering into and implementation of      personal employment agreements or collective bargaining agreements,      benefits to employees, including the issue of securities to      employees. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An      act in connection, directly or indirectly, with the sale of products,      purchase of products, import of products, operation of branches and sites      of the Company, safeguarding of public health and safety instructions and      provisions. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An      act in connection with the issue or non-issue of licenses and permits for      the Company’s activities. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------|

|   | · | The      preparation and approval of financial statements, including the approval      of resolutions regarding the application of accounting standards and      restatement in the financialstatements. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | An      act in connection with a distribution, including, for a repurchase by the      Company of its own securities. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------|

|   | · | The      transfer of information that is required or permissible for transfer      according to law between the Company and/or the other companies and      interested parties in any of them. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Remarks,      statements including the expression of a position or opinion made in good      faith by the officer in the course of performing his function and by      virtue of his function, and including in the framework of meetings of the      board of directors or any of itscommittees. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | An      act or deed on matters of planning and building, work safety, the      environment and recycling, public health, consumer    protection. |
|--|--------|--------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

| ITEM      7. | MAJOR      SHAREHOLDERS AND RELATED PARTYTRANSACTIONS |
|--------------|-------------------------------------------------------|

| Name                                 |   | Number of OrdinaryShares BeneficiallyOwned |       |   | Percentage of Outstanding OrdinaryShares(1) |   |
|--------------------------------------|--------|-----------------------------------------------------------|------------|--------|------------------------------------------------------------|--------|
| Alon      Retail                     |   |                                                      | 30,604,303 | (2)    |                                                       |   | 68.60 | % |
|                                 |   |                                                      |       |   |                                                       |   |   |   |
| Menorah      Mivtachim Holdings Ltd. |   |                                                      | 4,277,963  | (3)    |                                                       | 9.59   | %  |

----

| (1) | The      percentage of outstanding ordinary shares is based on 44,614,979 ordinary      shares outstanding as of May 31, 2010 (excluding 89,888 ordinary shares      held by Blue Square as treasuryshares). |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| (2) | Alon      Retail Ltd. is a wholly owned subsidiary of Nissan Alon Retail Holdings      Ltd., which is a wholly owned subsidiary of the Nissan Dor Chains Ltd.,      which is a wholly owned subsidiary of Dor Food Chains Holdings Ltd., a      wholly owned subsidiary of Alon-Israel Oil Company Ltd. (“Alon”). To the      Company’s best knowledge, Alon is owned approximately 46.9% (excluding      shares held by Alon as treasury shares) by nine collective acquisition      entities of kibbutzim in Israel and approximately 53.1% (excluding shares      held by Alon as treasury shares) are held together by Bielsol Investments      (1987) Ltd. and Mr. David Wiessman. To the Company’s best knowledge, the      shareholders of Bielsol Investments (1987) Ltd. consist of Shibag Ltd.      (whose shareholders are Advocate Shraga Biran, the Estate of Professor      Shoshana Biran and Gara, Boaz and Iftah Biran), holding 79.4% of the      capital and voting rights of Bielsol Investments, D.B.V Investments Ltd.      (controlled by Mr. David Wiessman), holding 19.8% of the capital and      voting rights of Bielsol Investments, Shibago Ltd. (whose partners are      Shibag Ltd. (75%) and a company controlled by David Wiessman (25%)),      holding 0.8% of the capital and voting rights of Bielsol      Investments. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  (3) | Includes      shares held by Menora Mivtachim Insurance Ltd., Menora Mivtachim Finance      Ltd., Menora Mivtachim Pensions Ltd., Menora Mivtachim Gemel Ltd., and      Menora Mivtachim Mutual Funds Ltd. To the Company’s best knowledge, Menora      Mivtachim Holdings Ltd. ("Menora Holdings") is an Israeli public company.      Approximately 61.9% of Menora Holdings outstanding shares are held      directly and indirectly by Menachem Gurevitch and the remaining of the      outstanding shares are held by the public. Menora Mivtachim Insurance Ltd.      and Menora Mivtachim Finance Ltd. are wholly owned subsidiaries of Menora      Holdings. Menora Mivtachim Pensions Ltd. is a wholly owned subsidiary of      Menora Mivtachim Insurance Ltd. Menora Mivtachim Gemel Ltd. and Menora      Mivtachim Mutual Funds Ltd. are wholly owned subsidiaries of Menora      Mivtachim Finance Ltd. |
|-----------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The      shares reported as beneficially owned by Menora Holdings, Menora      Insurance, Menora finance, Mivtachim Pension, Menora Gemel and Menora      Mutual Funds are held for members of the public through, among others,      provident funds, mutual funds, pension funds and insurance policies which      are managed by Menora Insurance, Menora finance, Mivtachim Pensions,      Menora Gemel and Menora Mutual Funds, all of which are wholly owned      subsidiaries of Menora Holdings, each of which operates under independent      management and makes independent voting and investment      decisions. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

----

----

----

|   | · | The      term was up to ten (10) years from September 1, 2005 (as a result of the      transfer by Mega Retail to BSRE of the real property, the lease agreement      was extended to a term of up to ten years commencing on March 31, 2009      with an option at the end of the term to extend for an additional      five-year term under the same terms.  See "Item      4.  Information on the Company – D. Our Real      Estate"); |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      annual rent for property used for stores will be equal to the higher of 2%      of the annual turnover of that store or 9% of the amount invested in that      store by Mega Retail and Hyper Hyper, linked and adjusted to changes in      Israel’s consumer price index as known at the day of the investment;      however, with regard to four specific properties, the annual rent will not      be lower then the specific agreedamounts; |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | The      annual rent for property not used for stores will be 9% of the amount      invested in that property by Mega Retail and Hyper Hyper, linked and      adjusted to changes in Israel’s consumer price index as known at the day      of the investment; and |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Rent      payments will be charged on an annualbasis. |
|--------|--------|-------------------------------------------------------|

----

----

|   | · | Upon      12 months' notice, at the time of the extension of the agreement the      Company may reduce the number of the leased properties, provided that the      rental payments for such properties (according to the average rental      payments for the two years preceding the extension date) does not exceed      15% of the total rent payments for all leased properties on average for      the two years preceding the extensiondate. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Additional      properties may be leased by the Company under the same terms and      conditions under the lease agreement provided that (i) the term of any      such new lease agreement entered into during the initial ten-year period      commencing on January 1, 2006 will be for up to 10 years from the date      such new leased property is open for business to the public, and (ii) the      aggregate properties that BSRE leases to the Company may not exceed 60,000      square meters. Additional properties added may not be included in the      leased properties reduced in the manner described in the preceding      paragraph. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      Company may terminate the lease of some of the leased properties prior to      the end of the lease term by giving 12 months' prior notice; however, such      termination is limited to a number of leased properties which have an      aggregate area of no more than 5% of the total area of the properties that      were leased as of January 1, 2006. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | BSRE      may shorten or temporarily stop (suspend) the lease of three properties      identified in the agreement to the extent required to develop or build on      the land where such properties are located by giving 12 months' prior      notice and subject to obtaining a building permit for such development or      building at the time the Company must vacate the  premises. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | BSRE      may shorten or temporarily stop (suspend) the lease of any seven      additional properties (five during the lease term and two during the      extension term) to the extent required to develop or build on the land      where such properties are located by giving 12 months' prior notice and      subject to obtaining a building permit for such development or building at      the time the Company must vacate the premises and on the condition that      BSRE must bear the costs of vacating the premises and provide a substitute      store at the location with similar characteristics at its own expense      within 24 months of the Company vacating the  premises. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Mega      Retail would enter into a separate lease agreement with the buyer of the      transferred asset, the terms of which would reflect the terms appear in      the BSRE-Mega Retail lease agreements, with the necessary      adjustments. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | The      base rent ascribed to the transferred asset in the separate lease      agreement will be in the amount that was determined by BSRE, as      recommended by an independent assessor, linked to the CPI from January 1,      2006, plus 9% of the amount invested by BSRE in the transferred asset from      January 1, 2006 and thereafter. The rent paid by Mega Retail to the buyer      would be reduced from the lease payment paid by Mega Retail to BSRE under      their lease agreement. |
|--|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

|   | · | Upon      12 months' notice, at the time of the extension of the agreement, Mega      Retail may reduce the number of the Properties subject to the agreement,      provided that the rental payments for such properties (according to the      average rental payments for the two years preceding the extension date)      does not exceed 15% of the total rent payments for all leased      properties. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Upon      12 months' notice, Mega Retail may terminate the lease of some of the      leased properties prior to the end of the Initial Lease Period, provided      that the aggregate area of such properties does not exceed 5% of the total      area of the properties that were leased to Mega Retail as of the beginning      of the Initial Lease Period. However, in any event, such right of      termination does not include the right to terminate the lease agreement of      the distribution and logistics center and warehouses in Rishon      Le'tzion. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Upon      12 months' prior notice, BSRE may shorten or temporarily suspend the lease      of certain Properties (specified in the agreement) to the extent required      to develop or build on the land on which such Properties are located, or      to the extent required to sell the land on which such Properties are      located.  Such right to shorten or temporarily suspend the lease      of such Properties is subject to the condition that, as of the date on      which Mega Retail must vacate the premises, BSRE must have obtained a      building permit for such development or building and/or BSRE must have      signed an agreement to sell such property, as the case may    be. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Upon      12 months' prior notice, BSRE may shorten or temporarily suspend the lease      of any four Properties (three during the Initial Lease Period and one      during the extension term) to the extent required to develop or build on      the land on which such Properties are located, subject to the conditions      that (i) as of the date on which Mega Retail must vacate the premises,      BSRE must have obtained a building permit for such development or      building, and that (ii) BSRE must bear the costs of vacating the premises      and provide a substitute store, at the same location, with similar      characteristics at its own expense within 24 months of Mega Retail      vacating the premises. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | Mega      Retail will be entitled to sub-lease any of the Properties, subject to the      condition that Mega Retail will remain liable for the fulfillment of all      the provisions of the agreement, jointly and severally with the substitute      tenant. |
|--|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | BSRE      is entitled, to add building areas on each of the Properties to the extent      permitted by the town planning schemes which apply and/or may apply in the      future.  In the event that, pursuant to this provision, BSRE      plans to add building areas on the property on which the Company's      distribution and logistics center in Rishon L'tzion is located, such      additional building is subject to the prior consent of Mega      Retail.  In addition, in the event that BSRE adds buildings to      the property on which the Company's offices in Rosh Ha'ayin are located,      then, upon six months' notice from the date on which it receives notice      from BSRE about BSRE's intention to build on such property, Mega Retail      may notify BSRE of Mega Retail's intention to lease the additional      buildings under the same terms as the existing lease agreement, with the      ten year term beginning on the date on which the new buildings are      transferred to Mega Retail'spossession. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | · | Mega      Retail is solely responsible for obtaining any permits or licenses      required under law to operate theProperties. |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------|

|   | · | Unless      otherwise agreed by the parties, the lease agreement will be a "net lease"      such that Mega Retail shall bear any and all payments and costs that arise      in connection with the possession and use of the Properties during the      lease period. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | In      the event that Mega Retail will request to erect and operate small gas      stations on certain of the Properties, and BSRE will agree to such      request, BSRE will bear the costs of erecting the station, apart from      equipment, as shall be agreed by the parties. The costs of erecting the      station will be added to the Amount of the Investment for the purpose of      determining the annual rent for the Properties, but the income from the      sale of gas from such station will not be considered store turnover for      purposes of calculating the annualrent. |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

----

----

| ITEM      9. | THE      OFFER AND LISTING |
|--------------|----------------------------|

| Year   |   | High   |   |   | Low    |   |
|--------|--------|--------|--------|--------|--------|--------|
|   |   |   |   |   |   |   |
| 2005   |   | $      | 11.3   |   |   | $      | 8.5 |   |
| 2006   |   | $      | 14.8   |   |   | $      | 9.8 |   |
| 2007   |   | $      | 20.0   |   |   | $      | 11.6 |   |
| 2008   |   | $      | 14.4   |   |   | $      | 5.6 |   |
| 2009   |   | $      | 11.2   |   |   | $      | 5.3 |   |

----

| Year                                       |   | High         |   |   | Low    |   |
|--------------------------------------------|--------|--------------|--------|--------|--------|--------|
|                                       |   |    |   |   |   |   |
| 2008                                       |   |         |   |   |   |   |
| First      quarter                         |   | $            | 13.9   |   |   | $      | 9.8 |   |
| Second      quarter                        |   | $            | 14.4   |   |   | $      | 9.5 |   |
| Third      quarter                         |   | $            | 12.5   |   |   | $      | 9.7 |   |
| Fourth      quarter                        |   | $            | 9.9    |   |   | $      | 5.6 |   |
|                                       |   |         |   |   |   |   |   |   |
| 2009                                       |   |         |   |   |   |   |   |   |
| First      quarter                         |   | $            | 7.5    |   |   | $      | 5.3 |   |
| Second      quarter                        |   | $            | 9.2    |   |   | $      | 5.8 |   |
| Third      quarter                         |   | $            | 9.9    |   |   | $      | 8.1 |   |
| Fourth      quarter                        |   | $            | 11.2   |   |   | $      | 9.5 |   |
|                                       |   |         |   |   |   |   |   |   |
| 2010                                       |   |         |   |   |   |   |   |   |
| First      quarter                         |   | $            | 13.3   |   |   | $      | 10.2 |   |
| Second      quarter (until June 18, 2010). |   | $            | 13.6   |   |   | $      | 10.8 |   |

| 2009                            |   | High   |   |   | Low    |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|
|                            |   |   |   |   |   |   |
| November                        |   | $      | 11.2   |   |   | $      | 9.6 |   |
| December                        |   | $      | 11.2   |   |   | $      | 9.5 |   |
| 2010                            |   | High   |   |   | Low    |   |
|                            |   |   |   |   |   |   |   |   |
| January                         |   | $      | 11.2   |   |   | $      | 10.2 |   |
| February                        |   | $      | 11.6   |   |   | $      | 10.2 |   |
| March                           |   | $      | 13.3   |   |   | $      | 11.2 |   |
| April                           |   | $      | 13.6   |   |   | $      | 12.2 |   |
| May                             |   | $      | 13.1   |   |   | $      | 11.1 |   |
| June      (until June 18, 2010) |   | $      | 11.9   |   |   | $      | 10.8 |   |

| Year   |   | High   |   |   | Low    |   |
|--------|--------|--------|--------|--------|--------|--------|
|   |   | NIS    |   |   | $      |   |   | NIS |   |   | $ |   |
|   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2005   |   |   | 53.8   |   |   |   | 11.7 |   |   |   | 38.6 |   |   |   | 8.4 |   |
| 2006   |   |   | 62.6   |   |   |   | 13.6 |   |   |   | 46.8 |   |   |   | 10.2 |   |
| 2007   |   |   | 78.8   |   |   |   | 20.5 |   |   |   | 45.9 |   |   |   | 11.9 |   |
| 2008   |   |   | 52.4   |   |   |   | 13.8 |   |   |   | 21.4 |   |   |   | 5.6 |   |
| 2009   |   |   | 42.9   |   |   |   | 11.4 |   |   |   | 23.0 |   |   |   | 6.1 |   |

----

| 2008                |   | High   |   |   | Low    |   |
|---------------------|--------|--------|--------|--------|--------|--------|
|                |   | NIS    |   |   | $      |   |   | NIS |   |   | $ |   |
| First      Quarter  |   |   | 52.4   |   |   |   | 14.8 |   |   |   | 33.8 |   |   |   | 9.5 |   |
| Second      Quarter |   |   | 46.0   |   |   |   | 13.7 |   |   |   | 32.5 |   |   |   | 9.7 |   |
| Third      Quarter  |   |   | 41.0   |   |   |   | 12.0 |   |   |   | 34.7 |   |   |   | 10.1 |   |
| Fourth      Quarter |   |   | 34.7   |   |   |   | 9.1 |   |   |   | 21.4 |   |   |   | 5.6 |   |

| 2009                                      |   | High   |   |   | Low    |   |
|-------------------------------------------|--------|--------|--------|--------|--------|--------|
|                                      |   | NIS    |   |   | $      |   |   | NIS |   |   | $ |   |
| First      Quarter                        |   |   | 29.4   |   |   |   | 7.0 |   |   |   | 23.0 |   |   |   | 5.5 |   |
| Second      Quarter                       |   |   | 36.4   |   |   |   | 9.3 |   |   |   | 24.9 |   |   |   | 6.4 |   |
| Third      Quarter                        |   |   | 36.7   |   |   |   | 9.8 |   |   |   | 32.2 |   |   |   | 8.6 |   |
| Fourth      Quarter                       |   |   | 42.9   |   |   |   | 11.4 |   |   |   | 35.4 |   |   |   | 9.4 |   |
|                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2010                                      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| First      Quarter                        |   |   | 50.1   |   |   |   | 13.5 |   |   |   | 38.1 |   |   |   | 10.3 |   |
| Second      Quarter (until June 17, 2010) |   |   | 49.4   |   |   |   | 13.0 |   |   |   | 41.0 |   |   |   | 10.7 |   |

| 2009                            |   | High   |   |   | Low    |   |
|---------------------------------|--------|--------|--------|--------|--------|--------|
|                            |   | NIS    |   |   | $      |   |   | NIS |   |   | $ |   |
|                            |   |   |   |   |   |   |   |   |   |   |   |   |
| November                        |   |   | 42.9   |   |   |   | 11.3 |   |   |   | 37.4 |   |   |   | 9.9 |   |
| December                        |   |   | 41.9   |   |   |   | 11.1 |   |   |   | 36.4 |   |   |   | 9.6 |   |
|                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| 2010                            |   | High   |   |   | Low    |   |
|                            |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| January                         |   |   | 41.8   |   |   |   | 11.2 |   |   |   | 38.1 |   |   |   | 10.2 |   |
| February                        |   |   | 42.5   |   |   |   | 11.2 |   |   |   | 39.7 |   |   |   | 10.5 |   |
| March                           |   |   | 50.1   |   |   |   | 13.5 |   |   |   | 43.0 |   |   |   | 11.6 |   |
| April                           |   |   | 49.4   |   |   |   | 13.3 |   |   |   | 46.4 |   |   |   | 12.5 |   |
| May                             |   |   | 48.5   |   |   |   | 12.7 |   |   |   | 44.2 |   |   |   | 11.5 |   |
| June      (until June 17, 2010) |   |   | 45.7   |   |   |   | 12.0 |   |   |   | 41.0 |   |   |   | 10.7 |   |

----

----

----

----

----

----

----

----

----

----

----

----

|  | · | dealers      or traders in securities, currencies or notional principal      contracts; |
|--|--------|-----------------------------------------------------------------------------------------|

|  | · | financial      institutions; |
|--|--------|------------------------------|

|  | · | insurance      companies; |
|--|--------|---------------------------|

|  | · | real      estate investment trusts; |
|--|--------|-------------------------------------|

|  | · | banks; |
|--|--------|--------|

|  | · | investors      subject to the alternative minimumtax; |
|--|--------|-------------------------------------------------------|

|  | · | tax-exempt      organizations; |
|--|--------|--------------------------------|

|  | · | traders      that have elected mark-to-marketaccounting; |
|--|--------|----------------------------------------------------------|

|  | · | investors      that hold Shares as part of a “straddle”, “hedge”, or “conversion      transaction” with otherinvestments; |
|--|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | · | regulated      investment companies; |
|--|--------|--------------------------------------|

|  | · | investors      that actually or constructively own 10 percent or more of our voting      shares; |
|--|--------|--------------------------------------------------------------------------------------------------|

|  | · | investors      whose functional currency is not the U.S.  dollar. |
|--|--------|-------------------------------------------------------------------|

| · | an      individual who is a citizen or resident of the United    States; |
|--------|--------------------------------------------------------------------------|

| · | a      corporation (or other entity taxable as a corporation for U.S. federal      income tax purposes) created or organized in the United States or under      the laws of the United States or any political subdivision      thereof; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| · | an      estate, the income of which is subject to U.S. federal income tax      regardless of its source; or |
|--------|-------------------------------------------------------------------------------------------------------------|

----

| · | a      trust (1) if (a) a court within the United States is able to exercise      primary supervision over the administration of the trust; and (b) one or      more U.S. persons have the authority to control all substantial decisions      of the trust; or (2) that has a valid election in effect under applicable      U.S. Treasury regulations to be treated as a U.S.  person. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

----

----

----

| ITEM      11. | QUANTITATIVE      AND QUALITATIVE DISCLOSURES ABOUT MARKETRISK |
|---------------|----------------------------------------------------------------|

----

|                                                                                        |   | December 31, 2009Expected maturity (NIS in thousands) |    |
|---------------------------------------------------------------------------------------------|--------|-------------------------------------------------------------------------------------|---------|
|                                                                                        |   | 2010                                                                                |    |   | 2011 |   |   | 2012 |   |   | 2013 |   |   | 2014 |   |   | 2015 |   |   | 2016andthereafter |   |   | Total |   |
| Long      term loan from banks - linked:                                                    |   |                                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Linked      to the Israeli CPI - 5.19% (weighted average rate as of December 31,      2009) |   |                                                                                | 36,550  |   |   |   | 27,500 |   |   |   | 25,632 |   |   |   | 22,203 |   |   |   | 22,203 |   |   |   | 22,203 |   |   |   | 161,118 |   |   |   | 317,403 |   |
|                                                                                        |   |                                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Long      term loans from bank - unlinked:                                                  |   |                                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fixed      annual interest rate of 7.11%                                                    |   |                                                                                | 63,479  |   |   |   | 59,039 |   |   |   | 49,705 |   |   |   | 38,047 |   |   |   | 7,441 |   |   |   | 7,595 |   |   |   | 18,018 |   |   |   | 243,324 |   |
| Variable      interest (average annual rate as of December 31, 2009 of      3.19%)          |   |                                                                                | 31,483  |   |   |   | 28,068 |   |   |   | 20,183 |   |   |   | 15,693 |   |   |   | 2,567 |   |   |   | 3,205 |   |   |   | 66,301 |   |   |   | 167,500 |   |
|                                                                                        |   |                                                                                | 131,512 |   |   |   | 114,607 |   |   |   | 95,520 |   |   |   | 75,943 |   |   |   | 32,211 |   |   |   | 33,003 |   |   |   | 245,437 |   |   |   | 728,233 |   |
| Non-      Convertible debentures - Linked to the Israeli CPI:                               |   |                                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issued by the Company      - fixed rate 5.9% (1)                                            |   |                                                                                | 75,906  |   |   |   | - |   |   |   | 50,604 |   |   |   | 50,604 |   |   |   | 50,604 |   |   |   | - |   |   |   | - |   |   |   | 227,718 |   |
| Issued      by BSRE - fixed rate 4.7%                                                       |   |                                                                                |    |   |   |   |   |   |   |   |   |   |   |   | 212,379 |   |   |   | 212,379 |   |   |   | 212,379 |   |   |   | 212,379 |   |   |   | 849,516 |   |
| Issued      by BSRE - fixed rate 4.2%                                                       |   |                                                                                |    |   |   |   | 22,543 |   |   |   | 22,543 |   |   |   | 22,543 |   |   |   | 22,543 |   |   |   | 22,543 |   |   |   | 187,856 |   |   |   | 300,571 |   |
| Convertible      Debentures Linked to the Israeli CPI:                                      |   |                                                                                |    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issued by the Company      - fixed rate 5.9% (1)                                            |   |                                                                                | -       |   |   |   | 15,093 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | 15,093 |   |
| Issued      by BSRE - fixed rate 6.25%                                                      |   |                                                                                | -       |   |   |   | - |   |   |   | - |   |   |   | 27,404 |   |   |   | 27,404 |   |   |   | 27,404 |   |   |   | 27,404 |   |   |   | 109,616 |   |
|                                                                                        |   |                                                                                | 75,906  |   |   |   | 37,637 |   |   |   | 22,543 |   |   |   | 338,231 |   |   |   | 338,231 |   |   |   | 262,326 |   |   |   | 427,637 |   |   |   | 1,502,512 |   |
| Marketable      Securities - Linked to the Israeli CPI:                                     |   |                                                                                | 96,842  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 96,842 |   |
| Marketable      Securities – unlinked in NIS                                          |   |                                                                                | 91,070  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 91,070 |   |
| Marketable      Securities –in other currencies                                       |   |                                                                                | -       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

| (1) | See      also “Item 5. Operating and Financial Review and Prospects - Liquidity and      Capital Resources - Debentures”. |
|-----|---------------------------------------------------------------------------------------------------------------------------------------|

----

|   |   | CPI    |   |   | The “known" CPI index |   |
|--------|--------|--------|--------|--------|--------------------------------------------|--------|
|   |   |   |   |   |                                       |   |
| 2007   |   |   | 3.4    | %      |                                       |   | 2.8 | % |
| 2008   |   |   | 3.8    | %      |                                       |   | 4.51 | % |
| 2009   |   |   | 3.9    | %      |                                       |   | 3.82 | % |

|                                  |   | December 31, 2009 |      |
|---------------------------------------|--------|-----------------------------|-----------|
|                                  |   | NISlinked to CPI  |      |   | NISunlinked |   |   | USDollar |   |   | Othercurrencies |   |   | Other* |   |   | Total |   |
|                                  |   | NIS in thousands  |      |
| Assets:                               |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents        |   |                        | -         |   |   |   | 612,227 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 612,227 |   |
| Short      term deposit               |   |                        | -         |   |   |   | 67 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 67 |   |
| Investment      in securities         |   |                        | 96,842    |   |   |   | 91,070 |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |   |   | 212,912 |   |
| Trade      receivables                |   |                        | -         |   |   |   | 809,783 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 809,783 |   |
| Other      receivables                |   |                        | 749       |   |   |   | 55,074 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 55,823 |   |
| Income      taxes receivable          |   |                        | 84,274    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 84,274 |   |
| Derivative      financial instrument  |   |                        | 9,690     |   |   |   | - |   |   |   | 425 |   |   |   | - |   |   |   | 12,266 |   |   |   | 22,381 |   |
| Long-term      receivables            |   |                        | 3,275     |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | 3,275 |   |
|                                  |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets                     |   |                        | 194,830   |   |   |   | 1,568,221 |   |   |   | 425 |   |   |   | - |   |   |   | 37,266 |   |   |   | 1,800,742 |   |
|                                  |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                          |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Short-term      bank credit and loans |   |                        | 365       |   |   |   | 142,721 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   | 143,086 |   |
| Trade      payables                   |   |                        | -         |   |   |   | 913,948 |   |   |   | 3,460 |   |   |   | 177 |   |   |   | - |   |   |   | 917,585 |   |
| Other      accounts payable           |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| and      accrued expenses             |   |                        | 24,860    |   |   |   | 462,818 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 487,678 |   |
| Income      tax payables              |   |                        | 6,051     |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 6,051 |   |
| Provisions                            |   |                        | -         |   |   |   | 51,298 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 51,298 |   |
| Loans                                 |   |                        | 317,409   |   |   |   | 410,824 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 728,233 |   |
| Debentures                            |   |                        | 1,327,986 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,327,986 |   |
| Convertible      debentures           |   |                        | 142,066   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 142,066 |   |
| Long-term      payable                |   |                        | 8,398     |   |   |   | 3,357 |   |   |   | 9,164 |   |   |   | - |   |   |   | - |   |   |   | 20,919 |   |
| Derivative      financial instruments |   |                        | -         |   |   |   | - |   |   |   | 1,075 |   |   |   | 6,516 |   |   |   | - |   |   |   | 7,591 |   |
|                                  |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total      liabilities                |   |                        | 1,827,134 |   |   |   | 1,984,966 |   |   |   | 13,699 |   |   |   | 6,693 |   |   |   | - |   |   |   | 3,832,492 |   |

----

| ITEM      12. | DESCRIPTION      OF SECURITIES OTHER THAN EQUITYSECURITIES |
|---------------|------------------------------------------------------------|

| ITEM      13. | DEFAULTS,      DIVIDEND ARREARAGES ANDDELINQUENCIES |
|---------------|-----------------------------------------------------|

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

----

| ITEM      15. | CONTROLS      AND PROCEDURES |
|---------------|------------------------------|

|   | · | pertain      to the maintenance of records that in reasonable detail accurately and      fairly reflect our transactions and asset  dispositions; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide      reasonable assurance that transactions are recorded as necessary to permit      the preparation of our financial statements in accordance with generally      accepted accounting principles; |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide      reasonable assurance that receipts and expenditures are made only in      accordance with authorizations of our management and board of directors      (as appropriate); and |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | provide      reasonable assurance regarding the prevention or timely detection of      unauthorized acquisition, use or disposition of assets that could have a      material effect on our financialstatements. |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

|                        |   | 2009                         |   |   | 2008                         |   |
|-----------------------------|--------|------------------------------|--------|--------|------------------------------|--------|
|                        |   | (NIS in thousands) |   |   | (NIS in thousands) |   |
| Audit      Fees (1)         |   |                         | 3,234  |   |                         |   | 3,075 |   |
| Audit-Related      fees (2) |   |                         | 800    |   |                         |   | 695 |   |
| Tax      Fees (3)           |   |                         | 166    |   |                         |   | 259 |   |
| All      Other Fees (4)     |   |                         | 200    |   |                         |   | 1,079 |   |
| TOTAL                       |   |                         | 4,400  |   |                         |   | 5,108 |   |

|   | (1) | Audit      Fees consist of fees billed for the annual audit services engagement and      other audit services, which are those services that only the external      auditor can reasonably provide, and include the group audit; statutory      audits; comfort letters and consents; attest services; assistance with and      review of documents filed with the SEC and Sarbanes-Oxley Act      compliance. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (2) | Audit-related      services in connection with Blue Square's and BSRE's shelf prospectuses      and in connection with reports delivered to the Company's controlling      shareholder. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | Tax      fees were for services related to tax compliance, including the      preparation of tax returns and claims for refund, and tax planning and tax      advice, including assistance with tax audits and appeals, advice related      to mergers, acquisitions, transfer pricing, and assistance with respect to      requests for rulings from taxauthorities. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |  (4) | Other      Fees were for general guidance related to accounting issues and due      diligence in connection with potential  acquisitions. |
|--------|-----------|-------------------------------------------------------------------------------------------------------------------------------------------|

| ITEM      16D. | EXEMPTIONS      FROM THE LISTING STANDARDS FOR AUDITCOMMITTEES. |
|----------------|-----------------------------------------------------------------|

| ITEM      16E. | PURCHASES      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED    PURCHASERS. |
|----------------|---------------------------------------------------------------------------------|

| Period         |   | TotalNumber ofSharesPurchased (1) |   |   | Average PricePaid Per Share (in NIS) |   |   | Total Number ofShares Purchasedas Part of PubliclyAnnounced Plansor Programs |   |   | MaximumNumber of Sharesthat May Yet BePurchased UnderPlans or Programs |   |
|---------------------|--------|---------------------------------------------|--------|--------|---------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------------|--------|--------|----------------------------------------------------------------------------------------------------------------|--------|
| March      25, 2010 |   |                                        | 89,888 |   |                                                          |   | 47.64  |                                                                                                                 |   |   | 0                                                                                                              |   |   |   | N/A |   |

| (1) | The      Company purchased ordinary shares of the Company from certain officers of      the Company, including the Chief Executive Officer, which shares were      acquired by the executives upon their exercise of vested options granted      to them under the Company's 2008 Share Option Plan.  The total amount      paid by the Company for such shares was NIS 4.3 million and the price      per share was NIS 47.64. |
|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

| ITEM16F. | CHANGE      IN REGISTRANT'S CERTIFYINGACCOUNTANT. |
|----------|---------------------------------------------------|

| ITEM16G. | CORPORATE      GOVERNANCE |
|----------|---------------------------|

----

----

| ITEM 17.  | FINANCIAL      STATEMENTS |
|---------------------|---------------------------|

| ITEM18. | FINANCIAL      STATEMENTS |
|---------|---------------------------|

| ITEM      19. | EXHIBITS |
|---------------|----------|

| Exhibit No. |   | Description                                                                                                                                                                                                                                                                                                                                        |
|------------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                               |
| 1.1              |   | Memorandum      of Association of the Registrant (incorporated by reference to Exhibit 3.1      to the Registration Statement on Form F-1 (File No.      333-05024)).                                                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                               |
| 1.2              |   | Articles      of Association of the Registrant.                                                                                                                                                                                                                                                                                                    |
|             |   |                                                                                                                                                                                                                                                                                                                                               |
| 2.1              |   | Form      of Amended and Restated Deposit Agreement among Blue Square-Israel Ltd.,      The Bank of New York as Depositary, and all Owners and Holders from time      to time of American Depositary Shares issued thereunder (incorporated by      reference to Exhibit (a) to the Registration Statement on Form F-6 (File      No. 333-05158)). |
|             |   |                                                                                                                                                                                                                                                                                                                                               |
| 4.1              |   | Service      Agreement made and entered into on the 1st day of January 1990      between Blue Square Chain (Super Super) Ltd. and Blue Square Chain (Hyper      Hyper) Ltd. (incorporated by reference to Exhibit 10.10 to the      Registration Statement on Form F-1 (File No.  333-05024)).                                                |
|             |   |                                                                                                                                                                                                                                                                                                                                               |
| 4.2              |   | Supply      Agreement made and entered into on the 1st day of January 1990      between Blue Square Chain (Super Super) Ltd. and Blue Square Chain (Hyper      Hyper) Ltd. (incorporated by reference to Exhibit 10.11 to the      Registration Statement on Form F-1 (File No.  333-05024)).                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                               |
| 4.3              |   | Management      Agreement made and entered into on July 23, 1996 between Blue Square      Chain Investments & Properties Ltd. and the Registrant (incorporated      by reference to Exhibit 10.12 to the Registration Statement on Form F-1      (File No. 333-05024)).                                                                   |
|             |   |                                                                                                                                                                                                                                                                                                                                               |
| 4.4              |   | An      Agreement to Loan Employees made and entered into on July 23, 1996      between Blue Square Chain Properties (Hyper Hyper) Ltd. and the Registrant      (incorporated by reference to Exhibit 10.13 to the Registration Statement      on Form F-1 (File No. 333-05024)).                                                             |
|             |   |                                                                                                                                                                                                                                                                                                                                               |
| 4.5              |   | Agreement      made and entered into on July 25, 1996 between the Registrant and      Blue Square Chain (Hyper Hyper) Ltd. regarding property selection      (incorporated by reference to Exhibit 10.14 to the Registration Statement      on Form F-1 (File No. 333-05024)).                                                                |
|             |   |                                                                                                                                                                                                                                                                                                                                               |
| 4.6              |   | Registration      Rights Agreement, dated as of July 25, 1996, by and among the      Registrant and Co-Op Blue Square Consumers Cooperative Society Ltd.      (incorporated by reference to Exhibit 10.15 to the Registration Statement      on Form F-1 (File No. 333-05024)).                                                               |
|             |   |                                                                                                                                                                                                                                                                                                                                               |
| 4.7              |   | Letter,      dated July 1, 1996, by Co-Op Blue Square Consumers Cooperative      Society Ltd. indemnifying the Registrant against certain real estate tax      liabilities (incorporated by reference to Exhibit 10.17 to the      Registration Statement on Form F-1 (File No.  333-05024)).                                                 |

----

| Exhibit No. |   | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.8              |   | Letter,      dated May 21, 1993 and March 18, 1993, by Co-Op Blue Square      Consumers Cooperative Society Ltd. indemnifying Blue Square Chain      Investments & Properties Ltd. against certain real estate tax      liabilities (incorporated by reference to Exhibit 10.18 to the      Registration Statement on Form F-1 (File No.  333-05024)).                                                                                                                                                |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.9              |   | Form      of Letter of Exemption and Indemnity adopted in February 2001      (incorporated by reference to Exhibit 4.13 to Blue Square’s Annual Report      on Form 20-F for the year ended December 31, 2000).                                                                                                                                                                                                                                                                                               |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.10             |   | Form      of Letter of Exemption and Indemnity (English translation accompanied by      the Hebrew original) (incorporated by reference to Exhibit 4.14 to Blue      Square’s Annual Report on Form 20-F for the year ended December 31,      2001).                                                                                                                                                                                                                                                          |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.11             |   | Form      of Letter of Indemnity adopted in June 2008 (English translation)      (incorporated by reference to Exhibit 4.11 to Blue Square’s Annual Report      on Form 20-F for the year ended December 31, 2008).                                                                                                                                                                                                                                                                                           |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.12             |   | Special      Collective Agreement made on the 28th day of May 1996 between Co-Op      Blue Square Consumers Cooperative Society Ltd., the Registrant and The New      Federation of Labor in Israel/The Federation of Clerical, Administrative      and Services Employees and Consumers Cooperative Union-Central Cooperative      Society Ltd. (incorporated by reference to Exhibit 10.4 to the      Registration Statement on Form F-1 (File No.  333-05024)).                                             |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.13             |   | Special      Collective Agreement made on the 3rd day of September 2000 between      Blue Square and The New Federation of Labor in Israel. The Federation of      Clerical, Administrative and Services Employees / the Commercial Section      Employees and the committee of Blue Square employees. (English summary      accompanied by the Hebrew original) (incorporated by reference to Exhibit      4.16 to Blue Square’s Annual Report on Form 20-F for the year ended      December 31, 2001). |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.14             |   | Collective      Agreement, made on August 13, 2003, by and among Blue Square – Israel Ltd.      and The New Federation of Labor in Israel/The Federation of Clerical,      Administrative and Services Employees and the National Committee of the      Blue Square Co-Op Employees (English translation) (incorporated by      reference to Exhibit 4.15 to Blue Square’s Annual Report on Form 20-F for      the year ended December 31, 2003).                                                       |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.15             |   | Collective      Agreement, made on October 15, 2003, by and among Blue Square - Israel      Ltd. and The New Federation of Labor in Israel/The Federation of Clerical,      Administrative and Services Employees and the National Workers Committee      of Blue Square-Israel Ltd (English translation) (incorporated by reference      to Exhibit 4.16 to Blue Square’s Annual Report on Form 20-F for the year      ended December 31, 2003).                                                             |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.16             |   | Special      Collective Bargaining Agreement made on the 21st      day of January 2005 among Blue Square, the Histadrut and the National      Committee of Blue Square-Israel. (English translation) (incorporated by      reference to Exhibit 4.15 to Blue Square’s Annual Report on Form 20-F for      the year ended December 31, 2004).                                                                                                                                                                  |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.17             |   | Special      Collective Bargaining Agreement made on April 26, 2006 among Blue Square,      the MAOF Histadrut and Blue Square-Israel Employees' Union (English      translation) (incorporated by reference to Exhibit 4.16 to Blue Square’s      Annual Report on Form 20-F for the year ended December 31,      2006).                                                                                                                                                                                     |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
| 4.18             |   | Special      Collective Bargaining Agreement made on May 29, 2006 among Blue Square,      the MAOF Histadrut and Blue Square-Israel Employees' Union (English      translation) (incorporated by reference to Exhibit 4.17 to Blue Square’s      Annual Report on Form 20-F for the year ended December 31,      2006).                                                                                                                                                                                       |

----

| Exhibit No. |   | Description                                                                                                                                                                                                                                                                                                                                                                         |
|------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.19             |   | Special      Collective Bargaining Agreement made on July 16, 2007 among Blue Square,      the MAOF Histadrut and Blue Square-Israel Employees' Union (English      translation) (incorporated by reference to Exhibit 4.19 to Blue Square’s      Annual Report on Form 20-F for the year ended December 31,      2007).                                                      |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.20             |   | Special      Collective Bargaining Agreement made on April 5, 2009 among Blue Square,      Blue Square Chain Investments & Properties Ltd., the MAOF Histadrut      and Blue Square-Israel Employees' Union (English translation)      (incorporated by reference to Exhibit 4.20 to Blue Square’s Annual Report      on Form 20-F for the year ended December 31, 2008). |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.21             |   | Deed      of Trust made on August 5, 2003, by and between Blue Square – Israel Ltd.      and Israel Discount Bank Trust Company Ltd., together with second schedule      (English translation) (incorporated by reference to Exhibit 4.18 to Blue      Square’s Annual Report on Form 20-F for the year ended December 31,      2003).                                  |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.22             |   | First      Schedule to Deed of Trust – Debenture Certificate for Registered Debenture      (Series A) of NIS 1 par value each (out of series of NIS 200,000,000 par      value Debentures (Series A)) (English translation) (incorporated by      reference to Exhibit 4.19 to Blue Square’s Annual Report on Form 20-F for      the year ended December 31, 2003).     |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.23             |   | First      Schedule to Deed of Trust – Debenture Certificate for Registered Debenture      (Series B) of NIS 1 par value each (out of series of NIS 200,000,000 par      value Debentures (Series B)) (English translation) (incorporated by      reference to Exhibit 4.20 to Blue Square’s Annual Report on Form 20-F for      the year ended December 31, 2003).     |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.24             |   | Agreement      between the Registrant and Blue Square Chain (Hyper Hyper) Ltd.      (incorporated by reference to Exhibit 4.21 to Blue Square’s Annual Report      on Form 20-F for the year ended December 31, 2002).                                                                                                                                                        |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.25             |   | General      services framework and expenses allotment agreement, dated October 11,      2005, among Blue Square, Blue Square Chain Investments & Properties      Ltd. and Blue Square Chain (Hyper Hyper) Ltd., as amended (incorporated by      reference to Exhibit 4.21 to Blue Square’s Annual Report on Form 20-F for      the year ended December 31, 2005).       |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.26             |   | Transfer      Agreement, dated June 21, 2006, between Blue Square and Blue Square Real      Estate Ltd. (English translation) (incorporated by reference to Exhibit      4.23 to Blue Square’s Annual Report on Form 20-F for the year ended      December 31, 2006).                                                                                                         |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.27             |   | Split      Agreement, dated April 2, 2006, between Blue Square and Blue Square Real      Estate Ltd. (English translation) (incorporated by reference to Exhibit      4.24 to Blue Square’s Annual Report on Form 20-F for the year ended      December 31, 2006).                                                                                                            |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.28             |   | Lease      Agreement, dated August 13, 2006, between Blue Square and Blue Square Real      Estate Ltd. (English translation) (incorporated by reference to Exhibit      4.25 to Blue Square’s Annual Report on Form 20-F for the year ended      December 31, 2006).                                                                                                          |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                |
| 4.29             |   | Lease      Agreement, dated June 23, 2006, between Blue Square and Blue Square Chain      Investments & Properties Ltd Blue Square Real Estate Ltd (assigned to      BSRE) (English translation) (incorporated by reference to Exhibit 4.26 to      Blue Square’s Annual Report on Form 20-F for the year ended December 31,      2006).                                  |

----

| Exhibit No. |   | Description                                                                                                                                                                                                                                                                                                                                                                                                               |
|------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.30             |   | Transfer      Agreement, dated March 31, 2009, between Blue Square Real Estate Ltd. and      Blue Square Chain Properties & Investments Ltd., together with      Addendum No. 1, dated September 13, 2009 (English      translation).                                                                                                                                                                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.31             |   | Service      Agreement, dated August 13, 2006, between Blue Square and Blue Square Real      Estate Ltd. (English translation) (incorporated by reference to Exhibit      4.27 to Blue Square’s Annual Report on Form 20-F for the year ended      December 31, 2006).                                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.32             |   | Underwriting      Agreement, dated August 15, 2006, among Blue Square Real Estate Ltd., and      Poalim I.B.I Underwriting and Issues Ltd., Africa-Israel Issues Ltd.,      Discount Underwriting and Issues Ltd. and various other underwriters      (English translation) (incorporated by reference to Exhibit 4.28 to Blue      Square’s Annual Report on Form 20-F for the year ended December 31,      2006). |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.33             |   | Deed      of Trust (for Series A Debenture) made on August 14, 2006, by and between      Blue Square Real Estate Ltd. and Hermetic Trust (1975) Ltd., together with      second schedule (English translation) (incorporated by reference to      Exhibit 4.29 to Blue Square’s Annual Report on Form 20-F for the year      ended December 31, 2006).                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.34             |   | First      Schedule to Deed of Trust - Debenture Certificate for Registered      Debentures (Series A) of NIS 1 par value each (out of series of NIS      100,000,000 par value Debentures (Series A)) (English translation)      (incorporated by reference to Exhibit 4.30 to Blue Square’s Annual Report      on Form 20-F for the year ended December 31, 2006).                                                |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.35             |   | Deed      of Trust (for Series B Debenture) made on August 14, 2006, by and between      Blue Square Real Estate Ltd. and Hermetic Trust (1975) Ltd., together with      second schedule (English translation) (incorporated by reference to      Exhibit 4.31 to Blue Square’s Annual Report on Form 20-F for the year      ended December 31, 2006).                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.36             |   | First      Schedule to Deed of Trust - Debenture Certificate for Registered      Debentures (Series B) of NIS 1 par value each (out of series of NIS      650,000,000 par value Debentures (Series B)) (English translation)      (incorporated by reference to Exhibit 4.32 to Blue Square’s Annual Report      on Form 20-F for the year ended December 31, 2006).                                                |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.37             |   | Deed      of Trust (for Series C to H Debentures) dated May 19, 2009, by and between      Blue Square Real Estate Ltd. and Hermetic Trust (1975) Ltd., together with      Addendum to Deed of Trust dated October 18, 2009 (English      translation).                                                                                                                                                                    |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.38             |   | Deed      of Trust (for Series C to G Debentures and Series H to J Debentures) dated      February 18, 2010, between Blue Square and Hermetic Trust (1975) Ltd.,      together with First Schedule - Debenture Certificate for Series C to G,      First Schedule - Debenture Certificate for Series H to J, and second      schedule (English translation).                                                              |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.39             |   | Document      of Principles of Transaction, dated July 26, 2007, among Blue Square and      Orin Provizor Holdings Ltd., M.A.Sh.- M.I.S. Ltd., Mr. Guy Provizor, and      Eden Natural Health Market Ltd., as amended (English translation)      (incorporated by reference to Exhibit 4.35 to Blue Square’s Annual Report      on Form 20-F for the year ended December 31, 2007).                                 |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.40             |   | Sale      Agreement, made on August 2, 2007, between Kfar Hasha'ashuim Central      Warehouse Ltd. and Eldar Gil & Mahoney Assets Ltd., as amended      (English translation) (incorporated by reference to Exhibit 4.36 to Blue      Square’s Annual Report on Form 20-F for the year ended December 31,      2007).                                                                                           |
|             |   |                                                                                                                                                                                                                                                                                                                                                                                                                      |
| 4.41             |   | Share      Purchase Agreement, dated August 3, 2008, between Bee Group Retail Ltd.      and Twikor Ltd., Mr. Avner Katz, Mr. Doron Yanai, Mr. Ronen Levy, Avi Katz      Marketing Ltd. and Levy R.S. Managements and Investments Ltd. (English      translation) (incorporated by reference to Exhibit 4.38 to Blue Square’s      Annual Report on Form 20-F for the year ended December 31,      2008).            |

----

| Exhibit No. |   | Description                                                                                                                                                                                                                                                                   |
|------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|             |   |                                                                                                                                                                                                                                                                          |
| 4.42             |   | Protocol,      dated April 11, 2010, between Tel Aviv Wholesale      Agricultural Produce Market Company Ltd., Tel Aviv Municipality, Lev Tel      Aviv Towers Ltd. and Tel Aviv City Mall Ltd. (English      translation)                                               |
|             |   |                                                                                                                                                                                                                                                                          |
| 4.43             |   | Agreement,      dated June 3, 2010, between Tel Aviv Wholesale      Agricultural Produce Market Company Ltd., Lev Tel Aviv Towers Ltd. and Tel      Aviv City Mall Ltd., together with Deed of Undertaking by the Interested      Parties (English translation)          |
|             |   |                                                                                                                                                                                                                                                                          |
| 4.44             |   | Agreement,      dated June 3, 2010, between Tel Aviv Municipality,      Lev Tel Aviv Towers Ltd., and Tel Aviv City Mall Ltd., together with Deed      of Undertaking by the Interested Parties (English    translation)                                                 |
|             |   |                                                                                                                                                                                                                                                                          |
| 4.45             |   | Document      of Principles, dated April 15, 2010, between Blue Square Real Estate Tel      Aviv Market Commercial Ltd., Blue Square Real Estate Tel Aviv Market      Housing Ltd., Gindi Commercial Tel Aviv Ltd. and Gindi Housing Tel Aviv      Ltd. (English translation) |
|             |   |                                                                                                                                                                                                                                                                          |
| 4.46             |   | Share      Purchase Agreement, dated May 17, 2010, between Alon Israel Oil Company      Ltd. and Blue Square Israel Ltd. (English translation) (incorporated by      reference to Annex A to Blue Square’s report on Form 6-K, filed on May 27,      2010).             |
|             |   |                                                                                                                                                                                                                                                                          |
| 8.1              |   | List      of Subsidiaries.                                                                                                                                                                                                                                                    |
|             |   |                                                                                                                                                                                                                                                                          |
| 12.(a).1         |   | Certification      by CEO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities      Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes      Oxley Act of 2002.                                                                                |
|             |   |                                                                                                                                                                                                                                                                          |
| 12.(a).2         |   | Certification      by CFO pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities      Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes      Oxley Act of 2002.                                                                                |
|             |   |                                                                                                                                                                                                                                                                          |
| 13.(a).1         |   | Certification      of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to      Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                              |
|             |   |                                                                                                                                                                                                                                                                          |
| 14.(a).1         |   | Consent      of Independent Registered Public Accounting Firm from Kesselman &      Kesselman, certified public accountants (Isr.).                                                                                                                                       |
|             |   |                                                                                                                                                                                                                                                                          |
| 14.(a).2         |   | Consent      of an Expert dated June 21, 2010.                                                                                                                                                                                                                                |
|             |   |                                                                                                                                                                                                                                                                          |
| 14.(a).3         |   | Consent      of an Expert dated June 21, 2010.                                                                                                                                                                                                                                |
|             |   |                                                                                                                                                                                                                                                                          |
| 14.(a).4         |   | Consent      of an Expert dated June 21, 2010.                                                                                                                                                                                                                                |

----

|                                                                                                                    |   | Page   |
|-------------------------------------------------------------------------------------------------------------------------|--------|--------|
|                                                                                                                    |   |   |
| REPORT      OF INDEPENDANT REGISTERED PUBLIC ACCOUNTING FIRM                                                            |   | 2-3    |
|                                                                                                                    |   |   |
| CONSOLIDATED      FINANCIAL STATEMENTS (IN THOUSANDS OF NEW ISRAELI SHEKELS -      NIS):                                |   |   |
|                                                                                                                    |   |   |
| Statements      of financial position                                                                                   |   | 4-5    |
|                                                                                                                    |   |   |
| Statements      of income                                                                                               |   | 6      |
|                                                                                                                    |   |   |
| Statements      of comprehensive income                                                                                 |   | 7      |
|                                                                                                                    |   |   |
| Statements      of changes in equity                                                                                    |   | 8      |
|                                                                                                                    |   |   |
| Statements      of cash flows                                                                                           |   | 9-11   |
|                                                                                                                    |   |   |
| Notes      to consolidated financial statements                                                                         |   | 12-102 |
|                                                                                                                    |   |   |
| APPENDIX      - DETAILS OF PRINCIPAL SUBSIDIARIES, PROPORTIONATELY CONSOLIDATED      COMPANIES AND ASSOCIATED COMPANIES |   | 103    |

----

----

|   |                              |
|--------|-----------------------------------|
|   | Kesselman      & Kesselman    |
|   | Certified      Public Accountants |
|   | 1      Nathanson Street           |
|   | Telephone      +972-4-8605000     |
|   | Facsimile      +972-4-8605001     |

----

|   |                              |
|--------|-----------------------------------|
|   | Kesselman      & Kesselman    |
|   | Certified      Public Accountants |
|   | 1      Nathanson Street           |
|   | Telephone      +972-4-8605000     |
|   | Facsimile      +972-4-8605001     |

| Haifa,      Israel |   | /s/      Kesselman & Kesselman                                |
|--------------------|--------|-------------------------------------------------------------------|
| June      23, 2010 |   | Certified      Public Accountants (Isr.)                          |
|               |   | A      member of PricewaterhouseCoopersInternational      Limited |

----

|                                                 |   |   |   | December 31  |           |   | Conveniencetranslation(note 1b)December 31, |   |
|------------------------------------------------------|--------|--------|--------|-------------------|----------------|--------|-------------------------------------------------------|--------|
|                                                 |   |   |   | 2007              |           |   | 2008                                                  |   |   | 2009 |   |   | 2009 |   |
|                                                 |   | Note   |   | NIS               |           |   | U.S. dollars                                     |   |
|                                                 |   |   |   | In thousands |           |
| Assets                                               |   |   |   |              |           |   |                                                  |   |   |   |   |   |   |   |
|                                                 |   |   |   |              |           |   |                                                  |   |   |   |   |   |   |   |
| CURRENT      ASSETS:                                 |   |   |   |              |           |   |                                                  |   |   |   |   |   |   |   |
| Cash      and cash equivalents                       |   | 14     |   |              | 56,410         |   |                                                  |   | 95,325 |   |   |   | 612,227 |   |   |   | 162,179 |   |
| Short-term      bank deposit                         |   |   |   |              | 103,498        |   |                                                  |   | 206 |   |   |   | 67 |   |   |   | 18 |   |
| Investment      in securities                        |   | 11     |   |              | *      214,394 |   |                                                  |   | *      186,849 |   |   |   | 212,912 |   |   |   | 56,400 |   |
| Trade      receivables                               |   | 13a    |   |              | 776,251        |   |                                                  |   | 729,970 |   |   |   | 809,783 |   |   |   | 214,512 |   |
| Other      accounts receivable                       |   | 13b    |   |              | 99,841         |   |                                                  |   | 87,624 |   |   |   | 69,504 |   |   |   | 18,412 |   |
| Derivative      financial instruments                |   | 12     |   |              | -              |   |                                                  |   | - |   |   |   | 9,690 |   |   |   | 2,567 |   |
| Income      taxes receivable                         |   |   |   |              | 23,062         |   |                                                  |   | 74,446 |   |   |   | 84,274 |   |   |   | 22,324 |   |
| Inventories                                          |   |   |   |              | 453,944        |   |                                                  |   | 497,080 |   |   |   | 514,858 |   |   |   | 136,386 |   |
| Total      current assets                            |   |   |   |              | 1,727,400      |   |                                                  |   | 1,671,500 |   |   |   | 2,313,315 |   |   |   | 612,798 |   |
|                                                 |   |   |   |              |           |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| NON-CURRENT      ASSETS:                             |   |   |   |              |           |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Property,      plant and equipment                   |   | 6      |   |              | 1,613,515      |   |                                                  |   | 1,701,222 |   |   |   | 1,757,718 |   |   |   | 465,621 |   |
| Investment      property                             |   | 7      |   |              | *      300,778 |   |                                                  |   | *      419,232 |   |   |   | 424,936 |   |   |   | 112,566 |   |
| Intangible      assets                               |   | 8      |   |              | 280,420        |   |                                                  |   | 404,422 |   |   |   | 409,194 |   |   |   | 108,396 |   |
| Prepaid      expenses in respect of operating leases |   | 9      |   |              | 199,679        |   |                                                  |   | 192,426 |   |   |   | 193,228 |   |   |   | 51,186 |   |
| Investments      in associates                       |   | 10     |   |              | 4,948          |   |                                                  |   | 4,915 |   |   |   | 4,878 |   |   |   | 1,292 |   |
| Derivatives      financial instruments               |   | 12     |   |              | 10,500         |   |                                                  |   | 5,248 |   |   |   | 12,691 |   |   |   | 3,362 |   |
| Other      long-term receivables                     |   |   |   |              | 48,289         |   |                                                  |   | 1,554 |   |   |   | 1,326 |   |   |   | 351 |   |
| Deferred      taxes                                  |   | 21     |   |              | 33,542         |   |                                                  |   | 44,508 |   |   |   | 45,991 |   |   |   | 12,183 |   |
| Total      non-current assets                        |   |   |   |              | 2,491,671      |   |                                                  |   | 2,773,527 |   |   |   | 2,849,962 |   |   |   | 754,957 |   |
|                                                 |   |   |   |              |           |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Total      assets                                    |   |   |   |              | 4,219,071      |   |                                                  |   | 4,445,027 |   |   |   | 5,163,277 |   |   |   | 1,367,755 |   |

| June 23, 2010                     |   |                                 |   |                          |   |                              |
|---------------------------------------------|--------|--------------------------------------|--------|-------------------------------|--------|-----------------------------------|
| Date of approval of the |   | David Wiessman                  |   | Zeev Vurembrand          |   | Dror Moran                   |
| financial statements                   |   | Chairman of the Board |   | President and Chief |   | Vice President and      |
|                                        |   | of Directors                    |   | Executive Officer        |   | Chief Financial Officer |
|                                        |   |                                 |   |                          |   |                              |

----

|                                                                    |   |   |   | December 31  |      |   | Conveniencetranslation(note 1b)December 31, |   |
|-------------------------------------------------------------------------|--------|--------|--------|-------------------|-----------|--------|-------------------------------------------------------|--------|
|                                                                    |   |   |   | 2007              |      |   | 2008                                                  |   |   | 2009 |   |   | 2009 |   |
|                                                                    |   | Note   |   | NIS               |      |   | U.S. dollars                                     |   |
|                                                                    |   |   |   | In thousands |      |
| Liabilities      and equity                                             |   |   |   |              |      |   |                                                  |   |   |   |   |   |   |   |
|                                                                    |   |   |   |              |      |   |                                                  |   |   |   |   |   |   |   |
| CURRENT      LIABILITIES:                                               |   |   |   |              |      |   |                                                  |   |   |   |   |   |   |   |
| Credit      and loans from banks and others                             |   | 19     |   |              | 171,010   |   |                                                  |   | 210,901 |   |   |   | 274,598 |   |   |   | 72,741 |   |
| Current      maturities of debentures and convertible debentures        |   | 19     |   |              | 69,859    |   |                                                  |   | 25,999 |   |   |   | 76,698 |   |   |   | 20,317 |   |
| Trade      payables                                                     |   |   |   |              | 981,188   |   |                                                  |   | 1,006,386 |   |   |   | 917,585 |   |   |   | 243,069 |   |
| Other      accounts payable and accrued expenses                        |   | 18     |   |              | 404,929   |   |                                                  |   | *426,217 |   |   |   | 494,929 |   |   |   | 131,107 |   |
| Income      taxes payable                                               |   |   |   |              | 2,905     |   |                                                  |   | 6,933 |   |   |   | 6,051 |   |   |   | 1,603 |   |
| Provisions                                                              |   | 23     |   |              | 35,073    |   |                                                  |   | 43,397 |   |   |   | 51,298 |   |   |   | 13,588 |   |
| Total      current liabilities                                          |   |   |   |              | 1,664,964 |   |                                                  |   | 1,719,833 |   |   |   | 1,821,159 |   |   |   | 482,425 |   |
|                                                                    |   |   |   |              |      |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| NON      CURRENT LIABILITIES:                                           |   |   |   |              |      |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Long-term      loans from banks, net of current maturities              |   | 19     |   |              | 248,488   |   |                                                  |   | 341,586 |   |   |   | 596,721 |   |   |   | 158,072 |   |
| Convertible      debentures, net of current maturities                  |   | 19     |   |              | 193,706   |   |                                                  |   | 130,525 |   |   |   | 142,021 |   |   |   | 37,621 |   |
| Debentures,      net of current maturities                              |   | 19     |   |              | 749,018   |   |                                                  |   | 985,844 |   |   |   | 1,251,333 |   |   |   | 331,479 |   |
| Derivatives      financial instruments                                  |   | 12     |   |              | 9,968     |   |                                                  |   | *21,074 |   |   |   | 7,591 |   |   |   | 2,011 |   |
| Liabilities      in respect of employee benefits, net of amounts funded |   | 22     |   |              | 35,986    |   |                                                  |   | 49,911 |   |   |   | 47,249 |   |   |   | 12,516 |   |
| Other      liabilities                                                  |   | 20     |   |              | 11,646    |   |                                                  |   | 39,925 |   |   |   | 19,168 |   |   |   | 5,078 |   |
| Deferred      taxes                                                     |   | 21     |   |              | 57,615    |   |                                                  |   | 60,327 |   |   |   | 56,205 |   |   |   | 14,889 |   |
| Total      long-term liabilities                                        |   |   |   |              | 1,306,427 |   |                                                  |   | 1,629,192 |   |   |   | 2,120,288 |   |   |   | 561,666 |   |
|                                                                    |   |   |   |              |      |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Total      liabilities                                                  |   |   |   |              | 2,971,391 |   |                                                  |   | 3,349,025 |   |   |   | 3,941,447 |   |   |   | 1,044,091 |   |
|                                                                    |   |   |   |              |      |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| EQUITY:                                                                 |   |   |   |              |      |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Equity      attributable to equity holders of the Company:              |   |   |   |              |      |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Ordinary      shares of NIS 1 par value                                 |   | 15     |   |              | 57,094    |   |                                                  |   | 57,094 |   |   |   | 57,438 |   |   |   | 15,215 |   |
| Additional      paid-in capital                                         |   | 15     |   |              | 1,018,405 |   |                                                  |   | 1,018,405 |   |   |   | 1,030,259 |   |   |   | 272,916 |   |
| Other      reserves                                                     |   | 16     |   |              | 1,415     |   |                                                  |   | (261 | ) |   |   | 5,676 |   |   |   | 1,504 |   |
| Accumulated      deficit                                                |   | 17     |   |              | (107,262  | )      |                                                  |   | (154,719 | ) |   |   | (64,964 | ) |   |   | (17,208 | ) |
|                                                                    |   |   |   |              | 969,652   |   |                                                  |   | 920,519 |   |   |   | 1,028,409 |   |   |   | 272,427 |   |
|                                                                    |   |   |   |              |      |   |                                                  |   |   |   |   |   |   |   |   |   |   |   |
| Minority      interest                                                  |   |   |   |              | 278,028   |   |                                                  |   | 175,483 |   |   |   | 193,421 |   |   |   | 51,237 |   |
| Total      equity                                                       |   |   |   |              | 1,247,680 |   |                                                  |   | 1,096,002 |   |   |   | 1,221,830 |   |   |   | 323,664 |   |
| Total      liabilities and equity                                       |   |   |   |              | 4,219,071 |   |                                                  |   | 4,445,027 |   |   |   | 5,163,277 |   |   |   | 1,367,755 |   |

----

|                                                                                                                       |   |   |   |                                                                       |      |   |              |   |      |   |   |   | Convenience     |   |
|----------------------------------------------------------------------------------------------------------------------------|--------|--------|--------|----------------------------------------------------------------------------|-----------|--------|-------------------|--------|-----------|--------|--------|--------|-----------------|--------|
|                                                                                                                       |   |   |   |                                                                       |      |   |              |   |      |   |   |   | translation     |   |
|                                                                                                                       |   |   |   |                                                                       |      |   |              |   |      |   |   |   | (note 1b)  |   |
|                                                                                                                       |   |   |   |                                                                       |      |   |              |   |      |   |   |   | Year ended |   |
|                                                                                                                       |   |   |   | Year ended December 31                                      |      |   | December 31, |   |
|                                                                                                                       |   |   |   | 2007                                                                       |      |   | 2008              |   |      | 2009   |   |   | 2009            |   |
|                                                                                                                       |   | Note   |   | NIS                                                                        |      |   | U.S. Dollars |   |
|                                                                                                                       |   |   |   | In thousands (except earning per share data) |      |
|                                                                                                                       |   |   |   |                                                                       |      |   |              |   |      |   |   |   |            |   |
| Sales                                                                                                                      |   |   |   |                                                                       | 6,981,984 |   |              |   | 7,429,121 |   |   |   | 7,349,076       |   |   |   | 1,946,775 |   |
| Cost      of sales                                                                                                         |   |   |   |                                                                       | 5,129,578 |   |              |   | 5,369,149 |   |   |   | 5,291,012       |   |   |   | 1,401,593 |   |
| Gross      profit                                                                                                          |   |   |   |                                                                       | 1,852,406 |   |              |   | 2,059,972 |   |   |   | 2,058,064       |   |   |   | 545,182 |   |
| Selling,      general and administrative expenses                                                                          |   |   |   |                                                                       | 1,563,208 |   |              |   | 1,794,720 |   |   |   | 1,817,099       |   |   |   | 481,351 |   |
| Operating      profit before other gains and losses and net gain from adjustment of      investment property to fair value |   |   |   |                                                                       | 289,198   |   |              |   | 265,252   |   |   |   | 240,965         |   |   |   | 63,831 |   |
| Other      gains                                                                                                           |   | 24     |   |                                                                       | 15,835    |   |              |   | 12,233    |   |   |   | 4,699           |   |   |   | 1,245 |   |
| Other      losses                                                                                                          |   | 24     |   |                                                                       | (12,755   | )      |              |   | (14,716   | )      |   |   | (32,803         | )      |   |   | (8,690 | ) |
| Net      gain from adjustment of investment property to fair value                                                         |   |   |   |                                                                       | 10,456    |   |              |   | 19,067    |   |   |   | 20,775          |   |   |   | 5,503 |   |
| Operating      profit                                                                                                      |   |   |   |                                                                       | 302,734   |   |              |   | 281,836   |   |   |   | 233,636         |   |   |   | 61,889 |   |
| Finance      income                                                                                                        |   | 27     |   |                                                                       | 60,978    |   |              |   | 60,700    |   |   |   | 64,780          |   |   |   | 17,160 |   |
| Finance      expenses                                                                                                      |   | 27     |   |                                                                       | (118,297  | )      |              |   | (166,295  | )      |   |   | (177,454        | )      |   |   | (47,006 | ) |
| Finance      expenses, net                                                                                                 |   |   |   |                                                                       | 57,319    |   |              |   | 105,595   |   |   |   | 112,674         |   |   |   | 29,846 |   |
| Share      in profit (loss) of associates                                                                                  |   |   |   |                                                                       | 186       |   |              |   | (33       | )      |   |   | (37             | )      |   |   | (10 | ) |
| Income      before taxes on income                                                                                         |   |   |   |                                                                       | 245,601   |   |              |   | 176,208   |   |   |   | 120,925         |   |   |   | 32,033 |   |
| Taxes      on income                                                                                                       |   | 28     |   |                                                                       | 69,779    |   |              |   | 43,806    |   |   |   | 23,124          |   |   |   | 6,125 |   |
|                                                                                                                       |   |   |   |                                                                       |      |   |              |   |      |   |   |   |            |   |   |   |   |   |
| Profit for the      year                                                                                              |   |   |   |                                                                       | 175,822   |   |              |   | 132,402   |   |   |   | 97,801          |   |   |   | 25,908 |   |
|                                                                                                                       |   |   |   |                                                                       |      |   |              |   |      |   |   |   |            |   |   |   |   |   |
| Attributable      to:                                                                                                      |   |   |   |                                                                       |      |   |              |   |      |   |   |   |            |   |   |   |   |   |
| Equity      holders of the company                                                                                         |   |   |   |                                                                       | 143,628   |   |              |   | 104,586   |   |   |   | 77,163          |   |   |   | 20,441 |   |
| Minority      interests                                                                                                    |   |   |   |                                                                       | 32,194    |   |              |   | 27,816    |   |   |   | 20,638          |   |   |   | 5,467 |   |
|                                                                                                                       |   |   |   |                                                                       |      |   |              |   |      |   |   |   |            |   |   |   |   |   |
| Earnings per Ordinary share      or ADS attributable to equity holders of the Company:                                |   | 29     |   |                                                                       |      |   |              |   |      |   |   |   |            |   |   |   |   |   |
| Basic                                                                                                                      |   |   |   |                                                                       | 3.39      |   |              |   | 2.41      |   |   |   | 1.77            |   |   |   | 0.47 |   |
| Diluted                                                                                                                    |   |   |   |                                                                       | 3.39      |   |              |   | 1.62      |   |   |   | 1.77            |   |   |   | 0.47 |   |

----

|                                                                                      |   |   |   | Year ended December 31 |    |   | Conveniencetranslation(note 1b)Year endedDecember 31, |   |
|-------------------------------------------------------------------------------------------|--------|--------|--------|---------------------------------------|---------|--------|----------------------------------------------------------------------|--------|
|                                                                                      |   |   |   | 2007                                  |    |   | 2008                                                                 |   |   | 2009 |   |   | 2009 |   |
|                                                                                      |   | Note   |   | NIS                                   |    |   | U.S. dollars                                                    |   |
|                                                                                      |   |   |   | In thousands                     |    |
| Profit      for the year                                                                  |   |   |   |                                  | 175,822 |   |                                                                 |   | 132,402 |   |   |   | 97,801 |   |   |   | 25,908 |   |
|                                                                                      |   |   |   |                                  |    |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Other      comprehensive income (losses) items, net of tax:                               |   |   |   |                                  |    |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Available-for-sale      financial assets                                                  |   | 11     |   |                                  | 1,567   |   |                                                                 |   | (2,214 | ) |   |   | 7,502 |   |   |   | 1,987 |   |
| Actuarial      gain (loss) on post employment benefit obligations                         |   | 22     |   |                                  | (646    | )      |                                                                 |   | (10,346 | ) |   |   | 1,016 |   |   |   | 269 |   |
|                                                                                      |   |   |   |                                  |    |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Total      – other comprehensive income (losses) recognized directly in      equity |   |   |   |                                  | 921     |   |                                                                 |   | (12,560 | ) |   |   | 8,518 |   |   |   | 2,256 |   |
| Total      comprehensive income for the year                                              |   |   |   |                                  | 176,743 |   |                                                                 |   | 119,842 |   |   |   | 106,319 |   |   |   | 28,164 |   |
|                                                                                      |   |   |   |                                  |    |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Attributable      to:                                                                     |   |   |   |                                  |    |   |                                                                 |   |   |   |   |   |   |   |   |   |   |   |
| Equity      holders of the Company                                                        |   |   |   |                                  | 144,614 |   |                                                                 |   | 92,898 |   |   |   | 83,958 |   |   |   | 22,241 |   |
| Minority      interest                                                                    |   |   |   |                                  | 32,129  |   |                                                                 |   | 26,944 |   |   |   | 22,361 |   |   |   | 5,923 |   |
|                                                                                      |   |   |   |                                  | 176,743 |   |                                                                 |   | 119,842 |   |   |   | 106,319 |   |   |   | 28,164 |   |

----

|                                                              |   | Equity attributable to equity holders of the Company |   |   |                     |   |      |          |   |
|-------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------|--------|--------|--------------------------|--------|-----------|---------------|--------|
|                                                              |   | Ordinaryshares                                                                          |   |   | Additionalpaid-incapital |   |      | Otherreserves |   |   | Retainedearnings(Accumulateddeficit) |   |   | Total |   |   | Minorityinterest |   |   | Totalequity |   |
|                                                              |   | NIS in thousands                                                              |   |
|                                                              |   |                                                                                    |   |   |                     |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |
| BALANCE      AT JANUARY 1, 2007                                   |   |                                                                                    | 53,414 |   |                     |   | 766,409   |          |   |   | - |   |   |   | 29,539 |   |   |   | 849,362 |   |   |   | 241,122 |   |   |   | 1,090,484 |   |
| CHANGES      DURING 2007:                                         |   |                                                                                    |   |   |                     |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      income for the period                          |   |                                                                                    | -      |   |                     |   | -         |          |   |   | 1,415 |   |   |   | 143,199 |   |   |   | 144,614 |   |   |   | 32,129 |   |   |   | 176,743 |   |
| Issuance      of shares upon conversion of convertible debentures |   |                                                                                    | 3,680  |   |                     |   | 251,996   |          |   |   | - |   |   |   | - |   |   |   | 255,676 |   |   |   | - |   |   |   | 255,676 |   |
| Transaction      with minority interest                           |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 52,483 |   |   |   | 52,483 |   |
| Dividends      paid                                               |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | (280,000 | ) |   |   | (280,000 | ) |   |   | - |   |   |   | (280,000 | ) |
| Dividends      distributed to minority interest of subsidiaries   |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (47,706 | ) |   |   | (47,706 | ) |
| BALANCE      AT DECEMBER 31, 2007                                 |   |                                                                                    | 57,094 |   |                     |   | 1,018,405 |          |   |   | 1,415 |   |   |   | (107,262 | ) |   |   | 969,652 |   |   |   | 278,028 |   |   |   | 1,247,680 |   |
| CHANGES      DURING 2008:                                         |   |                                                                                    |   |   |                     |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      income for the period                          |   |                                                                                    | -      |   |                     |   | -         |          |   |   | (1,676 | ) |   |   | 94,574 |   |   |   | 92,898 |   |   |   | 26,944 |   |   |   | 119,842 |   |
| Employee      share-based payment                                 |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | 7,969 |   |   |   | 7,969 |   |   |   | 206 |   |   |   | 8,175 |   |
| Transaction      with minority interest                           |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (103,264 | ) |   |   | (103,264 | ) |
| Dividends      paid                                               |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | (150,000 | ) |   |   | (150,000 | ) |   |   | - |   |   |   | (150,000 | ) |
| Dividends      distributed to minority interest of subsidiaries   |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (26,431 | ) |   |   | (26,431 | ) |
| BALANCE      AT DECEMBER 31, 2008                                 |   |                                                                                    | 57,094 |   |                     |   | 1,018,405 |          |   |   | (261 | ) |   |   | (154,719 | ) |   |   | 920,519 |   |   |   | 175,483 |   |   |   | 1,096,002 |   |
| CHANGES      DURING 2009:                                         |   |                                                                                    |   |   |                     |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      income for the period                          |   |                                                                                    | -      |   |                     |   | -         |          |   |   | 5,937 |   |   |   | 78,021 |   |   |   | 83,958 |   |   |   | 22,361 |   |   |   | 106,319 |   |
| Employee      share-based payment                                 |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | 11,734 |   |   |   | 11,734 |   |   |   | 432 |   |   |   | 12,166 |   |
| Transaction      with minority interest                           |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 7,283 |   |   |   | 7,283 |   |
| Issuance      of shares upon conversion of convertible debentures |   |                                                                                    | 344    |   |                     |   | 11,854    |          |   |   | - |   |   |   | - |   |   |   | 12,198 |   |   |   | - |   |   |   | 12,198 |   |
| Dividends      distributed to minority interest of subsidiaries   |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (12,138 | ) |   |   | (12,138 | ) |
| BALANCE      AT DECEMBER 31, 2009                                 |   |                                                                                    | 57,438 |   |                     |   | 1,030,259 |          |   |   | 5,676 |   |   |   | (64,964 | ) |   |   | 1,028,409 |   |   |   | 193,421 |   |   |   | 1,221,830 |   |
|                                                              |   |                                                                                    |   |   |                     |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                              |   | Convenience      translation into U.S. dollars in thousands (note      1b)              |   |
| BALANCE      AT JANUARY 1, 2009                                   |   |                                                                                    | 15,124 |   |                     |   | 269,776   |          |   |   | (69 | ) |   |   | (40,985 | ) |   |   | 243,846 |   |   |   | 46,486 |   |   |   | 290,332 |   |
| CHANGES      DURING 2009:                                         |   |                                                                                    |   |   |                     |   |      |          |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Comprehensive      income for the period                          |   |                                                                                    | -      |   |                     |   | -         |          |   |   | 1,573 |   |   |   | 20,668 |   |   |   | 22,241 |   |   |   | 5,923 |   |   |   | 28,164 |   |
| Employee      share-based payment                                 |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | 3,109 |   |   |   | 3,109 |   |   |   | 114 |   |   |   | 3,223 |   |
| Transaction      with minority interest                           |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,929 |   |   |   | 1,929 |   |
| Issuance      of shares upon conversion of convertible debentures |   |                                                                                    | 91     |   |                     |   | 3,140     |          |   |   | - |   |   |   | - |   |   |   | 3,231 |   |   |   | - |   |   |   | 3,231 |   |
| Dividends      distributed to minority interest of subsidiaries   |   |                                                                                    | -      |   |                     |   | -         |          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (3,215 | ) |   |   | (3,215 | ) |
| BALANCE      AT DECEMBER 31, 2009                                 |   |                                                                                    | 15,215 |   |                     |   | 272,916   |          |   |   | 1,504 |   |   |   | (17,208 | ) |   |   | 272,427 |   |   |   | 51,237 |   |   |   | 323,664 |   |

----

|                                                                              |   |              |     |   | Convenience      |   |
|-----------------------------------------------------------------------------------|--------|-------------------|----------|--------|------------------|--------|
|                                                                              |   |              |     |   | translation      |   |
|                                                                              |   |              |     |   | (note 1b)   |   |
|                                                                              |   | Year ended   |     |   | Year ended  |   |
|                                                                              |   | December 31  |     |   | December 31 |   |
|                                                                              |   | 2007              |     |   | 2008             |   |   | 2009 |   |   | 2009 |   |
|                                                                              |   | NIS               |     |   | U.S dollars |   |
|                                                                              |   | In thousands |     |
| CASH      FLOWS FROM OPERATING ACTIVITIES:                                        |   |              |     |   |             |   |   |   |   |   |   |   |
| Income      before taxes on income                                                |   |              | 245,601  |   |             |   | 176,208 |   |   |   | 120,925 |   |   |   | 32,033 |   |
| Income      tax paid                                                              |   |              | (60,903  | )      |             |   | (94,212 | ) |   |   | (38,101 | ) |   |   | (10,093 | ) |
| Adjustments      to reflect cash flows from operating activities (a)              |   |              | 163,781  |   |             |   | 327,777 |   |   |   | 177,520 |   |   |   | 47,023 |   |
| Net      cash provided by operating activities                                    |   |              | 348,479  |   |             |   | 409,773 |   |   |   | 260,344 |   |   |   | 68,963 |   |
| CASH FLOWS FROM INVESTING      ACTIVITIES:                                        |   |              |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Purchase      of property, plant and equipment                                    |   |              | (174,275 | )      |             |   | (211,646 | ) |   |   | (203,889 | ) |   |   | (54,010 | ) |
| Proceeds      from sale of property, plant and equipment                          |   |              | 1,478    |   |             |   | 1,559 |   |   |   | 2,581 |   |   |   | 684 |   |
| Purchase      of investment property                                              |   |              | (21,339  | )      |             |   | (69,749 | ) |   |   | (9,435 | ) |   |   | (2,499 | ) |
| Proceeds      from sale of investment property                                    |   |              | 14,978   |   |             |   | 6,567 |   |   |   | 5,700 |   |   |   | 1,510 |   |
| Additional      investment in subsidiaries                                        |   |              | (5,000   | )      |             |   | (186,403 | ) |   |   | (8,020 | ) |   |   | (2,125 | ) |
| Investment      in restricted deposit                                             |   |              | -        |   |             |   | - |   |   |   | (470,000 | ) |   |   | (124,503 | ) |
| Proceeds      from collection of restricted deposit                               |   |              | -        |   |             |   | - |   |   |   | 470,000 |   |   |   | 124,503 |   |
| Payments      on account of real estate                                           |   |              | (45,825  | )      |             |   | - |   |   |   | - |   |   |   | - |   |
| Proceeds      from realization of investment in subsidiary                        |   |              | 394      |   |             |   | - |   |   |   | 10,912 |   |   |   | 2,891 |   |
| Investment      in intangible assets                                              |   |              | (15,021  | )      |             |   | (30,372 | ) |   |   | (20,738 | ) |   |   | (5,493 | ) |
| Proceeds      from collection of short-term bank deposit, net                     |   |              | 398,513  |   |             |   | 101,281 |   |   |   | 139 |   |   |   | 37 |   |
| Proceeds      from collection of other long-term receivables                      |   |              | 409      |   |             |   | 1,250 |   |   |   | - |   |   |   | - |   |
| Proceeds      from sale of marketable securities                                  |   |              | 13,340   |   |             |   | 185,104 |   |   |   | 101,867 |   |   |   | 26,985 |   |
| Purchase      of marketable securities                                            |   |              | (175,258 | )      |             |   | (169,747 | ) |   |   | (113,966 | ) |   |   | (30,190 | ) |
| Acquisition      of subsidiaries (b)                                              |   |              | (161,876 | )      |             |   | - |   |   |   | (4,789 | ) |   |   | (1,269 | ) |
| Interest      received                                                            |   |              | 55,170   |   |             |   | 17,778 |   |   |   | 11,948 |   |   |   | 3,165 |   |
| Net      cash used in investing activities                                        |   |              | (114,312 | )      |             |   | (354,378 | ) |   |   | (227,690 | ) |   |   | (60,314 | ) |
| CASH      FLOWS FROM FINANCING ACTIVITIES:                                        |   |              |     |   |             |   |   |   |   |   |   |   |   |   |   |   |
| Repayment      of convertible debentures                                          |   |              | (16,728  | )      |             |   | - |   |   |   | (13,297 | ) |   |   | (3,522 | ) |
| Dividends      paid to shareholders                                               |   |              | (280,000 | )      |             |   | (150,000 | ) |   |   | - |   |   |   | - |   |
| Issuance      of debentures                                                       |   |              | -        |   |             |   | 121,259 |   |   |   | 294,280 |   |   |   | 77,955 |   |
| Dividends      paid to minority shareholders of subsidiaries                      |   |              | (50,706  | )      |             |   | (22,077 | ) |   |   | (16,491 | ) |   |   | (4,368 | ) |
| Receipt      of long-term loans                                                   |   |              | 269,364  |   |             |   | 231,398 |   |   |   | 387,700 |   |   |   | 102,702 |   |
| Repayments      of long-term loans                                                |   |              | (215,143 | )      |             |   | (130,571 | ) |   |   | (139,060 | ) |   |   | (36,837 | ) |
| Repayments      of long-term credit from trade payables                           |   |              | (1,740   | )      |             |   | (1,740 | ) |   |   | (1,740 | ) |   |   | (461 | ) |
| Proceeds      from exercise of options in a subsidiary                            |   |              | -        |   |             |   | - |   |   |   | 2,306 |   |   |   | 611 |   |
| Short-term      credit from banks, net                                            |   |              | 3,396    |   |             |   | 15,689 |   |   |   | 76,144 |   |   |   | 20,171 |   |
| Interest      paid                                                                |   |              | (72,527  | )      |             |   | (89,244 | ) |   |   | (93,900 | ) |   |   | (24,874 | ) |
| Net      cash provided by (used in) financing activities                          |   |              | (364,084 | )      |             |   | (25,286 | ) |   |   | 495,942 |   |   |   | 131,377 |   |
| INCREASE      (DECREASE) IN CASH, CASH EQUIVALENTS AND BANK OVERDRAFTS            |   |              | (129,917 | )      |             |   | 30,109 |   |   |   | 528,596 |   |   |   | 140,026 |   |
| CASH,      CASH EQUIVALENTS AND BANK OVERDRAFTS AT BEGINNING OF YEAR              |   |              | 182,946  |   |             |   | 53,029 |   |   |   | 83,138 |   |   |   | 22,023 |   |
| CASH,      CASH EQUIVALENTS AND BANK OVERDRAFTS AT END OF YEAR (see note      14) |   |              | 53,029   |   |             |   | 83,138 |   |   |   | 611,734 |   |   |   | 162,049 |   |

----

|   |   |                                                                                                       |   |                                  |    |   |              |   |    |   |   |   | Convenience    |   |
|--------|--------|------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|---------|--------|-------------------|--------|---------|--------|--------|--------|----------------|--------|
|   |   |                                                                                                       |   |                                  |    |   |              |   |    |   |   |   | translation    |   |
|   |   |                                                                                                       |   |                                  |    |   |              |   |    |   |   |   | (note 1b) |   |
|   |   |                                                                                                       |   |                                  |    |   | Year ended   |   |
|   |   |                                                                                                       |   | Year ended December 31 |    |   | December 31, |   |
|   |   |                                                                                                       |   | 2007                                  |    |   | 2008              |   |    | 2009   |   |   | 2009           |   |
|   |   |                                                                                                       |   | NIS                                   |    |   | U.S dollars  |   |
|   |   |                                                                                                       |   | In thousands                     |    |
| (a)    |   | Adjustments      for:                                                                                      |   |                                  |    |   |              |   |    |   |   |   |           |   |
|   |   | Income      and expenses not involving cash flows:                                                         |   |                                  |    |   |              |   |    |   |   |   |           |   |
|   |   | Depreciation      and amortization                                                                         |   |                                  | 141,100 |   |              |   | 153,882 |   |   |   | 165,248        |   |   |   | 43,774 |   |
|   |   | Net      gain from adjustment of investment property to fair      value                                    |   |                                  | (10,456 | )      |              |   | (19,067 | )      |   |   | (20,775        | )      |   |   | (5,503 | ) |
|   |   | Share      in (profit) loss of associates                                                                  |   |                                  | (186    | )      |              |   | 33      |   |   |   | 37             |   |   |   | 10 |   |
|   |   | Share-based      payment                                                                                   |   |                                  | -       |   |              |   | 8,175   |   |   |   | 12,166         |   |   |   | 3,223 |   |
|   |   | Loss      from sale and disposal of property, plant and equipment,    net                                  |   |                                  | 6,757   |   |              |   | 2,569   |   |   |   | 3,299          |   |   |   | 874 |   |
|   |   | Loss      (gain) from impairment of property, plant and equipment and intangible      assets, net          |   |                                  | (11,684 | )      |              |   | 3,420   |   |   |   | 19,981         |   |   |   | 5,293 |   |
|   |   | Loss      (gain) from changes in fair value of    derivatives                                              |   |                                  | 1,400   |   |              |   | (19,247 | )      |   |   | (21,250        | )      |   |   | (5,629 | ) |
|   |   | Linkage      differences on monetary assets,                                                               |   |                                  |    |   |              |   |    |   |   |   |           |   |   |   |   |   |
|   |   | long-term      loans and other  liabilities, net                                                 |   |                                  | 18,428  |   |              |   | 59,669  |   |   |   | 52,347         |   |   |   | 13,867 |   |
|   |   | Capital      (gain) loss on changes in holdings in subsidiaries                                            |   |                                  | 1,520   |   |              |   | (9,801  | )      |   |   | 911            |   |   |   | 242 |   |
|   |   | Increase      (decrease) in liabilities for employee rights, net                                           |   |                                  | (31     | )      |              |   | 263     |   |   |   | 144            |   |   |   | 38 |   |
|   |   | Decrease      (increase) in value of investment in securities, deposit and long-term      receivables, net |   |                                  | 54,252  |   |              |   | 11,169  |   |   |   | (4,468         | )      |   |   | (1,184 | ) |
|   |   | Interest      paid, net of interest received                                                               |   |                                  | 17,357  |   |              |   | 71,466  |   |   |   | 81,952         |   |   |   | 21,709 |   |
|   |   |                                                                                                       |   |                                  |    |   |              |   |    |   |   |   |           |   |   |   |   |   |
|   |   | Changes      in operating assets and liabilities:                                                          |   |                                  |    |   |              |   |    |   |   |   |           |   |   |   |   |   |
|   |   | Decrease      (increase) in trade receivables and                                                          |   |                                  |    |   |              |   |    |   |   |   |           |   |   |   |   |   |
|   |   | other      accounts receivable                                                                             |   |                                  | (65,849 | )      |              |   | 59,967  |   |   |   | (65,468        | )      |   |   | (17,343 | ) |
|   |   | Increase      in inventories                                                                               |   |                                  | (16,145 | )      |              |   | (43,136 | )      |   |   | (17,224        | )      |   |   | (4,563 | ) |
|   |   | Increase      (decrease) in trade payables, other accounts payable and      provisions                     |   |                                  | 27,318  |   |              |   | 48,415  |   |   |   | (29,380        | )      |   |   | (7,785 | ) |
|   |   |                                                                                                       |   |                                  | 163,781 |   |              |   | 327,777 |   |   |   | 177,520        |   |   |   | 47,023 |   |

----

|   |   |                                                                                                |   |                                  |     |   |              |   |
|--------|--------|-----------------------------------------------------------------------------------------------------|--------|---------------------------------------|----------|--------|-------------------|--------|
|   |   |                                                                                                |   |                                  |     |   | Convenience       |   |
|   |   |                                                                                                |   |                                  |     |   | translation       |   |
|   |   |                                                                                                |   |                                  |     |   | (note 1b)    |   |
|   |   |                                                                                                |   |                                  |     |   | Year ended   |   |
|   |   |                                                                                                |   | Year ended December 31 |     |   | December 31, |   |
|   |   |                                                                                                |   | 2007                                  |     |   | 2008              |   |   | 2009 |   |   | 2009 |   |
|   |   |                                                                                                |   | NIS                                   |     |   | U.S dollars  |   |
|   |   |                                                                                                |   | In thousands                     |     |
|   |   |                                                                                                |   |                                  |     |   |              |   |   |   |   |   |   |   |
| (b)    |   | Acquisition      of subsidiaries:                                                                   |   |                                  |     |   |              |   |   |   |   |   |   |   |
|   |   | Assets      and liabilities at date of acquisition:                                                 |   |                                  |     |   |              |   |   |   |   |   |   |   |
|   |   | Working      capital (excluding cash and cash equivalents)                                          |   |                                  | (63,999  | )      |              |   | - |   |   |   | 2,350 |   |   |   | 621 |   |
|   |   | Property,      plant and equipment                                                                  |   |                                  | (31,053  | )      |              |   | - |   |   |   | (297 | ) |   |   | (78 | ) |
|   |   | Deferred      taxes, net                                                                            |   |                                  | 14,703   |   |              |   | - |   |   |   | (453 | ) |   |   | (120 | ) |
|   |   | Liability      for employee rights, net                                                             |   |                                  | 1,979    |   |              |   | - |   |   |   | - |   |   |   | - |   |
|   |   | Long-term      loans and convertible debentures                                                     |   |                                  | 34,288   |   |              |   | - |   |   |   | - |   |   |   | - |   |
|   |   | Intangible      assets                                                                              |   |                                  | (174,949 | )      |              |   | - |   |   |   | (6,389 | ) |   |   | (1,692 | ) |
|   |   | Minority      interest                                                                              |   |                                  | 55,645   |   |              |   | - |   |   |   | - |   |   |   | - |   |
|   |   | Derivative                                                                                          |   |                                  | 1,510    |   |              |   | - |   |   |   | - |   |   |   | - |   |
|   |   |                                                                                                |   |                                  | (161,876 | )      |              |   | - |   |   |   | (4,789 | ) |   |   | (1,269 | ) |
|   |   |                                                                                                |   |                                  |     |   |              |   |   |   |   |   |   |   |   |   |   |   |
| (c)    |   | Supplementary      information on investing and financing activities not involving cash      flows: |   |                                  |     |   |              |   |   |   |   |   |   |   |   |   |   |   |
|   |   | Issuance      of shares upon conversion of convertible debentures                                   |   |                                  | 255,676  |   |              |   | - |   |   |   | 12,198 |   |   |   | 3,231 |   |
|   |   | Conversion      of convertible debentures of subsidiary                                             |   |                                  | 2,598    |   |              |   | 6,655 |   |   |   | - |   |   |   | - |   |
|   |   | Purchase      of property, plant and equipment on credit                                            |   |                                  | 5,690    |   |              |   | 14,797 |   |   |   | 174 |   |   |   | 116 |   |

----

|  | a. | Information on the activities      of Blue Square Israel Ltd and its  subsidiaries |
|--|----|------------------------------------------------------------------------------------|

|  | b. | Convenience      translation into U.S dollars (hereinafter-"dollars" or  "$") |
|--|----|-------------------------------------------------------------------------------|

|   | a. | Basis      of presentation |
|--------|----|----------------------------|

----

|   | b. | Consolidated      financial statements |
|--------|----|----------------------------------------|

|  | 1) | Subsidiaries |
|--|----|--------------|

----

|  | 2) | Transactions      with minority interests |
|--|----|-------------------------------------------|

|  | 3) | Joint      ventures |
|--|----|---------------------|

|  | 4) | Associates |
|--|----|------------|

|  | c. | Segment      reporting |
|--|----|------------------------|

|  | d. | Foreign      currency transactions |
|--|----|------------------------------------|

|  | 1) | Functional      and presentation currency |
|--|----|-------------------------------------------|

|  | 2) | Transactions      and balances |
|--|----|--------------------------------|

----

|  | e. | Property,      plant and equipment |
|--|----|------------------------------------|

|                                        | Years  |
|---------------------------------------------|--------|
| Buildings                                   |   | 50 |
| Vehicles                                    |   | 5-7 |
| Furniture,      equipment and installations |   | 3-15      (mainly10) |

|  | f. | Investment      property |
|--|----|--------------------------|

----

|   | g. | Intangible      assets: |
|--------|----|-------------------------|

|  | 1) | Goodwill |
|--|----|----------|

|  | 2) | Brand      name, trademarks and customer base |
|--|----|-----------------------------------------------|

|  | 3) | Computer      software |
|--|----|------------------------|

----

|  | 4) | Evacuation      fees |
|--|----|----------------------|

|   | h. | Impairment      of non-financial assets |
|--------|----|-----------------------------------------|

----

|   | i. | Borrowing      costs |
|--------|----|----------------------|

|   | j. | Financial      assets |
|--------|----|-----------------------|

|  | 1) | Classification |
|--|----|----------------|

|   | a) | Financial      assets at fair value through profit orloss |
|--------|----|-----------------------------------------------------------|

|   | b) | Loans      and receivables |
|--------|----|----------------------------|

|   | c) | Available-for-sale      financial assets |
|--------|----|------------------------------------------|

----

|  | 2) | Recognition      and measurement |
|--|----|----------------------------------|

----

|   | k. | Derivative      financial instruments |
|--------|----|---------------------------------------|

|   | l. | Inventories |
|--------|----|-------------|

|  | m. | Trade      receivables |
|--|----|------------------------|

|   | n. | Cash      and cash equivalents |
|--------|----|--------------------------------|

----

|   | o. | Share      capital |
|--------|----|--------------------|

|   | p. | Trade      payables and rebates |
|--------|----|---------------------------------|

|   | q. | Borrowings |
|--------|----|------------|

----

|   | r. | Current      and deferred income taxes |
|--------|----|----------------------------------------|

----

|   | s. | Employee      benefits |
|--------|----|------------------------|

|  | 1) | Retirement      benefit obligations |
|--|----|-------------------------------------|

----

|  | 2) | Provision      for unutilized sick leave |
|--|----|------------------------------------------|

|  | 3) | Termination      benefits |
|--|----|---------------------------|

|  | 4) | Jubilee      grant |
|--|----|--------------------|

----

|  | 5) | Vacation      and recreation benefits |
|--|----|---------------------------------------|

|  | 6) | Share-based      payment |
|--|----|--------------------------|

|  | 7) | Profit      sharing and bonus plans |
|--|----|-------------------------------------|

|   | t. | Provisions |
|--------|----|------------|

----

|   | u. | Other      comprehensive income |
|--------|----|---------------------------------|

|   | v. | Revenue      recognition |
|--------|----|--------------------------|

|  | 1) | Sales      of goods – retail |
|--|----|------------------------------------|

|  | 2) | Sales      of goods – wholesale |
|--|----|---------------------------------------|

----

|  | 3) | Rental      revenue |
|--|----|---------------------|

|  | 4) | Club      member awards and loyalty programs |
|--|----|----------------------------------------------|

|   | w. | Finance      income and expenses |
|--------|----|----------------------------------|

|   | x. | Advertising      costs |
|--------|----|------------------------|

----

|   | y. | Leases |
|--------|----|--------|

|   | z. | Dividend      distribution |
|--------|----|----------------------------|

|   | aa. | Earnings      per share |
|--------|-----|-------------------------|

|   | ab. | Reclassifications |
|--------|-----|-------------------|

----

|   | bb. | New      and Amended IFRS andInterpretations |
|--------|-----|----------------------------------------------|

|  | 1.  | The      following new standards and amendments to standard are mandatory for the      first time for the financial year beginning January 1,    2009: |
|--|----------|--------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | a) | IAS      1 (revised), "presentation of financial statements" (hereafter – IAS 1R).      The revised standard prohibits the presentation of items of income and      expenses (that is 'non-owner changes in equity') in the statement of      changes in equity, requiring "non-owner changes in equity" to be presented      separately from owner changes in equity. All 'non-owner changes in equity'      are required to be shown in a performance  statement. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | IFRS      8, "Operating segments" (hereafter-IFRS 8). The Company has      retrospectively applied in 2009 IFRS 8, which  replaces IAS 14,      "Segment reporting". IFRS 8 requires a 'manegment approach' under which      segment information is presented on the same basis as that used for      internal reporting purposes. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | c) | IFRS      7 "Financial instruments" – Disclosures (amendment) –      effective  January 12009. |
|--------|----|----------------------------------------------------------------------------------------------------------------------|

|   | d) | Amendment      to IAS 24 - "Related Party Disclosures" (hereafter - the amendment to IAS      24).  The amendment simplifies the definition of related party      so that the disclosure required by certain entities is expanded; the      amendment also eliminates inconsistency between disclosures of two parties      of the same transaction. The amendment to IAS 24 applies retroactively.      The Company elected early adoption of the Amendment to IAS 24, in these      financial statements. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 2. | The      following new standards, amendments to standard and interpretations have      been issued, but are not effective for the financial year beginning      January 1, 2009 and have not been earlyadopted: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | a) | IFRS      3 (revised), "Business combinations" (effective from July 1, 2009). The      revised standard continues to apply the acquisition method to business      combinations, with some significant changes. For example, all payments to      purchase a business are to be recorded at fair value at the acquisition      date, with contingent payment classified as debt subsequently re-measured      through the income statement. There is a choice on an acquisition-by-      acquisition basis to measure the non-controlling interest in the acquiree      at fair vale or at the non-controlling interest's proportionate share of      the acquiree's net assets. All acquisition-related costs should be      expensed. The Company will apply IFRS 3 (revised) prospectively to all      business combinations from January 1,2010. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | IAS      27R - "Consolidated and Separate Financial Statements" (effective for      financial years commencing on or after July 1,  2009). |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------|

|   | c) | Amendment      to IAS 17– in effect for annual reporting periods commencing January 1,      2010 and thereafter.  The amendment is part of the annual      improvements project of the IASB published in April 2009.  In      accordance with the amendment to IAS 17, the demand that lease of land      would be classified automatically as operating lease in any case where it      is not expected that ownership will be transferred to the lessee at the      end of the lease period is cancelled.  Accordingly, the lease of      land would be accounted for based on the regular criteria for      classification as a finance lease or as an operating lease and based on      the information available at time of entering into the lease agreement      with retrospective application; unless the entity does not have      the information required to apply the amendment to IAS 17      retrospectively. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | d) | IAS      38 (amendment), "Intangible Assets". The amendment is part of the IASB’s      annual improvements project published in April 2009 and the Company will      apply IAS 38 (amendment) from the date IFRS 3 (revised) is adopted. The      amendment clarifies guidance in measuring the fair value of an intangible      asset acquired in a business combination and it permits the grouping of      intangible assets as a single asset if each asset has similar useful      economic lives. The amendment will not result in a material impact on the      Company’s financial statements. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e) | IFRS      9, "Financial Instruments". On November 12, 2009, the IASB issued IFRS 9      as the first step in its project to replace IAS 39 Financial Instruments:      Recognition and Measurement. IFRS 9 introduces new requirements for      classifying and measuring financial assets that must be applied starting      January 1, 2013, with early adoption permitted. The IASB intends to expand      IFRS 9 during 2010 to add new requirements for classifying and measuring      financial liabilities, derecognition of financial instruments, impairment,      and hedge accounting. IFRS 9 divides all financial assets that are      currently in the scope of IAS 39 into two classifications – those measured      at amortised cost and those measured at fair value. Classification is made      at the time the financial asset is initially recognised, namely when the      entity becomes a party to the contractual provisions of the instrument. A      debt instrument that meets the following two conditions can be measured at      amortised cost (net of any writedown for impairment): the objective of the      entity's business model is to hold the financial asset to collect the      contractual cash flows and the contractual terms of the financial asset      give rise on specified dates to cash flows that are solely payments of      principal and interest on the principal outstanding. All other debt      instruments must be measured at fair value through profit or loss.      Further, embedded derivatives that under IAS 39 would have been separately      accounted for at fair value through profit and loss because they were not      closely related to the financial host asset will no longer be separated.      Instead, the contractual cash flows of the financial asset are assessed in      their entirety, and the asset as a whole is measured at fair value through      profit and loss if any of its cash flows do not represent payments of      principal and interest. Also all equity investments in scope of IFRS 9 are      to be measured at fair value in the statement of financial position, with      value changes recognised in profit or loss, except for those equity      investments for which the entity has elected to report value changes in      OCI. IFRS 9 does not address financial liabilities. The Company      currently assesses the potential effects of application of IFRS 9 on its      financial statements. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f) | IFRIC      17, 'Distribution of Non-Cash Assets to Owners' – this interpretation      determines the accounting for distribution of non-cash assets to      shareholders ("dividend in kind"). The Interpretation determined the time      for initial recognition of such a liability and the way this liability is      measured until actual distribution. This Interpretation will be applied      prospectively as from January 1,2010. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                  |   | Year ended December 31 |   |   | December 31                              |   |
|-----------------------|--------|---------------------------------------|--------|--------|-----------------------------------------------|--------|
|                  |   | 2007                                  |   |   | 2008                                          |   |   | 2009 |   |   | 2007 |   |   | 2008 |   |   | 2009 |   |
|                  |   | NIS in millions             |   |
|                  |   | Impact onpost-tax profit    |   |   | Impact on Comprehensive income |   |
| Government      bonds |   |                                  | 0.1    |   |                                          |   | - |   |   |   | - |   |   |   | 3.1 |   |   |   | 2.7 |   |   |   | 4.1 |   |
| Corporate      bonds  |   |                                  | 1.1    |   |                                          |   | 0.5 |   |   |   | 0.2 |   |   |   | 3.9 |   |   |   | 3.5 |   |   |   | 2.9 |   |
|                  |   |                                  | 1.2    |   |                                          |   | 0.5 |   |   |   | 0.2 |   |   |   | 7.0 |   |   |   | 6.2 |   |   |   | 7.0 |   |

----

----

----

|                                      |   | December 31, 2009 |      |
|-------------------------------------------|--------|-----------------------------|-----------|
|                                      |   | Less than1 Year   |      |   | Between 1and 2Years |   |   | Between 2and 5Years |   |   | Over 5Years |   |   | Total |   |
|                                      |   | NIS in thousands  |      |
| Trade      payables                       |   |                        | 915,845   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 915,845 |   |
| Other      payables                       |   |                        | 460,000   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 460,000 |   |
| Bank      loans                           |   |                        | 307,694   |   |   |   | 142,639 |   |   |   | 258,362 |   |   |   | 341,752 |   |   |   | 1,050,447 |   |
| Debenture      and convertible debentures |   |                        | 150,025   |   |   |   | 106,747 |   |   |   | 882,408 |   |   |   | 752,244 |   |   |   | 1,891,424 |   |
| Other      long-term payables             |   |                        | 4,561     |   |   |   | 10,914 |   |   |   | - |   |   |   | 2,966 |   |   |   | 15,475 |   |
| Total                                     |   |                        | 1,838,125 |   |   |   | 260,300 |   |   |   | 1,140,770 |   |   |   | 1,096,962 |   |   |   | 4,336,157 |   |

|                                      |   | December 31, 2008 |      |
|-------------------------------------------|--------|-----------------------------|-----------|
|                                      |   | Less than1 Year   |      |   | Between 1and 2Years |   |   | Between 2and 5Years |   |   | Over 5Years |   |   | Total |   |
|                                      |   | NIS in thousands  |      |
| Trade      payables                       |   |                        | 1,004,799 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,004,799 |   |
| Other      payables                       |   |                        | 436,471   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 436,471 |   |
| Forward      contracts (fair value)       |   |                        | -         |   |   |   | 11,593 |   |   |   | - |   |   |   | - |   |   |   | 11,593 |   |
| Bank      Loans                           |   |                        | 236,163   |   |   |   | 116,496 |   |   |   | 214,220 |   |   |   | 68,163 |   |   |   | 635,042 |   |
| Debenture      and convertible debentures |   |                        | 78,589    |   |   |   | 132,231 |   |   |   | 506,149 |   |   |   | 812,258 |   |   |   | 1,529,227 |   |
| Other      long-term payables             |   |                        | 9,130     |   |   |   | 28,249 |   |   |   | 15,783 |   |   |   | 1,383 |   |   |   | 54,545 |   |
| Total                                     |   |                        | 1,765,152 |   |   |   | 288,569 |   |   |   | 736,152 |   |   |   | 881,804 |   |   |   | 3,671,677 |   |

----

|   | · | Quoted      prices (unadjusted) in active markets for identical assets or liabilities      (level 1). |
|--------|--------|-------------------------------------------------------------------------------------------------------|

|   | · | Inputs      other than quoted prices included within level 1 that are observable for      the asset or liability, either directly (that is, as prices) or indirectly      (that is, derived from prices) (level2). |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Inputs      for the asset or liability that are not based on observable market data      (that is, unobservable inputs) (level3). |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------|

|                                                         |   | Level 1               |    |   | Level 2 |   |   | Level 3 |   |   | Total balance |   |
|--------------------------------------------------------------|--------|----------------------------|---------|--------|--------------|--------|--------|--------------|--------|--------|--------------------|--------|
|                                                         |   | NIS in thousands |    |
| Assets:                                                      |   |                       |    |   |         |   |   |         |   |   |               |   |
| Financial      assets at fair value through profit or loss:  |   |                       |    |   |         |   |   |         |   |   |               |   |
| Corporate      bonds                                         |   |                       | 4,733   |   |         |   | -      |         |   |   | -                  |   |   |   | 4,733 |   |
| Forwards      contracts over Israeli CPI                     |   |                       | -       |   |         |   | 9,690  |         |   |   | -                  |   |   |   | 9,690 |   |
| Diners      option                                           |   |                       | -       |   |         |   | -      |         |   |   | 12,266             |   |   |   | 12,266 |   |
| Embedded      derivatives in rent agreements                 |   |                       | -       |   |         |   | 425    |         |   |   | -                  |   |   |   | 425 |   |
| Equity      securities                                       |   |                       | -       |   |         |   | -      |         |   |   | 25,000             |   |   |   | 25,000 |   |
| Available-for-sale      financial assets -                   |   |                       |    |   |         |   |   |         |   |   |               |   |   |   |   |   |
| Goverment      Bonds                                         |   |                       | 110,884 |   |         |   | -      |         |   |   | -                  |   |   |   | 110,884 |   |
| Corporate      Bonds                                         |   |                       | 72,295  |   |         |   | -      |         |   |   | -                  |   |   |   | 72,295 |   |
| Total      assets                                            |   |                       | 187,912 |   |         |   | 10,115 |         |   |   | 37,266             |   |   |   | 235,293 |   |
| Liabilities:                                                 |   |                       |    |   |         |   |   |         |   |   |               |   |   |   |   |   |
| Embedded      derivatives:                                   |   |                       |    |   |         |   |   |         |   |   |               |   |   |   |   |   |
| Conversion      component embedded in convertible debentures |   |                       | -       |   |         |   | 11,898 |         |   |   | -                  |   |   |   | 11,898 |   |
| Rent      agreements                                         |   |                       | -       |   |         |   | 7,591  |         |   |   | -                  |   |   |   | 7,591 |   |
| Total      liabilities                                       |   |                       | -       |   |         |   | 19,489 |         |   |   | -                  |   |   |   | 19,489 |   |

----

|   | · | Quoted      market prices or dealer quotes for similar  instruments. |
|--------|--------|----------------------------------------------------------------------|

|   | · | The      fair value of forward contracts over the Israeli CPI are calculated as the      present value of the estimated future cash flows based on observable yield      curves. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | The      fair value of forward foreign exchange contracts is determined using      forward exchange rates at the statement of financial position date, with      the resulting value discounted back to present  value. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | For      the Diners options – the fair value was determined based on binominal      valuation model, which takes into account Diner's expected profits      multiples of earnings of quoted companies in Israel in this field of      operations, Costs of recruiting and mainting credit card    users |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | For      the equity securities - discounted cash flow analysis was used to      determine the fair value. |
|--------|--------|-----------------------------------------------------------------------------------------------------------|

|                                                                                                                     |   | Investment in         |   |   |               |   |   |   |   |
|--------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|--------|--------|--------------------|--------|--------|--------|--------|
|                                                                                                                     |   | equity securities     |   |   | Diners option |   |   | Total  |   |
|                                                                                                                     |   | NIS in thousands |   |
| Opening      balance                                                                                                     |   |                       | 15,000 |   |               |   | 4,700  |   |   |   | 19,700 |   |
| Gains      and losses recognized in profit or loss                                                                       |   |                       | 10,000 |   |               |   | 7,566  |   |   |   | 17,566 |   |
| Closing      balance                                                                                                     |   |                       | 25,000 |   |               |   | 12,266 |   |   |   | 37,266 |   |
| Total      gains or losses for the year included in profit or loss for assets held at      the end of the reporting year |   |                       | 10,000 |   |               |   | 7,566  |   |   |   | 17,566 |   |

----

|                                                     |   | December 31, 2009 |      |
|----------------------------------------------------------|--------|-----------------------------|-----------|
|                                                     |   | Loans andReceivables   |      |   | Assets atfair valuethrough profit andloss |   |   | Availablefor sale |   |   | Total |   |
|                                                     |   | NIS in thousands  |      |
| Cash      and cash equivalents                           |   |                        | 612,227   |   |   |   | - |   |   |   | - |   |   |   | 612,227 |   |
| Short      term bank deposits                            |   |                        | 67        |   |   |   | - |   |   |   | - |   |   |   | 67 |   |
| Investment      in securities                            |   |                        | -         |   |   |   | 29,733 |   |   |   | 183,179 |   |   |   | 212,912 |   |
| Trade      receivables                                   |   |                        | 809,783   |   |   |   | - |   |   |   | - |   |   |   | 809,783 |   |
| Other      receivables excluding prepayments and other   |   |                        | 55,823    |   |   |   | - |   |   |   | - |   |   |   | 55,823 |   |
| Derivative      financial instrument (Forward Contracts) |   |                        | -         |   |   |   | 9,690 |   |   |   | - |   |   |   | 9,690 |   |
| Loans      to associates                                 |   |                        | 2,094     |   |   |   | - |   |   |   | - |   |   |   | 2,094 |   |
| Other      long-term receivables                         |   |                        | 1,125     |   |   |   | - |   |   |   | - |   |   |   | 1,125 |   |
| Non-current      derivative financial instruments        |   |                        | -         |   |   |   | 12,691 |   |   |   | - |   |   |   | 12,691 |   |
| Total                                                    |   |                        | 1,481,119 |   |   |   | 52,114 |   |   |   | 183,179 |   |   |   | 1,716,412 |   |

|                                                         |   | December 31, 2009                    |      |
|--------------------------------------------------------------|--------|------------------------------------------------|-----------|
|                                                         |   | Otherfinancialliabilities atamortizedcost |      |   | Liabilities atfair valuethrough theprofit andloss |   |   | Total |   |
|                                                         |   | NIS in thousands                     |      |
| Credit      and loans from banks and others                  |   |                                           | 143,086   |   |   |   | - |   |   |   | 143,086 |   |
| Trade      payables                                          |   |                                           | 917,585   |   |   |   | - |   |   |   | 917,585 |   |
| Other      account payables and accrued expensses            |   |                                           | 456,054   |   |   |   | - |   |   |   | 456,054 |   |
| Bank      loans                                              |   |                                           | 728,233   |   |   |   |   |   |   |   | 728,233 |   |
| Convertible      debentures                                  |   |                                           | 130,123   |   |   |   | - |   |   |   | 130,123 |   |
| Conversion      component embedded in convertible debentures |   |                                           | -         |   |   |   | 11,898 |   |   |   | 11,898 |   |
| Debentures                                                   |   |                                           | 1,327,986 |   |   |   | - |   |   |   | 1,327,986 |   |
| Derivatives      financial instruments                       |   |                                           |      |   |   |   | 7,591 |   |   |   | 7,591 |   |
| Other      liabilities                                       |   |                                           | 20,919    |   |   |   | - |   |   |   | 20,919 |   |
| Total                                                        |   |                                           | 3,723,986 |   |   |   | 19,489 |   |   |   | 3,743,475 |   |

----

|                                                   |   | December 31, 2008 |    |
|--------------------------------------------------------|--------|-----------------------------|---------|
|                                                   |   | Loans andReceivables   |    |   | Assets atfair valuethrough theprofit andloss |   |   | Availablefor sale |   |   | Total |   |
|                                                   |   | NIS in thousands  |    |
| Cash      and cash equivalents                         |   |                        | 95,325  |   |   |   | - |   |   |   | - |   |   |   | 95,325 |   |
| Short      term bank deposits                          |   |                        | 206     |   |   |   | - |   |   |   | - |   |   |   | 206 |   |
| Investment      in  securities               |   |                        | -       |   |   |   | *29,713 |   |   |   | 157,136 |   |   |   | 186,849 |   |
| Trade      receivables                                 |   |                        | 729,970 |   |   |   | - |   |   |   | - |   |   |   | 729,970 |   |
| Other      receivables excluding prepayments and other |   |                        | 69,926  |   |   |   | - |   |   |   | - |   |   |   | 69,926 |   |
| Loans      to associates                               |   |                        | 2,180   |   |   |   | - |   |   |   | - |   |   |   | 2,180 |   |
| Other      long-term receivables                       |   |                        | 1,088   |   |   |   | - |   |   |   | - |   |   |   | 1,088 |   |
| Non-current      derivative financial instruments      |   |                        | -       |   |   |   | 5,248 |   |   |   | - |   |   |   | 5,248 |   |
| Total                                                  |   |                        | 898,695 |   |   |   | 34,961 |   |   |   | 157,136 |   |   |   | 1,090,792 |   |

|                                                         |   | December 31, 2008                    |      |
|--------------------------------------------------------------|--------|------------------------------------------------|-----------|
|                                                         |   | Otherfinancialliabilities atamortizedcost |      |   | Liabilities atfair valuethrough theprofit andloss |   |   | Total |   |
|                                                         |   | NIS in thousands                     |      |
| Credit      and loans from banks and others                  |   |                                           | 77,988    |   |   |   | - |   |   |   | 77,988 |   |
| Trade      payables                                          |   |                                           | 1,006,386 |   |   |   | - |   |   |   | 1,006,386 |   |
| Other      account payables and accrued expensses            |   |                                           | 394,918   |   |   |   | - |   |   |   | 394,918 |   |
| Bank      loans                                              |   |                                           | 474,499   |   |   |   |   |   |   |   | 474,499 |   |
| Convertible      debentures                                  |   |                                           | 148,549   |   |   |   | - |   |   |   | 148,549 |   |
| Conversion      component embedded in convertible debentures |   |                                           | -         |   |   |   | 7,975 |   |   |   | 7,975 |   |
| Debentures                                                   |   |                                           | 985,844   |   |   |   | - |   |   |   | 985,844 |   |
| Non-current      derivatives financial instruments           |   |                                           | -         |   |   |   | *21,074 |   |   |   | 21,074 |   |
| Other      liabilities                                       |   |                                           | 38,370    |   |   |   | - |   |   |   | 38,370 |   |
| Total                                                        |   |                                           | 3,126,554 |   |   |   | 29,049 |   |   |   | 3,115,603 |   |

----

|                                       |   | December 31           |    |
|--------------------------------------------|--------|----------------------------|---------|
|                                       |   | 2008                       |    |   | 2009 |   |
|                                       |   | NIS in thousands |    |
| Trade      receivables                     |   |                       |    |   |   |   |
| Balances      with related party (note 34) |   |                       | 56,550  |   |   |   | 58,479 |   |
| Credit      cards                          |   |                       | 482,345 |   |   |   | 545,770 |   |
| Insured      checks receivables*           |   |                       | 40,091  |   |   |   | 54,590 |   |
| Checks      receivables                    |   |                       | 81,935  |   |   |   | 85,276 |   |
| Open      accounts                         |   |                       | 48,663  |   |   |   | 44,052 |   |
|                                       |   |                       | 709,584 |   |   |   | 788,167 |   |

|   | * | The      Company and part of the Company's subsidiaries are engaged with check      credit companies to fully receive payments of checks that have been      approved by the check credit company, even if no cover is available at the      indicated time of payment. |
|--------|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 1. | The      currency exposure of the Company's monetary assets and liabilities and      their fair value balances is asfollows: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------|

|                                             |   | December 31, 2009 |      |
|--------------------------------------------------|--------|-----------------------------|-----------|
|                                             |   | NISlinked to CPI  |      |   | NIS unlinked |   |   | USDollar |   |   | Othercurrencies |   |   | Other(*) |   |   | Total |   |   | Fair value |   |
|                                             |   | NIS in thousands  |      |
| Assets:                                          |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Cash      and cash equivalents                   |   |                        | -         |   |   |   | 612,227 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 612,227 |   |   |   | (**) |   |
| Short      term bank deposit                     |   |                        | -         |   |   |   | 67 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 67 |   |   |   | (**) |   |
| Investment      in securities                    |   |                        | 96,842    |   |   |   | 91,070 |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |   |   | 212,912 |   |   |   | 212,912 |   |
| Trade      receivables                           |   |                        | -         |   |   |   | 809,783 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 809,783 |   |   |   | (**) |   |
| Other      accounts receivables                  |   |                        | 749       |   |   |   | 55,074 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 55,823 |   |   |   | (**) |   |
| Income      taxes receivable                     |   |                        | 84,274    |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 84,274 |   |   |   | (**) |   |
| Derivative      financial instruments            |   |                        | 9,690     |   |   |   | - |   |   |   | 425 |   |   |   | - |   |   |   | 12,266 |   |   |   | 22,381 |   |   |   | 22,381 |   |
| Other      long-term receivables                 |   |                        | 3,275     |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | 3,275 |   |   |   | (**) |   |
| Total      assets                                |   |                        | 194,830   |   |   |   | 1,568,221 |   |   |   | 425 |   |   |   | - |   |   |   | 37,266 |   |   |   | 1,800,742 |   |   |   |   |   |
|                                             |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Liabilities:                                     |   |                        |      |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Credit      and loans from banks and others      |   |                        | 365       |   |   |   | 142,721 |   |   |   | - |   |   |   |   |   |   |   |   |   |   |   | 143,086 |   |   |   | (**) |   |
| Trade      payables                              |   |                        | -         |   |   |   | 913,948 |   |   |   | 3,460 |   |   |   | 177 |   |   |   | - |   |   |   | 917,585 |   |   |   | (**) |   |
| Other      accounts payable and accrued expenses |   |                        | 24,860    |   |   |   | 462,819 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 487,679 |   |   |   | (**) |   |
| Income      tax payables                         |   |                        | 6,051     |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 6,051 |   |   |   | (**) |   |
| Provisions                                       |   |                        | -         |   |   |   | 51,298 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 51,298 |   |   |   | (**) |   |
| Loans                                            |   |                        | 317,409   |   |   |   | 410,824 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 728,233 |   |   |   | 737,316 |   |
| Debentures                                       |   |                        | 1,327,986 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,327,986 |   |   |   | 1,429,528 |   |
| Convertible      debentures                      |   |                        | 142,066   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 142,066 |   |   |   | 148,866 |   |
| Other      long-term liabilities                 |   |                        | 8,398     |   |   |   | 3,357 |   |   |   | 9,164 |   |   |   | - |   |   |   | - |   |   |   | 20,919 |   |   |   | (**) |   |
| Derivative      financial instruments            |   |                        | -         |   |   |   | - |   |   |   | 1,075 |   |   |   | 6,516 |   |   |   | - |   |   |   | 7,591 |   |   |   | 7,591 |   |
| Total      liabilities                           |   |                        | 1,827,135 |   |   |   | 1,984,967 |   |   |   | 13,699 |   |   |   | 6,693 |   |   |   | - |   |   |   | 3,832,494 |   |   |   |   |   |

----

|   | 2. | Changes      in the exchange rates of the US dollar and the Israeli CPI, in the      reported periods are as follows: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------|

| Year   |   | Exchange rate of theUS dollar |   |   | Israel knownCPI (1) |   |   | Israel actualCPI (2) |   |
|--------|--------|---------------------------------------------------|--------|--------|-------------------------------|--------|--------|--------------------------------|--------|
|   |   | %                                                 |   |   | %                             |   |   | %                              |   |
|   |   |                                              |   |   |                          |   |   |                           |   |
| 2009   |   |                                              | (0.7   | )      |                          |   | 3.8    |                           |   |   | 3.9 |   |
| 2008   |   |                                              | (1.1   | )      |                          |   | 4.5    |                           |   |   | 3.8 |   |

|  | (1) | Calculated      based on published CPI date (through November of end  year) |
|--|-----|-----------------------------------------------------------------------------|

|  | (2) | Calculated      based on actual CPI date  (through December of end      year) |
|--|-----|-----------------------------------------------------------------------------------------|

|   | 1) | Impairment      of non financial assets |
|--------|----|-----------------------------------------|

----

|  | 2) | Adjustment      of investment property to fairvalue |
|--|----|-----------------------------------------------------|

|   | 3) | Retirement      benefit obligations and provision for unutilized sick  leave |
|--------|----|------------------------------------------------------------------------------|

|   | 4) | Provisions      for claims |
|--------|----|----------------------------|

|   | 5) | Income      taxes and deferred taxes |
|--------|----|--------------------------------------|

----

|   | 6) | Impairment      of available-for-sale financialassets |
|--------|----|-------------------------------------------------------|

|   | 7) | Fair      value of derivative and other financial  instruments |
|--------|----|----------------------------------------------------------------|

|   | i) | Non      Food Retail and Wholesale segment |
|--------|----|--------------------------------------------|

|   | a. | Acquisitions: |
|--------|----|---------------|

|   | 1) | Bee      Group Retail Ltd. ("Bee group"): |
|--------|----|-------------------------------------------|

|   | a) | In      April 2007, the Company purchased additional 10% of the issued and paid-up      share capital of Bee Group – a 50% subsidiary controlled by the Company -      in consideration for NIS 5 million. The excess of cost over the carrying      amount of the minority interest acquired - in the amount of NIS 1.8      million - was recorded as goodwill. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b) | In      September 2008, the Company acquired an additional 25% of the outstanding      share capital of Bee Group, from the other shareholders of Bee Group (the      "Sellers"), increasing the Company's interest in Bee Group to 85%. The      Company paid NIS 35.4 million for these shares. The excess of cost over      the carrying amount of the minority interest acquired in the amount of NIS      29.8 million was recorded asgoodwill. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | 2) | Vardinon      Textiles Ltd.("Vardinon") |
|--|----|-----------------------------------------|

|  | 3) | Na’aman      Porcelain Ltd.("Na'aman") |
|--|----|----------------------------------------------|

----

|  | 4) | Other      - first time consolidation |
|--|----|---------------------------------------|

|   | b. | Bee      Group Reorganization |
|--------|----|-------------------------------|

|   | 1) | Agreement      for merger of  Sheshet Chain of stores for House hold utensils      Ltd with Na'aman: |
|--------|----|----------------------------------------------------------------------------------------------------------------|

|   | 2) | Agreement      for Na'aman's acquisition of shares ofVardinon |
|--------|----|---------------------------------------------------------------|

|   | 3) | Doctor      Baby |
|--------|----|------------------|

----

|   | 4) | In      addition to Bee Group reorganization, in 2009, there was an union of      headquaters, the expenses in an amount of approximately NIS 2.7 million      were recognized in "other gains(losses)". |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | c. | Additional      investments in subsidiary |
|--|----|-------------------------------------------|

|   | ii) | Supermarkets |
|--------|-----|--------------|

|  | 1) | Eden      Briut Teva Market Ltd.("Eden") |
|--|----|------------------------------------------|

----

|  | 2) | Mega      Retail (formerly Blue Square Chain Investment  Properties) |
|--|----|----------------------------------------------------------------------|

|  | 3) | Other      - first time consolidation |
|--|----|---------------------------------------|

|  | iii) | Real      estate: |
|--|------|-------------------|

|  | 1. | Lease      agreement to lease the transferred properties that are not leased to third      parties to Mega Retail for ten years from the closing date of the purchase      agreement and an option to the lessee to extend the lease agreement for      five additional years, and, |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | An      agreement to extend the term of the existing lease agreements between Mega      Retail and BSRE to an identical period (ten years from the closing date of      the purchase agreement and an option to the lessee to extend the lease      agreement for five additionalyears). |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | iv) | Other: |
|--------|-----|--------|

|   | 1) | As      to a commitment of the Company in connection with the acquisition of      Diners Israel, see note 32. |
|--------|----|--------------------------------------------------------------------------------------------------------------------|

|   | 2) | The      list of principal investee companies is presented in the appendix to the      financial statements. |
|--------|----|--------------------------------------------------------------------------------------------------------------|

|   | a. | Composition      of assets and the accumulated depreciation and amortization thereon,      grouped by major classifications, and changes therein are as      follows: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                           |   | Land andbuildings     |      | Leaseholdimprovements |   |   | Furniture,equipmentandinstallations |   |   | Motorvehicles |      |   | Total  |   |
|----------------------------------------------------------------|--------|----------------------------|-----------|-----------------------|--------|--------|-------------------------------------|--------|--------|---------------|-----------|--------|--------|--------|
|                                                           |   | NIS in thousands |      |
| Cost:                                                          |   |                       |      |                  |   |   |                                |   |   |          |      |   |   |   |   |
|                                                           |   |                       |      |                  |   |   |                                |   |   |          |      |   |   |   |   |
| Balance      at January 1, 2009                                |   |                       | 1,324,387 |                  |   |   | 604,631                             |   |   |          | 1,470,299 |   |   |   | 22,406 |   |   |   | 3,421,723 |   |
| Additions                                                      |   |                       | 36,809    |                  |   |   | 66,464                              |   |   |          | 99,865    |   |   |   | 925 |   |   |   | 204,063 |   |
| Disposals                                                      |   |                       | -         |                  |   |   | (2,836                              | )      |   |          | (14,421   | )      |   |   | (7,247 | ) |   |   | (24,504 | ) |
| Acquisition      of subsidiary consolidated for the first time |   |                       | -         |                  |   |   | 125                                 |   |   |          | 172       |   |   |   | - |   |   |   | 297 |   |
| Transfer      from investment property                         |   |                       | 12,131    |                  |   |   | -                                   |   |   |          | -         |   |   |   | - |   |   |   | 12,131 |   |
|                                                           |   |                       |      |                  |   |   |                                |   |   |          |      |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2009                         |   |                       | 1,373,327 |                  |   |   | 668,384                             |   |   |          | 1,555,915 |   |   |   | 16,084 |   |   |   | 3,613,710 |   |
|                                                           |   |                       |      |                  |   |   |                                |   |   |          |      |   |   |   |   |   |   |   |   |   |
| Accumulated      depreciation:                                 |   |                       |      |                  |   |   |                                |   |   |          |      |   |   |   |   |   |   |   |   |   |
|                                                           |   |                       |      |                  |   |   |                                |   |   |          |      |   |   |   |   |   |   |   |   |   |
| Balance      at January 1, 2009                                |   |                       | 299,814   |                  |   |   | 372,634                             |   |   |          | 1,009,452 |   |   |   | 11,518 |   |   |   | 1,693,418 |   |
| Additions                                                      |   |                       | 18,943    |                  |   |   | 39,116                              |   |   |          | 83,062    |   |   |   | 3,141 |   |   |   | 144,262 |   |
| Disposals                                                      |   |                       | -         |                  |   |   | (2,762                              | )      |   |          | (13,043   | )      |   |   | (6,406 | ) |   |   | (22,211 | ) |
|                                                           |   |                       |      |                  |   |   |                                |   |   |          |      |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2009                         |   |                       | 318,757   |                  |   |   | 408,988                             |   |   |          | 1,079,471 |   |   |   | 8,253 |   |   |   | 1,815,469 |   |
|                                                           |   |                       |      |                  |   |   |                                |   |   |          |      |   |   |   |   |   |   |   |   |   |
| Impairment      of property, plant and equipment (see b below) |   |                       | 8,391     |                  |   |   | 15,615                              |   |   |          | 16,517    |   |   |   | - |   |   |   | 40,523 |   |
|                                                           |   |                       |      |                  |   |   |                                |   |   |          |      |   |   |   |   |   |   |   |   |   |
| Net      book value at December 31, 2009                  |   |                       | 1,046,179 |                  |   |   | 243,781                             |   |   |          | 459,927   |   |   |   | 7,831 |   |   |   | 1,757,718 |   |

----

|                                                           |   | Land andbuildings     |      |   | Leaseholdimprovements |   |    | Furniture,equipmentandinstallations |   |   | Motorvehicles |   |   | Total  |   |
|----------------------------------------------------------------|--------|----------------------------|-----------|--------|-----------------------|--------|---------|-------------------------------------|--------|--------|---------------|--------|--------|--------|--------|
|                                                           |   | NIS in thousands |      |
| Cost:                                                          |   |                       |      |   |                  |   |    |                                |   |   |          |   |   |   |   |
|                                                           |   |                       |      |   |                  |   |    |                                |   |   |          |   |   |   |   |
| Balance      at January 1, 2008                                |   |                       | 1,287,117 |   |                  |   | 542,236 |                                |   |   | 1,449,253     |   |   |   | 21,480 |   |   |   | 3,300,086 |   |
| Additions                                                      |   |                       | 37,788    |   |                  |   | 81,301  |                                |   |   | 117,935       |   |   |   | 3,220  |   |   |   | 240,244 |   |
| Disposals                                                      |   |                       | -         |   |                  |   | (18,906 | )                                   |   |   | (96,889       | )      |   |   | (2,294 | ) |   |   | (118,089 | ) |
| Transfer      from investment property                         |   |                       | 14,880    |   |                  |   | -       |                                |   |   | -             |   |   |   | -      |   |   |   | 14,880 |   |
| Transfer      to investment property                           |   |                       | (15,398   | )      |                  |   | -       |                                |   |   | -             |   |   |   | -      |   |   |   | (15,398 | ) |
|                                                           |   |                       |      |   |                  |   |    |                                |   |   |          |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2008                         |   |                       | 1,324,387 |   |                  |   | 604,631 |                                |   |   | 1,470,299     |   |   |   | 22,406 |   |   |   | 3,421,723 |   |
|                                                           |   |                       |      |   |                  |   |    |                                |   |   |          |   |   |   |   |   |   |   |   |   |
| Accumulated      depreciation:                                 |   |                       |      |   |                  |   |    |                                |   |   |          |   |   |   |   |   |   |   |   |   |
|                                                           |   |                       |      |   |                  |   |    |                                |   |   |          |   |   |   |   |   |   |   |   |   |
| Balance      at January 1, 2008                                |   |                       | 278,892   |   |                  |   | 351,604 |                                |   |   | 1,016,118     |   |   |   | 10,731 |   |   |   | 1,657,345 |   |
| Additions                                                      |   |                       | 20,922    |   |                  |   | 39,890  |                                |   |   | 89,107        |   |   |   | 2,426  |   |   |   | 152,345 |   |
| Disposals                                                      |   |                       | -         |   |                  |   | (18,860 | )                                   |   |   | (95,773       | )      |   |   | (1,639 | ) |   |   | (116,272 | ) |
|                                                           |   |                       |      |   |                  |   |    |                                |   |   |          |   |   |   |   |   |   |   |   |   |
| Balance      at December 31, 2008                         |   |                       | 299,814   |   |                  |   | 372,634 |                                |   |   | 1,009,452     |   |   |   | 11,518 |   |   |   | 1,693,418 |   |
|                                                           |   |                       |      |   |                  |   |    |                                |   |   |          |   |   |   |   |   |   |   |   |   |
| Impairment      of property, plant and equipment (see b below) |   |                       | 9,918     |   |                  |   | 5,690   |                                |   |   | 11,475        |   |   |   | -      |   |   |   | 27,083 |   |
|                                                           |   |                       |      |   |                  |   |    |                                |   |   |          |   |   |   |   |   |   |   |   |   |
| Net      book value at December 31, 2008                  |   |                       | 1,014,655 |   |                  |   | 226,307 |                                |   |   | 449,372       |   |   |   | 10,888 |   |   |   | 1,701,222 |   |

|   | b. | During      2009 the Company recorded impairment provisions resulting in net amount of      NIS 18.5 million, including a provision of NIS 17.5 million and a reversal      of provisions in the amount of NIS 1.4 million in the supermarkets      segment, and an impairment in amount of NIS 2.4 million in the non-food      retail and wholesale segment. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | c. | Additional      details: |
|--------|----|--------------------------|

|   | d. | As      to liens placed on assets, see note33. |
|--------|----|------------------------------------------------|

|                                                                |   | 2007                       |     |   | 2008   |   |     | 2009   |   |
|---------------------------------------------------------------------|--------|----------------------------|----------|--------|--------|--------|----------|--------|--------|
|                                                                |   | NIS in thousands |     |
| At January 1                                              |   |                       | *283,026 |   |   |   | *300,778 |   |   |   | 419,232 |   |
|                                                                |   |                       |     |   |   |   |     |   |   |   |   |   |
| Transfer      to property, plant and equipment (b)                  |   |                       | -        |   |   |   | (14,880  | )      |   |   | (16,601 | ) |
| Transfer      from property, plant and equipment (c)                |   |                       | -        |   |   |   | 15,398   |   |   |   | - |   |
| Additions      (d)                                                  |   |                       | 21,339   |   |   |   | 104,657  |   |   |   | 9,435 |   |
| Disposals                                                           |   |                       | (14,978  | )      |   |   | (6,567   | )      |   |   | (5,700 | ) |
| Net      gain from adjustments of investment property to fair value |   |                       | 11,391   |   |   |   | 19,846   |   |   |   | 18,570 |   |
|                                                                |   |                       |     |   |   |   |     |   |   |   |   |   |
| At      December 31                                                 |   |                       | 300,778  |   |   |   | 419,232  |   |   |   | 424,936 |   |

|   | a) | All      the Company's investments are located inIsrael. |
|--------|----|----------------------------------------------------------|

|   | b) | The      property was rented to subsidiaries and therefore it was transferred from      investment prorperties to property, plant and  equipment. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c) | In      2008, the construction of the investment property was completed and      therefore it was transferred from property, plant and equipment to      investment properties. |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d) | The      additions in 2009, totaling NIS 9.4 million, include NIS 1.7 million of      rental offices and NIS 7.7 million of land in areas used for commercial      and industrial development. The  additions in 2008, totaling NIS      104.7 million, include NIS 39 million of rental offices and NIS 66 million      of land in areas used for commercial and industrial development. The      additions include the completion of investment property transactions, the      balance of which, as of December 31, 2007 (NIS 35 million), was included      in other long termreceivables. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e) | The      fair value of the investment property items was determined by "O. Haushner      Civil Eng. & Real Estate Appraisal Ltd." and "Barak Friedman Cohen      & Co. Economic & Real Estate Appraisal", independent qualified      appraisers who are members of the Real Estate Appraisers Association in      Israel – based on the current prices in an active market for similar      property, locations and conditions, and based on the discount of the cash      flows that are expected to arise from the assets. The range of discount      rates used by the appraiser are 8%-12% per annum (mainly      8-8.5%). |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | f) | Rental      revenue that has been recognized in the income statement within      sales: |
|--------|----|-----------------------------------------------------------------------------------------|

|               |   | Year ended December 31 |
|--------------------|--------|---------------------------------------|
|               |   | 2007                                  |   |   | 2008 |   |   | 2009 |
|               |   | NIS in thousands            |
| Rental      income |   |                                  | 15,772 |   |   |   | 20,152 |   |   |   | 21,790 |   |

|  | g) | Break      down of Investment property at December 31, 2009, by lease rights and      ownership of land: |
|--|----|----------------------------------------------------------------------------------------------------------|

|                                                                                                                          |   | December 31,          |    |
|-------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------|---------|
|                                                                                                                          |   | 2009                       |    |
|                                                                                                                          |   | NIS in thousands |    |
| Ownership                                                                                                                     |   |                       | 103,850 |   |
| Finance      lease from the Israeli Land Administration for a period of 999      years                                        |   |                       | 73,530  |   |
|                                                                                                                          |   |                       | 177,380 |   |
| Finance      lease from Israeli Land administration for a period ending between the      years 2010-2056, see detailed below: |   |                       |    |   |
| Lease      for a period under 10 years                                                                                        |   |                       | 1,270   |   |
| Lease      for a period between 10-25 years                                                                                   |   |                       | 154,405 |   |
| Lease      for a period above 25 years*                                                                                       |   |                       | 91,881  |   |
|                                                                                                                          |   |                       | 247,556 |   |
|                                                                                                                          |   |                       | 424,936 |   |

|  | *  | including      land lease valued at NIS 3.8 million, for which the Company made      additional payments to the Land Administration for the renewal of the      lease. The company is in the process of signing new lease agreement. In      Company's opinion, this will have no effect on the fair value of this      asset. |
|--|---------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | a. | Composition      of intangible assets and the accumulated amortization thereon, grouped by      major classifications, and changes therein in 2008 and 2009, are as      follows: |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                              |   |                       |    |   |     |   |    | Brand         |   |   |     |   |   |          |   |   |   |
|-------------------------------------------------------------------|--------|----------------------------|---------|--------|----------|--------|---------|---------------|--------|--------|----------|--------|--------|---------------|--------|--------|--------|
|                                                              |   |                       |    |   |     |   |    | name and |   |   |     |   |   | Evacuation    |   |   |   |
|                                                              |   |                       |    |   |     |   |    | trade         |   |   | Customer |   |   | Fees and |   |   |   |
|                                                              |   | Goodwill                   |    |   | Software |   |    | marks         |   |   | base     |   |   | Other         |   |   | Total  |
|                                                              |   | NIS in thousands |
| At January      1,2008                                            |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |
| Cost                                                              |   |                       | 190,415 |   |     |   | 70,838  |          |   |   | 20,615   |   |   |          | 45,623 |   |   |   | 8,265 |   |   |   | 335,756 |   |
| Accumulated      amortization and impairment                      |   |                       | -       |   |     |   | (51,700 | )             |   |   | (1,751   | )      |   |          | (625   | )      |   |   | (1,260 | ) |   |   | (55,336 | ) |
| Net      carrying amount                                          |   |                       | 190,415 |   |     |   | 19,138  |          |   |   | 18,864   |   |   |          | 44,998 |   |   |   | 7,005 |   |   |   | 280,420 |   |
|                                                              |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Year      ended December 31, 2008:                                |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Opening      net carrying amount                                  |   |                       | 190,415 |   |     |   | 19,138  |          |   |   | 18,864   |   |   |          | 44,998 |   |   |   | 7,005 |   |   |   | 280,420 |   |
| Acquisitions      of minority interest                            |   |                       | 111,890 |   |     |   | -       |          |   |   | -        |   |   |          | -      |   |   |   | - |   |   |   | 111,890 |   |
|                                                              |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Additions                                                         |   |                       | -       |   |     |   | 19,299  |          |   |   | 122      |   |   |          | -      |   |   |   | 11,311 |   |   |   | 30,372 |   |
|                                                              |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Decrease      in ownership interest in subsidiary due to dilution |   |                       | (2,467  | )      |     |   | -       |          |   |   | -        |   |   |          | -      |   |   |   | (447 | ) |   |   | (2,914 | ) |
|                                                              |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Amortization      charge                                          |   |                       | -       |   |     |   | (8,493  | )             |   |   | (1,925   | )      |   |          | (3,207 | )      |   |   | (2,081 | ) |   |   | (15,706 | ) |
|                                                              |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Closing      net carrying amount                                  |   |                       | 299,838 |   |     |   | 29,944  |          |   |   | 17,061   |   |   |          | 41,791 |   |   |   | 15,788 |   |   |   | 404,422 |   |
| At      December 31, 2008:                                        |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Cost                                                              |   |                       | 299,838 |   |     |   | 90,137  |          |   |   | 20,737   |   |   |          | 45,623 |   |   |   | 19,129 |   |   |   | 475,464 |   |
| Accumulated      amortization and impairment                      |   |                       | -       |   |     |   | (60,193 | )             |   |   | (3,676   | )      |   |          | (3,832 | )      |   |   | (3,341 | ) |   |   | (71,042 | ) |
| Net      carrying amount                                          |   |                       | 299,838 |   |     |   | 29,944  |          |   |   | 17,061   |   |   |          | 41,791 |   |   |   | 15,788 |   |   |   | 404,422 |   |
| Year      ended  December 31, 2009                      |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Opening      net carrying amount                                  |   |                       | 299,838 |   |     |   | 29,944  |          |   |   | 17,061   |   |   |          | 41,791 |   |   |   | 15,788 |   |   |   | 404,422 |   |
|                                                              |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Additions                                                         |   |                       | 227     |   |     |   | 20,009  |          |   |   | 115      |   |   |          | -      |   |   |   | 387 |   |   |   | 20,738 |   |
| Acquisition      of subsidiary consolidated for the first time    |   |                       | 1,200   |   |     |   | -       |          |   |   | -        |   |   |          | -      |   |   |   | 5,189 |   |   |   | 6,389 |   |
| Disposals                                                         |   |                       | -       |   |     |   | -       |          |   |   | -        |   |   |          | -      |   |   |   | (274 | ) |   |   | (274 | ) |
| Amortization      charge                                          |   |                       | -       |   |     |   | (12,329 | )             |   |   | (2,064   | )      |   |          | (3,099 | )      |   |   | (3,243 | ) |   |   | (20,735 | ) |
|                                                              |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Impairment                                                        |   |                       | -       |   |     |   | -       |          |   |   | -        |   |   |          | -      |   |   |   | (1,346 | ) |   |   | (1,346 | ) |
|                                                              |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Closing      net carrying amount                                  |   |                       | 301,265 |   |     |   | 37,624  |          |   |   | 15,112   |   |   |          | 38,692 |   |   |   | 16,501 |   |   |   | 409,194 |   |
|                                                              |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| At      31 December 2009                                          |   |                       |    |   |     |   |    |          |   |   |     |   |   |          |   |   |   |   |   |   |   |   |   |   |
| Cost                                                              |   |                       | 301,265 |   |     |   | 110,146 |          |   |   | 20,852   |   |   |          | 45,623 |   |   |   | 24,371 |   |   |   | 502,257 |   |
| Accumulated      amortization and impairment                      |   |                       | -       |   |     |   | (72,522 | )             |   |   | (5,740   | )      |   |          | (6,931 | )      |   |   | (7,870 | ) |   |   | (93,063 | ) |
| Net      carrying amount                                          |   |                       | 301,265 |   |     |   | 37,624  |          |   |   | 15,112   |   |   |          | 38,692 |   |   |   | 16,501 |   |   |   | 409,194 |   |

----

|   | b. | Amortization      is included in the income statement within Selling, general and      administrative expenses. Impairment loss and gain or loss resulting from      changes in shareholding is presented in Other gain or  loss. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Impairment      tests for goodwill |
|--------|----|------------------------------------|

|                                  |   | December 31           |    |
|---------------------------------------|--------|----------------------------|---------|
|                                  |   | 2008                       |    |   | 2009 |   |
|                                  |   | NIS in thousands |    |
| Supermarkets                          |   |                       | 162,780 |   |   |   | 163,980 |   |
| Non      - Food retail and wholesale: |   |                       |    |   |   |   |   |   |
| Houseware                             |   |                       | 110,952 |   |   |   | 111,179 |   |
| Leisure                               |   |                       | 26,106  |   |   |   | 26,106 |   |
|                                  |   |                       | 299,838 |   |   |   | 301,265 |   |

|                   |   |         |   |   | Non - Food retail and wholesale |   |
|------------------------|--------|--------------|--------|--------|----------------------------------------------------------|--------|
|                   |   | Supermarkets |   |   | Houseware                                                |   |   | Leisure |   |
|                   |   | %            |   |
| Gross      margin (1)  |   |         | 26.5   |   |                                                     |   | 48.9 |   |   |   | 20 |   |
| Growth      rate (2)   |   |         | 2      |   |                                                     |   | 2 |   |   |   | 2 |   |
| Discount      rate (3) |   |         | 10.2   |   |                                                     |   | 15.18 |   |   |   | 14.93 |   |

|  | (1) | Expected      gross margin. |
|--|-----|-----------------------------|

|  | (2) | Weighted      average growth rate used to extrapolate cash flows beyond the budget      management estimations covering a five-year  period. |
|--|-----|----------------------------------------------------------------------------------------------------------------------------------------------|

|  | (3)  | Pre-tax      discount rate applied to cash flowprojections. |
|--|-----------|-------------------------------------------------------------|

----

|                                                                                             |   | December 31           |    |
|--------------------------------------------------------------------------------------------------|--------|----------------------------|---------|
|                                                                                             |   | 2009                       |    |
|                                                                                             |   | Nis in thousands |    |
| Capitalized      lease for a period of 999 years                                                 |   |                       | 3,996   |   |
| Capitalized      lease for a period ending between the years 2010-2056, see detailed      below: |   |                       |    |   |
| Lease      for a period under 10 years                                                           |   |                       | 4,617   |   |
| Lease      for a period between 10-25 years                                                      |   |                       | 17,840  |   |
| Lease      for a period above 25 years                                                           |   |                       | 166,775 |   |
|                                                                                             |   |                       | 189,232 |   |
|                                                                                             |   |                       | 193,228 |   |

|  | a. | Investment      in joint ventures |
|--|----|-----------------------------------|

|                                                               |   | December 31            |   |
|--------------------------------------------------------------------|--------|-----------------------------|--------|
|                                                               |   | 2008                        |   |   | 2009 |   |
|                                                               |   | NIS in thousands  |   |
| Assets:                                                            |   |                        |   |   |   |   |
| Current      assets                                                |   |                        | 3,226  |   |   |   | 2,222 |   |
| Non      current assets                                            |   |                        | 51,221 |   |   |   | 55,720 |   |
|                                                               |   |                        | 54,447 |   |   |   | 57,942 |   |
| Liabilities:                                                       |   |                        |   |   |   |   |   |   |
| Current      liabilities                                           |   |                        | 2,327  |   |   |   | 1,704 |   |
| Non      current liabilities                                       |   |                        | 9,663  |   |   |   | 8,659 |   |
|                                                               |   |                        | 11,990 |   |   |   | 10,363 |   |
|  Net      Assets:                                             |   |                        | 42,457 |   |   |   | 47,579 |   |
|                                                               |   |                        |   |   |   |   |   |   |
|                                                               |   | Year      ended December 31 |   |
|                                                               |   | 2008                        |   |   | 2009 |   |
|                                                               |   | NIS      in thousands       |   |
|                                                               |   |                        |   |   |   |   |   |   |
| Sales                                                              |   |                        | 3,916  |   |   |   | 2,972 |   |
| Net      gain from adjustment of investment property to fair value |   |                        | -      |   |   |   | 4,717 |   |
| Expenses                                                           |   |                        | 1,128  |   |   |   | 494 |   |
| Profit      for the year                                           |   |                        | 3,094  |   |   |   | 8,164 |   |

----

|  | b. | Investment  in      associates |
|--|----|------------------------------------------|

|  | 1. | Composition |
|--|----|-------------|

|                                                              |   | December 31           |   |
|-------------------------------------------------------------------|--------|----------------------------|--------|
|                                                              |   | 2008                       |   |   | 2009 |   |
|                                                              |   | NIS in thousands |   |
| Shares:                                                           |   |                       |   |   |   |   |
|                                                              |   |                       |   |   |   |   |
| Cost      of shares                                               |   |                       | 402    |   |   |   | 402 |   |
| Share      in undistributed profits accumulated since acquisition |   |                       | 2,419  |   |   |   | 2,382 |   |
|                                                              |   |                       | 2,821  |   |   |   | 2,784 |   |
| Perpetual      capital notes (a)                                  |   |                       | 1,378  |   |   |   | 1,378 |   |
| Long-term      loans (b)                                          |   |                       | 716    |   |   |   | 716 |   |
|                                                              |   |                       | 4,915  |   |   |   | 4,878 |   |

|  | (a) | Perpetual      capital notes are linked to the Israeli CPI and bear interest at an annual      rate of 5%. |
|--|-----|------------------------------------------------------------------------------------------------------------|

|  | (b) | The      loans are linked to the Israeli CPI and bear interest at an annual rate of      4.5%. The repayment date has not yet been  determined. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | The      Company share of the results of its principal associates, all of which are      unlisted, and its interest held, are asfollows: |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------|

| Name                      |   | % interestheld |   |
|---------------------------|--------|---------------------|--------|
|                      |   |                |   |
| 2009      and 2008        |   |                |   |
| Radio      "Non-stop" Ltd |   |                | 33     | % |
| "Tush      Hafakot" Ltd   |   |                | 25     | % |

----

|                                                       |   | December 31           |          |
|------------------------------------------------------------|--------|----------------------------|---------------|
|                                                       |   | 2007                       |          |   | 2008 |   |   | 2009 |   |
|                                                       |   | NIS in thousands |          |
|                                                       |   |                       |          |   |   |   |   |   |   |
| Available      for sale financial assets                   |   |                       | 166,599       |   |   |   | 157,136 |   |   |   | 183,179 |   |
| Financial      assets at fair value through profit or loss |   |                       | *      47,795 |   |   |   | *      29,713 |   |   |   | 29,733 |   |
|                                                       |   |                       | 214,394       |   |   |   | 186,849 |   |   |   | 212,912 |   |

|                |   | 2008                       |     |   | 2009   |   |
|---------------------|--------|----------------------------|----------|--------|--------|--------|
|                |   | NIS in thousands |     |
|                |   |                       |     |   |   |   |
| At      January 1   |   |                       | 166,599  |   |   |   | 157,136 |   |
| purchase            |   |                       | 169,747  |   |   |   | 113,966 |   |
| proceeds            |   |                       | (185,104 | )      |   |   | (101,867 | ) |
| Net      gain       |   |                       | 5,894    |   |   |   | 13,944 |   |
| At      December 31 |   |                       | 157,136  |   |   |   | 183,179 |   |

|                  |   | December 31           |    |
|-----------------------|--------|----------------------------|---------|
|                  |   | 2008                       |    |   | 2009 |   |
|                  |   | NIS in thousands |    |
| Government      Bonds |   |                       | 74,034  |   |   |   | 110,884 |   |
| Corporate      Bonds  |   |                       | 83,102  |   |   |   | 72,295 |   |
|                  |   |                       | 157,136 |   |   |   | 183,179 |   |

|                               |   | December 31           |    |
|------------------------------------|--------|----------------------------|---------|
|                               |   | 2008                       |    |   | 2009 |   |
|                               |   | NIS in thousands |    |
| NIS      - Unlinked                |   |                       | 61,484  |   |   |   | 91,070 |   |
| NIS      linked to the Israeli CPI |   |                       | 90,090  |   |   |   | 92,109 |   |
| Other      - foreign currencies    |   |                       | 5,562   |   |   |   | - |   |
|                               |   |                       | 157,136 |   |   |   | 183,179 |   |

----

|   | b. | Financial      assets at fair value through profit orloss |
|--------|----|-----------------------------------------------------------|

|                                            |   | December 31           |          |
|-------------------------------------------------|--------|----------------------------|---------------|
|                                            |   | 2007                       |          |   | 2008 |   |   | 2009 |   |
|                                            |   | NIS in thousands |          |
|                                            |   |                       |          |   |   |   |   |   |   |
| Government      bonds                           |   |                       | 2,638         |   |   |   | - |   |   |   | - |   |
| Corporate      bonds                            |   |                       | 30,157        |   |   |   | 14,713 |   |   |   | 4,733 |   |
| Investment  in      equity securities |   |                       | *      15,000 |   |   |   | *      15,000 |   |   |   | 25,000 |   |
|                                            |   |                       |          |   |   |   |   |   |   |   |   |   |
| Total                                           |   |                       | 47,795        |   |   |   | 29,713 |   |   |   | 29,733 |   |

|                                                                                |   |                                   |   | December      31      |         |
|-------------------------------------------------------------------------------------|--------|----------------------------------------|--------|-----------------------|--------------|
|                                                                                |   |                                   |   | 2008                  |         |   | 2009 |   |
| Derivative      financial                                                           |   | Statement      of financial position   |   | NIS      in thousands |         |
| instruments                                                                         |   | item                                   |   |                  | Assets  |   |   |   | Liabilities  |   |   |   | Assets  |   |   |   | Liabilities  |   |
| Forward      contracts over the Israeli      CPI (a)                                |   | Derivatives      financial instruments |   |                  | -            |   |   |   |  11,593 |   |   |   | 9,690 |   |   |   | - |   |
| Embedded      derivatives :                                                         |   |                                   |   |                  |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Rent      agreements                                                                |   | Derivatives      financial instruments |   |                  | 548          |   |   |   | 8,539 |   |   |   | 425 |   |   |   | 7,591 |   |
| Conversion      component embedded in the convertible debentures      (see note 19) |   | Convertible      debentures            |   |                  | -            |   |   |   | 7,975 |   |   |   | - |   |   |   | 11,898 |   |
| Diners      option (b)                                                              |   | Derivatives      financial instruments |   |                  | 4,700        |   |   |   | - |   |   |   | 12,266 |   |   |   | - |   |
| Warrants                                                                            |   | Derivatives      financial instruments |   |                  | -            |   |   |   | 942 |   |   |   | - |   |   |   | - |   |
|                                                                                |   |                                   |   |                  |         |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total                                                                               |   |                                   |   |                  | 5,248        |   |   |   | 29,049 |   |   |   | 22,381 |   |   |   | 19,489 |   |

|  | (a) | The      notional principal amounts of the outstanding forward over the Israeli CPI      contracts at    December 31, 2009      and 2008 were NIS 351million. |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (b) | The      agreement for the joint purchase of 49% of the share capital of Diners      (36.75% by the Company), as described in note 32a, is treated as an      option, under IAS 39. The Company has concluded that this transaction      should be accounted for as a derivative financial instrument, because at      this stage this is merely an option to purchase 36.75% of Diners' shares,      where the option exercise price is the amount of loan repayment. This      conclusion is supported, inter alia by the fact that the consideration      paid was financed through a non-recourse loan provided by the seller, the      pledge and restrictions on the shares until the loan is repaid and the      Company's option to repay the loan and terminate the agreement by the end      of the fourth year after the first credit card is issued, by returning the      shares. |
|--------|-----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | a. | Trade      receivables |
|--|----|------------------------|

|                                                     |   | December 31           |    |
|----------------------------------------------------------|--------|----------------------------|---------|
|                                                     |   | 2008                       |    |   | 2009 |   |
|                                                     |   | NIS in thousands |    |
| Trade      receivables                                   |   |                       | 767,548 |   |   |   | 848,432 |   |
| Less:      provision for impairment of trade receivables |   |                       | (37,578 | ) |   |   | (38,649 | ) |
|                                                     |   |                       | 729,970 |   |   |   | 809,783 |   |

|                |   | December 31           |   |
|---------------------|--------|----------------------------|--------|
|                |   | 2008                       |   |   | 2009 |   |
|                |   | NIS in thousands |   |
| Up      to 3 months |   |                       | 3,199  |   |   |   | 7,043 |   |
| 3      to 6 months  |   |                       | 7,966  |   |   |   | 2,620 |   |
|                |   |                       |   |   |   |   |   |   |
|                |   |                       | 11,165 |   |   |   | 9,663 |   |

|                                                          |   | 2008                       |   |   | 2009   |   |
|---------------------------------------------------------------|--------|----------------------------|--------|--------|--------|--------|
|                                                          |   | NIS in thousands |   |
| At January 1                                        |   |                       | 34,535 |   |   |   | 37,578 |   |
|                                                          |   |                       |   |   |   |   |   |   |
| Provisions      for receivables impairment                    |   |                       | 4,667  |   |   |   | 2,525 |   |
| Receivables      written off during the year as uncollectible |   |                       | (1,354 | )      |   |   | (1,199 | ) |
| Unused      amounts reversed                                  |   |                       | (270   | )      |   |   | (255 | ) |
|                                                          |   |                       |   |   |   |   |   |   |
| At      December 31                                           |   |                       | 37,578 |   |   |   | 38,649 |   |

----

|                                                               |   | December      31      |   |
|--------------------------------------------------------------------|--------|-----------------------|--------|
|                                                               |   | 2008                  |   |   | 2009 |   |
|                                                               |   | NIS      in thousands |   |
| b.       Other      receivables |   |                  |   |   |   |   |
| Prepayments                                                        |   |                  | 17,698 |   |   |   | 10,781 |   |
| Related      parties                                               |   |                  | 8,104  |   |   |   | 7,930 |   |
| Government      authorities                                        |   |                  | 7,772  |   |   |   | - |   |
| Receivables      in respect of gift certificates                   |   |                  | 20,388 |   |   |   | 21,875 |   |
| Other                                                              |   |                  | 33,662 |   |   |   | 28,918 |   |
|                                                               |   |                  | 87,624 |   |   |   | 69,504 |   |

|                          |   | Weighted      average  |   |   | December      31      |   |
|-------------------------------|--------|------------------------|--------|--------|-----------------------|--------|
|                          |   | Interest      rates at |   |   | 2008                  |   |   | 2009 |   |
|                          |   | December      31, 2009 |   |   | NIS      in thousands |   |
| Cash      at bank and on hand |   |                   |   |   |                  | 14,149 |   |   |   | 18,357 |   |
| Bank      deposits            |   |                   | 1.13   | %      |                  |   | 81,176 |   |   |   | 593,870 |   |
|                          |   |                   |   |   |                  |   |   |   |   |   |   |   |
|                          |   |                   |   |   |                  |   | 95,325 |   |   |   | 612,227 |   |

|                                  |   | December      31      |    |
|---------------------------------------|--------|-----------------------|---------|
|                                  |   | 2008                  |    |   | 2009 |   |
|                                  |   | NIS      in thousands |    |
| Cash      and cash equivalents        |   |                  | 95,325  |   |   |   | 612,227 |   |
| Bank      overdrafts (see note 19(1)) |   |                  | (12,187 | ) |   |   | (493 | ) |
|                                  |   |                  |    |   |   |   |   |   |
|                                  |   |                  | 83,138  |   |   |   | 611,734 |   |

----

|                                                              |   |           |       |   |                  |   |   | Additional |   |   |      |   |
|-------------------------------------------------------------------|--------|----------------|------------|--------|-----------------------|--------|--------|------------|--------|--------|-----------|--------|
|                                                              |   |           |       |   | Ordinary              |   |   | paid-in    |   |   |      |   |
|                                                              |   | Number      of |       |   | shares                |   |   | capital    |   |   | Total     |   |
|                                                              |   | shares         |       |   | NIS      in thousands |   |
| At      January 1, 2007                                           |   |           | 39,692,983 |   |                  |   | 53,414 |       |   |   | 766,409   |   |   |   | 819,823 |   |
| Change      during 2007 -                                         |   |           |       |   |                  |   |   |       |   |   |      |   |   |   |   |   |
| Issuance      of shares upon conversion of convertible debentures |   |           | 3,679,836  |   |                  |   | 3,680  |       |   |   | 251,996   |   |   |   | 255,676 |   |
| At      December 31, 2007                                         |   |           | 43,372,819 |   |                  |   | 57,094 |       |   |   | 1,018,405 |   |   |   | 1,075,499 |   |
| Change      during 2008 -                                         |   |           | -,-        |   |                  |   | -,-    |       |   |   | -,-       |   |   |   | -,- |   |
| At      December 31, 2008                                         |   |           | 43,372,819 |   |                  |   | 57,094 |       |   |   | 1,018,405 |   |   |   | 1,075,499 |   |
| Change      during 2009 -                                         |   |           |       |   |                  |   |   |       |   |   |      |   |   |   |   |   |
| Issuance      of shares upon conversion of convertible debentures |   |           | 344,239    |   |                  |   | 344    |       |   |   | 11,854    |   |   |   | 12,198 |   |
| At      December 31, 2009                                         |   |           | 43,717,058 |   |                  |   | 57,438 |       |   |   | 1,030,259 |   |   |   | 1,087,697 |   |

----

| Grant      date               |   | Optionsgranted |      |   | Exercise      price(NIS)* |   |   | Market      value(NIS) |   |   | Average      fairvalue      (NIS)** |   |
|-------------------------------|--------|----------------|-----------|--------|---------------------------|--------|--------|------------------------|--------|--------|-------------------------------------|--------|
| March      2008               |   |           | 2,452,500 |   |                      |   | 36.15  |                   |   |   | 36.15                               |   |   |   | 6.12 |   |
| March      2008 (executives)  |   |           | 2,200,000 |   |                      |   | 39.06  |                   |   |   | 36.15                               |   |   |   | 5.57 |   |
| May      2008 (executives)    |   |           | 140,000   |   |                      |   | 39.06  |                   |   |   | 46.0                                |   |   |   | 13.2 |   |
| August      2008              |   |           | 135,000   |   |                      |   | 36.15  |                   |   |   | 36.23                               |   |   |   | 6.7 |   |
| August      2008 (executives) |   |           | 100,000   |   |                      |   | 39.06  |                   |   |   | 36.23                               |   |   |   | 6.1 |   |
| March      2009               |   |           | 63,000    |   |                      |   | 36.15  |                   |   |   | 23.74                               |   |   |   | 3.1 |   |
| July      2009                |   |           | 92,000    |   |                      |   | 36.15  |                   |   |   | 32.53                               |   |   |   | 7.7 |   |
| August      2009 (executives) |   |           | 80,000    |   |                      |   | 39.06  |                   |   |   | 33.85                               |   |   |   | 8.0 |   |

|  | * | The      exercise price of options granted was adjusted as a result of dividend      distribution in October 2008 to NIS 34.42 to employees and NIS 37.33 to      managers. |
|--|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | ** | The      fair value of the options was computed according to the Black&Scholes      option-pricing model - .  based on the following      assumptions: |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Grant      date  |   | Expecteddividend      yield(%) |   |   | Expectedvolatility (%) |   |   | Risk      freeinterest      rate(%) |   |   | Expectedterm      untilexercise(years) |   |
|------------------|--------|--------------------------------|--------|--------|-----------------------------|--------|--------|-------------------------------------|--------|--------|----------------------------------------|--------|
| March      2008  |   |                           | 6.4    |   |                        |   | 28     |                                |   |   | 4.5                                    |   |   |   | 2-3 |   |
| March      2008  |   |                           | 6.4    |   |                        |   | 28     |                                |   |   | 4.5                                    |   |   |   | 2.5-3.5 |   |
| May      2008    |   |                           | 6.4    |   |                        |   | 29     |                                |   |   | 5.1                                    |   |   |   | 2.5-3.5 |   |
| August      2008 |   |                           | 7.5    |   |                        |   | 30     |                                |   |   | 5.1                                    |   |   |   | 2-3 |   |
| August      2008 |   |                           | 7.5    |   |                        |   | 30     |                                |   |   | 5.1                                    |   |   |   | 2.5-3.5 |   |
| March      2009  |   |                           | 6.5    |   |                        |   | 43     |                                |   |   | 2.3                                    |   |   |   | 2-3 |   |
| July      2009   |   |                           | 6.5    |   |                        |   | 45     |                                |   |   | 2.5                                    |   |   |   | 2-3 |   |
| August      2009 |   |                           | 6.5    |   |                        |   | 43     |                                |   |   | 3.0                                    |   |   |   | 2.5-3.5 |   |

----

|                                                    |   | Average exerciseprice per share *(NIS) |   |   | Number ofoptions(thousands) |   |
|---------------------------------------------------------|--------|------------------------------------------------------------|--------|--------|----------------------------------|--------|
| At      January 1, 2008                                 |   |                                                       | -      |   |                             |   | - |   |
|                                                    |   |                                                       |   |   |                             |   |   |   |
| Granted                                                 |   |                                                       | 35.83  |   |                             |   | 5,028 |   |
| Forfeited                                               |   |                                                       | 34.42  |   |                             |   | (159 | ) |
| At      December 31, 2008                               |   |                                                       | 35.88  |   |                             |   | 4,869 |   |
| Granted                                                 |   |                                                       | 35.41  |   |                             |   | 235 |   |
| Forfeited                                               |   |                                                       | 36.32  |   |                             |   | (614 | ) |
| At      December 31, 2009                               |   |                                                       | 35.79  |   |                             |   | 4,490 |   |
|                                                    |   |                                                       |   |   |                             |   |   |   |
| Options      that can be exercised at December 31, 2009 |   |                                                       | -      |   |                             |   | - |   |

|  | * | After      adjusting the option exercise price at the rate of 50% of cash dividends      distributed. |
|--|---|-------------------------------------------------------------------------------------------------------|

|                   |   | Number ofoptions(thousands) |   |   | Range of exerciseprices (NIS) |   |        | Average ofexpiry date(years) |   |
|------------------------|--------|----------------------------------|--------|--------|----------------------------------------------|--------|-------------|----------------------------------------|--------|
|                   |   |                             |   |   |                                         |   |        |                                   |   |
| December      31, 2008 |   |                             | 4,869  |   |                                         |   | 34.42-37.33 |                                   |   |   | 1.6 |   |
| December      31, 2009 |   |                             | 4,490  |   |                                         |   | 34.42-37.33 |                                   |   |   | 1.0 |   |

----

|  | a. | In      August 2008, BSRE's Board of Directors had resolved to adopt a share      options plan for executives of BSRE. The total number of shares reserved      for issuance under the plan will be  250,000 shares. All      exercises of options under the plan are to be on a cashless basis. Each      option can be exercised to purchase one ordinary share of NIS 1 par value      of BSRE. Immediately upon allotment, the ordinary shares issued upon      exercise of the options will have the same rights as other ordinary shares      of BSRE. The exercise price of the option will set at date of grant,      otherwise according to the average quoted price of BSRE's ordinary share      during the 30 trading days before the date of the  grant. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | b. | In      November 2005, Na'aman granted 300,000 options to employees, under a      cashless exercise option plan approved in August 2005. The beneficial      employees were entitled to exercise the options at the end of the      following vesting periods: 33% at the end of November 2006, 33% at the end      of November 2007 and the remaining 34% at the end of November 2008. The      options granted to employees were exercisable by the end of May      2009. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                            |   | 2007                                |   |   | 2008   |   |   | 2009   |   |
|-----------------------------------------------------------------|--------|-------------------------------------|--------|--------|--------|--------|--------|--------|--------|
|                                                            |   | Available-for-sale investments |   |
|                                                            |   | NIS in thousands          |   |
|  At      January 1                                         |   |                                | -      |   |   |   | 1,415  |   |   |   | (261 | ) |
| Revaluation      – gross                                  |   |                                | 3,090  |   |   |   | (1,105 | )      |   |   | 12,016 |   |
| Revaluation      – tax                                    |   |                                | 896    |   |   |   | 342    |   |   |   | (2,096 | ) |
| Impairment      transfer to income statement - gross            |   |                                | -      |   |   |   | 2,112  |   |   |   | - |   |
| Impairment      transfer to income statement - tax              |   |                                | -      |   |   |   | (559   | )      |   |   | - |   |
| Gain      from sales transfer to income statement – gross |   |                                | 1,097  |   |   |   | (3,338 | )      |   |   | (4,639 | ) |
| Gain      from sales transfer to income statement – tax   |   |                                | 318    |   |   |   | 872    |   |   |   | 656 |   |
| At      December 31                                             |   |                                | 1,415  |   |   |   | (261   | )      |   |   | 5,676 |   |

|                                                                            |   | 2007                       |     |   | 2008   |   |     | 2009   |   |
|---------------------------------------------------------------------------------|--------|----------------------------|----------|--------|--------|--------|----------|--------|--------|
|                                                                            |   | NIS in thousands |     |
| At      January 1                                                               |   |                       | 29,539   |   |   |   | (107,262 | )      |   |   | (154,719 | ) |
| Profit      for the year                                                        |   |                       | 143,628  |   |   |   | 104,586  |   |   |   | 77,163 |   |
| Dividends      paid                                                             |   |                       | (280,000 | )      |   |   | (150,000 | )      |   |   | - |   |
| Employee      share-based payment                                               |   |                       | -        |   |   |   | 7,969    |   |   |   | 11,734 |   |
| Actuarial      gain (loss) on post employment benefitobligations, net of    tax |   |                       | (429     | )      |   |   | (10,012  | )      |   |   | 858 |   |
| At      December 31                                                             |   |                       | (107,262 | )      |   |   | (154,719 | )      |   |   | (64,964 | ) |

----

|                                                          |   | December 31           |    |
|---------------------------------------------------------------|--------|----------------------------|---------|
|                                                          |   | 2008                       |    |   | 2009 |   |
|                                                          |   | NIS in thousands |    |
| Payroll      and related expenses and other employee benefits |   |                       | 136,886 |   |   |   | 134,131 |   |
|  Government      authorities                             |   |                       | 6,309   |   |   |   | 17,750 |   |
|  Liability      in respect of gift certificates          |   |                       | 167,919 |   |   |   | 159,290 |   |
| Put      option granted to a minority interest (see note 5a1) |   |                       | -       |   |   |   | 23,317 |   |
| Accrued      expenses                                         |   |                       | 62,914  |   |   |   | 93,775 |   |
| Other                                                         |   |                       | 52,189  |   |   |   | 66,666 |   |
| Total                                                         |   |                       | 426,217 |   |   |   | 494,929 |   |

|   | a. | Composition: |
|--------|----|--------------|

|                                         |   | December 31           |    |
|----------------------------------------------|--------|----------------------------|---------|
|                                         |   | 2008                       |    |   | 2009 |   |
|                                         |   | NIS in thousands |    |
| Current      liabilities:                    |   |                       |    |
| Bank      overdrafts (note 14)               |   |                       | 12,187  |   |   |   | 493 |   |
| Bank      loans                              |   |                       | 65,801  |   |   |   | 101,774 |   |
| Commercial      papers *                     |   |                       |    |   |   |   | 40,819 |   |
| Current      maturities of non-current loans |   |                       | 132,913 |   |   |   | 131,512 |   |
|                                         |   |                       | 210,901 |   |   |   | 274,598 |   |
| Non-current      liabilities:                |   |                       |    |   |   |   |   |   |
| Bank      loans                              |   |                       | 341,586 |   |   |   | 596,721 |   |
|                                         |   |                       | 552,487 |   |   |   | 871,319 |   |

----

|   | b. | Composition      and details of liabilities based on interest rates and linkage      terms |
|--------|----|--------------------------------------------------------------------------------------------|

|                                                          | December 31                    |   |
|---------------------------------------------------------------|-------------------------------------|--------|
|                                                          | Weightedinterest rate (a) |   |   | 2008 |   |   | 2009 |   |
|                                                          | %                                   |   |   | NIS in thousands |   |
|                                                          |                                |   |   |   |   |   |   |   |
| NIS      - Linked to the Israeli CPI                          | (b)                                 | 5.2    |   |   |   | 113,880 |   |   |   | 317,409 |   |
| NIS      - Unlinked and bears a fixed annual interest rate    | (c)                                 | 6.9    |   |   |   | 305,456 |   |   |   | 263,094 |   |
| NIS      - Unlinked and bears a variable annual interest rate | (d)                                 | 3.2    |   |   |   | 133,151 |   |   |   | 290,816 |   |
|                                                          |                                |   |   |   |   | 552,487 |   |   |   | 871,319 |   |

|   | (a) | Weighted      average interest rate, as of December 31,2009. |
|--------|-----|--------------------------------------------------------------|

|   | (b) | As      of December 31, 2009 includes approximately NIS 255 million at weighted      average interest rate of 4.8% , the balance of approximately NIS 61      million is at weighted average interest rate of 6.9% and the balance of      approximately NIS 2.3 million us at weighted average interest rate of      4.1%. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (c) | As      of December 31, 2009 includes: NIS 167 million at interest rate of 5.9% ,      the balance of approximately NIS 20 million is at weighted average      interest rate of 3.8% and the balance of approximately NIS 76 million is      at weighted average interest rate of9.8%. |
|--------|-----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (d) | As      of December 31, 2009 includes: approximately NIS 130 million at weighted      average interest rate of 3.3%; approximately NIS 93 million at weighted      average interest rate of 3.7%.  The balance of approximately NIS      27 million is at weighted average interest rate of 1.9%. The balance of      approximately NIS 40 million is of weighted average interest rate of      2.2%. |
|--------|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                           |   | December 31           |    |
|--------------------------------|--------|----------------------------|---------|
|                           |   | 2008                       |    |   | 2009 |   |
|                           |   | NIS in thousands |    |
| Second      year               |   |                       | 97,832  |   |   |   | 114,607 |   |
| Third      year                |   |                       | 79,791  |   |   |   | 95,520 |   |
| Fourth      year               |   |                       | 61,295  |   |   |   | 75,943 |   |
| Fifth      year and afterwards |   |                       | 102,668 |   |   |   | 310,651 |   |
|                           |   |                       | 341,586 |   |   |   | 596,721 |   |

|            |   | December 31           |    |
|-----------------|--------|----------------------------|---------|
|            |   | 2008                       |    |   | 2009 |   |   | 2008 |   |   | 2009 |   |
|            |   | NIS in thousands |    |
|            |   | Carrying      amount       |    |   | Fair      value |   |
| Bank      loans |   |                       | 474,499 |   |   |   | 728,233 |   |   |   | 477,750 |   |   |   | 737,316 |   |

----

|                                                                                           |   | December 31, 2009 |    |   | Total                 |   |
|------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|--------|-----------------------|--------|
|                                                                                           |   | Issued by              |    |   | December 31      |   |
|                                                                                           |   | The company            |    |   | Subsidiaries          |   |   | 2009 |   |   | 2008 |   |
|                                                                                           |   | Debentures                  |    |   | Convertibledebentures |   |   | Debentures |   |   | Convertibledebentures |   |   | Debentures |   |   | Convertibledebentures |   |   | Debentures |   |   | Convertibledebentures |   |
|                                                                                           |   | NIS in thousands  |    |
|                                                                                           |   |                        |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Face      value of debentures and conversion component (1)                                     |   |                        | 227,719 |   |                  |   | 15,093 |   |   |   | 1,150,086 |   |   |   | 107,119 |   |   |   | 1,377,805 |   |   |   | 122,212 |   |   |   | 1,037,546 |   |   |   | 142,318 |   |
| Conversion      component at fair value (2)                                                    |   |                        | -       |   |                  |   | 11,174 |   |   |   | - |   |   |   | 724 |   |   |   | - |   |   |   | 11,898 |   |   |   | - |   |   |   | 7,975 |   |
| In      addition of premium (less discount), net of accumulated      amortization              |   |                        | (16,375 | )      |                  |   | - |   |   |   | (33,444 | ) |   |   | 7,956 |   |   |   | (49,819 | ) |   |   | 7,956 |   |   |   | (51,702 | ) |   |   | 6,231 |   |
|                                                                                           |   |                        | 211,344 |   |                  |   | 26,267 |   |   |   | 1,116,642 |   |   |   | 115,799 |   |   |   | 1,327,986 |   |   |   | 142,066 |   |   |   | 985,844 |   |   |   | 156,524 |   |
|                                                                                           |   |                        |    |   |                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Less      - current maturities of face value of debentures and convertible      debentures (1) |   |                        | 76,653  |   |                  |   | - |   |   |   | - |   |   |   | 45 |   |   |   | 76,653 |   |   |   | 45 |   |   |   | - |   |   |   | 18,354 |   |
| Less      - current maturities of conversion component                                         |   |                        |    |   |                  |   | - |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 7,645 |   |
|                                                                                           |   |                        | 134,691 |   |                  |   | 26,267 |   |   |   | 1,116,642 |   |   |   | 115,754 |   |   |   | 1,251,333 |   |   |   | 142,021 |   |   |   | 985,844 |   |   |   | 130,525 |   |
| NIS      1 par value (in thousands)                                                            |   |                        | 200,000 |   |                  |   | 13,269 |   |   |   | 1,075,000 |   |   |   | 100,000 | * |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |

|                                                  |   | December 31, 2008 |         |   | December 31, 2009 |   |
|-------------------------------------------------------|--------|-----------------------------|--------------|--------|-----------------------------|--------|
|                                                  |   |                        |         |   | Subsidiary                  |   |   |   |   |   | Subsidiary |   |
|                                                  |   | The Company            |         |   | BSRE                        |   |   | The Company |   |   | BSRE |   |
| Discount      rate                                    |   |                        | 5.81         | %      |                        |   | 6.75 | % |   |   | 1.53 | % |   |   | 3.8 | % |
|                                                  |   |                        |         |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Share      price (NIS)                                |   |                        | 21.36        |   |                        |   | 49.00 |   |   |   | 38.06 |   |   |   | 69.00 |   |
|                                                  |   |                        |         |   |                        |   |   |   |   |   |   |   |   |   |   |   |
| Standard      deviation of  the share price |   |                        | 39.24%-62.57 | %      |                        |   | 32.57 | % |   |   | 50.19 | % |   |   | 35.10 | % |

----

|   | b. | The      debentures and the convertible debentures (linked to the Israeli CPI)      are  repayable in the years subsequent to the statement of      financial position date as follows (not including premium or      discount): |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                 |   | December 31           |      |
|--------------------------------------|--------|----------------------------|-----------|
|                                 |   | 2008                       |      |   | 2009 |   |
|                                 |   | NIS in thousands |      |
| First      year - current maturities |   |                       | 18,354    |   |   |   | 76,698 |   |
| Second      year                     |   |                       | 73,117    |   |   |   | 37,683 |   |
| Third      year                      |   |                       | 18,339    |   |   |   | 73,240 |   |
| Fourth      year                     |   |                       | 48,754    |   |   |   | 312,931 |   |
| Fifth      year and afterwards       |   |                       | 1,021,300 |   |   |   | 999,465 |   |
|                                 |   |                       |      |   |   |   |   |   |
| Total                                |   |                       | 1,179,864 |   |   |   | 1,500,017 |   |

|   | c. | The      carrying amounts and fair value of the debentures and the convertible      debentures are as follows: |
|--------|----|----------------------------------------------------------------------------------------------------------------|

|                        |   | December 31           |      |
|-----------------------------|--------|----------------------------|-----------|
|                        |   | 2008                       |      |   | 2009 |   |   | 2008 |   |   | 2009 |   |
|                        |   | NIS in thousands |      |
|                        |   | Carrying amount       |      |   | Fair value |   |
| Debentures             |   |                       | 985,844   |   |   |   | 1,327,986 |   |   |   | 958,993 |   |   |   | 1,429,528 |   |
| Convertible      debentures |   |                       | 156,524   |   |   |   | 142,066 |   |   |   | 124,587 |   |   |   | 148,866 |   |
| Total                       |   |                       | 1,142,368 |   |   |   | 1,470,052 |   |   |   | 1,083,580 |   |   |   | 1,578,394 |   |

|   | d. | Debentures      and convertible debentures of theCompany |
|--------|----|----------------------------------------------------------|

|  | (1) | 200      million registered debentures (Series A) of NIS 1 par value      each. |
|--|-----|---------------------------------------------------------------------------------|

----

|  | (2) | 200      million registered convertible debentures (Series B) of NIS 1 par value      each |
|--|-----|--------------------------------------------------------------------------------------------|

|  | (3) | Other      terms: |
|--|-----|-------------------|

|   |        (1) | The      terms of the debentures (Series A and Series B) provide that in the event      that the shares of the Company are delisted from trading on the TASE,      and/or in the event that the shares of the Company are no longer held by      the public and/or in the event that Standard & Poor's Maalot      ("S&PMaalot") reduces the Company’s rating to BBB or lower, then      within three months from one of the above mentioned events the Company,      subject to the then prevailing law, will offer to acquire the debentures      at a price equivalent to the price of debentures of the same type      reflecting a return of 2.5% in excess of the return on Government      debentures with an average life similar to the remaining average life of      the debentures of that series as of the date of the offer, but in no event      will the price exceed the carrying value of the debentures of that series.      See also note 36a. |
|--------|-----------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   |        (2) | In      2009 S&P Maalot revised the rating of the debentures to ilA+ negative      from positive. |
|--------|-----------------|-------------------------------------------------------------------------------------------------------|

|   |        (3) | On      April 26, 2010 S&P Maalot inserted the ilA+ Company's debentures to      Credit Watch with negative implications, due to the      BSRE's  wholesale market transaction, see also note      36f. |
|--------|-----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | e. | Debentures      and convertible debentures of BSRE |
|--------|----|----------------------------------------------------|

|   | (1) | Pursuant      to prospectus dated August 16, 2006, BSRE issued NIS 875 million par value      debentures: |
|--------|-----|-----------------------------------------------------------------------------------------------------------|

|   | (a) | 100      million registered convertible debentures (Series A) of NIS 1 par value      each. |
|--------|-----|---------------------------------------------------------------------------------------------|

|   | (b) | 650      million registered debentures (Series B) of NIS 1 par value      each. |
|--------|-----|---------------------------------------------------------------------------------|

|   | (c) | Expansion      of Series B |
|--------|-----|----------------------------|

----

|   | (2) | 300      million registered debentures (Series C) of NIS 1 par value      each. |
|--------|-----|---------------------------------------------------------------------------------|

|   | The      principal of debentures (Series C) would be repaid in eight non-equal      annual installments on October 31 of each of the years 2011 to 2018      (inclusive), where six installments each constituting of 7.5% of the      amount of the principal of the debentures would be paid on October 31 of      each of the years 2011 to 2016 and two installments each constituting      27.5% of the amount of the principal of the debentures would be paid in      October of each of the years 2017 and2018. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | (3) | The      debentures and convertible debentures of BSRE are rated by Maalot S&P      as of December 31, 2009 at ilA+ Negative. In order to maintain the present      rating BSRE needs to keep certain financial ratios, which were met as of      December 31, 2008 and 2009. Also, as  from the year 2009 the      debentures and convertible debentures of BSRE are rated by the Midroog, a      subsidiary of Moody's.  The debentures and convertible      debentures of BSRE are rated by Midroog as of December 31, 2009 at A1      stable. In order to maintain the present rating BSRE needs to keep certain      financial ratios, which were met as of December 31, 2009.  On      June 2, 2010 Midroog updated the rating of the debentures and convertible      debentures of BSRE to A1 Negative fromstable. |
|--------|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                          |   | December 31           |   |
|---------------------------------------------------------------|--------|----------------------------|--------|
|                                                          |   | 2008                       |   |   | 2009 |   |
|                                                          |   | NIS in thousands |   |
| Long      term liabilities, net of current portion            |   |                       | 3,480  |   |   |   | 1,740 |   |
| Put      option granted to a minority interest (see note 5a1) |   |                       | 21,638 |   |   |   | - |   |
| Other                                                         |   |                       | 14,807 |   |   |   | 17,428 |   |
|                                                          |   |                       |   |   |   |   |   |   |
|                                                          |   |                       | 39,925 |   |   |   | 19,168 |   |

----

|   | a. | Deferred      tax assets and liabilities, as presented in the statement of financial      position (after offsetting) are expected to be recovered or settled, as      follows: |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                  |   | December 31           |    |
|-----------------------------------------------------------------------|--------|----------------------------|---------|
|                                                                  |   | 2007                       |    |   | 2008 |   |   | 2009 |   |
|                                                                  |   | NIS in thousands |    |
| Deferred      tax assets:                                             |   |                       |    |   |   |   |   |   |   |
| Deferred      tax asset to be recovered after more than 12 months     |   |                       | 16,070  |   |   |   | 25,225 |   |   |   | 26,708 |   |
| Deferred      tax asset to be recovered within 12 months              |   |                       | 17,472  |   |   |   | 19,283 |   |   |   | 19,283 |   |
|                                                                  |   |                       | 33,542  |   |   |   | 44,508 |   |   |   | 45,991 |   |
| Deferred      tax liabilities:                                        |   |                       |    |   |   |   |   |   |   |   |   |   |
| Deferred      tax liability to be recovered after more than 12 months |   |                       | (53,322 | ) |   |   | (55,843 | ) |   |   | (40,800 | ) |
| Deferred      tax liability to be recovered within 12 months          |   |                       | (4,293  | ) |   |   | (4,484 | ) |   |   | (15,405 | ) |
|                                                                  |   |                       | (57,615 | ) |   |   | (60,327 | ) |   |   | (56,205 | ) |
|                                                                  |   |                       |    |   |   |   |   |   |   |   |   |   |
| Deferred      tax liabilities, net                                    |   |                       | (24,073 | ) |   |   | (15,819 | ) |   |   | (10,214 | ) |

----

|  | b. | The      gross movement on the deferred income tax account is as      follows: |
|--|----|--------------------------------------------------------------------------------|

|                                                                        |   | 2008                       |    |   | 2009   |   |
|-----------------------------------------------------------------------------|--------|----------------------------|---------|--------|--------|--------|
|                                                                        |   | NIS in thousands |    |
|                                                                        |   |                       |    |   |   |   |
| Balance      at January 1                                                   |   |                       | (24,073 | )      |   |   | (15,819 | ) |
| Income      statement charge                                                |   |                       | 4,000   |   |   |   | 9,587 |   |
| Additions      in respect of companies consolidated for      the first time |   |                       | -       |   |   |   | 453 |   |
| Tax      charged directly to OCI                                            |   |                       | 4,254   |   |   |   | (4,435 | ) |
| Balance      at December 31                                                 |   |                       | (15,819 | )      |   |   | (10,214 | ) |

|  | c. | The      movement in deferred income tax assets and liabilities during the year,      without taking into consideration the offsetting of balances within the      same tax jurisdiction, is asfollows: |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| Deferred tax liabilities                                     |   | Depreciableproperty, plantand equipmentand investmentproperty |    |   | Intangibleassets andother |   |    |  Total |   |
|------------------------------------------------------------------------|--------|------------------------------------------------------------------------------|---------|--------|--------------------------------|--------|---------|-------------|--------|
|                                                                   |   | NIS in thousands                                                   |    |
| Balance      at January 1, 2007                                        |   |                                                                         | (46,097 | )      |                           |   | (2,834  | )           |   |   | (48,931 | ) |
|                                                                   |   |                                                                         |    |   |                           |   |    |        |   |   |   |   |
| Credited      to the income statement                                  |   |                                                                         | 4,502   |   |                           |   | 1,221   |        |   |   | 5,723 |   |
| Additions      in respect of companies consolidated for the first time |   |                                                                         | 148     |   |                           |   | (16,225 | )           |   |   | (16,077 | ) |
| Charged      directly to OCI (see note 28)                             |   |                                                                         | -       |   |                           |   | (1,006  | )           |   |   | (1,006 | ) |
|                                                                   |   |                                                                         |    |   |                           |   |    |        |   |   |   |   |
| Balance      at December 31, 2007                                      |   |                                                                         | (41,447 | )      |                           |   | (18,844 | )           |   |   | (60,291 | ) |
|                                                                   |   |                                                                         |    |   |                           |   |    |        |   |   |   |   |
| Charged      (credited) to the income statement                        |   |                                                                         | (9,486  | )      |                           |   | 3,267   |        |   |   | (6,219 | ) |
| Credited      directly to OCI (see note 28)                            |   |                                                                         | -       |   |                           |   | 873     |        |   |   | 873 |   |
|                                                                   |   |                                                                         |    |   |                           |   |    |        |   |   |   |   |
| Balance      at December 31, 2008                                      |   |                                                                         | (50,933 | )      |                           |   | (14,704 | )           |   |   | (65,637 | ) |
|                                                                   |   |                                                                         |    |   |                           |   |    |        |   |   |   |   |
| Credited      to the income statement                                  |   |                                                                         | 12,767  |   |                           |   | 1,174   |        |   |   | 13,941 |   |
| Additions      in respect of companies consolidated for the first time |   |                                                                         | -       |   |                           |   | (1,901  | )           |   |   | (1,901 | ) |
| Charged      directly to OCI (see note 28)                             |   |                                                                         | -       |   |                           |   | (2,622  | )           |   |   | (2,622 | ) |
|                                                                   |   |                                                                         |    |   |                           |   |    |        |   |   |   |   |
| Balance      at December 31, 2009                                      |   |                                                                         | (38,166 | )      |                           |   | (18,053 | )           |   |   | (56,219 | ) |

----

| Deferred tax assets                                          |   | Provisionsfor employeerights |   |   | Carryforwardstax losses |   |   | Derivativeinstruments |   |   | Operatinglease |   |   |  Total |   |
|------------------------------------------------------------------------|--------|-----------------------------------|--------|--------|------------------------------|--------|--------|-----------------------|--------|--------|----------------|--------|--------|-------------|--------|
|                                                                   |   | NIS in thousands        |   |
| Balance      at January 1, 2007                                        |   |                              | 23,760 |   |                         |   | 4,329  |                  |   |   | 4,778          |   |   |        | 6,379  |   |   |   | 39,246 |   |
| Charged      (credited) to the income  statement             |   |                              | (764   | )      |                         |   | 54     |                  |   |   | (5,289         | )      |   |        | 1,498  |   |   |   | (4,501 | ) |
| Charged      directly to OCI                                           |   |                              | 99     |   |                         |   | -      |                  |   |   | -              |   |   |        | -      |   |   |   | 99 |   |
| Additions      in respect of companies consolidated for the first time |   |                              | 1,374  |   |                         |   | -      |                  |   |   | -              |   |   |        | -      |   |   |   | 1,374 |   |
| Balance      at December 31, 2007                                      |   |                              | 24,469 |   |                         |   | 4,383  |                  |   |   | (511           | )      |   |        | 7,877  |   |   |   | 36,218 |   |
|                                                                   |   |                              |   |   |                         |   |   |                  |   |   |           |   |   |        |   |   |   |   |   |   |
| Credited      to the income statement                                  |   |                              | 3,009  |   |                         |   | 2,442  |                  |   |   | 4,150          |   |   |        | 618    |   |   |   | 10,219 |   |
| Credited      directly to OCI (see note 28)                            |   |                              | 3,381  |   |                         |   | -      |                  |   |   | -              |   |   |        | -      |   |   |   | 3,381 |   |
| Balance      at December 31, 2008                                      |   |                              | 30,859 |   |                         |   | 6,825  |                  |   |   | 3,639          |   |   |        | 8,495  |   |   |   | 49,818 |   |
| Charged      (credited) to the income statement                        |   |                              | (4,076 | )      |                         |   | 8,464  |                  |   |   | (6,783         | )      |   |        | (1,959 | ) |   |   | (4,354 | ) |
| Additions      in respect of companies consolidated for the first time |   |                              | -      |   |                         |   | 2,354  |                  |   |   | -              |   |   |        | -      |   |   |   | 2,354 |   |
| Charged      directly to OCI (see note 28)                             |   |                              | (1,813 | )      |                         |   | -      |                  |   |   | -              |   |   |        | -      |   |   |   | (1,813 | ) |
| Balance      at December 31, 2009                                      |   |                              | 24,970 |   |                         |   | 17,643 |                  |   |   | (3,144         | )      |   |        | 6,536  |   |   |   | 46,005 |   |

|   | d. | Losses      for  tax purposes, carried forward to future    years |
|--------|----|-----------------------------------------------------------------------------|

----

|  | a. | Composition: |
|--|----|--------------|

|                                                  |   | December 31           |    |
|-------------------------------------------------------|--------|----------------------------|---------|
|                                                  |   | 2008                       |    |   | 2009 |   |
|                                                  |   | NIS in thousands |    |
| Statement      of financial position obligations for: |   |                       |    |   |   |   |
| Present      value of funded obligation               |   |                       | 297,525 |   |   |   | 336,769 |   |
| Provision      in respect of unutilized sick leave    |   |                       | 29,229  |   |   |   | 32,834 |   |
|                                                  |   |                       | 326,754 |   |   |   | 369,603 |   |
| Fair      value of the plan assets                    |   |                       | 276,843 |   |   |   | 322,354 |   |
| Total      present value of the obligation, net       |   |                       | 49,911  |   |   |   | 47,249 |   |

|  | b. | Changes      in the liability for defined benefitplans: |
|--|----|---------------------------------------------------------|

|                                                              |   | 2008                       |    |   | 2009   |   |
|-------------------------------------------------------------------|--------|----------------------------|---------|--------|--------|--------|
|                                                              |   | NIS in thousands |    |
| Liability      in respect of defined benefit plans at January 1   |   |                       | 308,494 |   |   |   | 326,754 |   |
| Benefits      paid                                                |   |                       | (21,512 | )      |   |   | (38,252 | ) |
| Current      service costs                                        |   |                       | 32,410  |   |   |   | 31,657 |   |
| Actuarial      losses (gains)                                     |   |                       | (9,953  | )      |   |   | 33,168 |   |
| Interest      costs                                               |   |                       | 17,315  |   |   |   | 16,276 |   |
| Liability      in respect of defined benefit plans at December 31 |   |                       | 326,754 |   |   |   | 369,603 |   |

|  | c. | Changes      in plans assets: |
|--|----|-------------------------------|

|                                           |   | 2008                  |    |   | 2009   |   |
|------------------------------------------------|--------|-----------------------|---------|--------|--------|--------|
|                                           |   | NIS      in thousands |    |
| Fair      value of plan assets at January 1    |   |                  | 272,508 |   |   |   | 276,843 |   |
| Employer      contributions paid into the plan |   |                  | 29,090  |   |   |   | 28,750 |   |
| Actuarial      gains (losses)                  |   |                  | (23,748 | )      |   |   | 35,287 |   |
| Benefits      paid                             |   |                  | (18,532 | )      |   |   | (31,299 | ) |
| Expected      return on plan assets            |   |                  | 17,638  |   |   |   | 12,874 |   |
| Other      adjustments                         |   |                  | (113    | )      |   |   | (101 | ) |
| Fair      value of plan assets at December 31  |   |                  | 276,843 |   |   |   | 322,354 |   |

----

|  | d. | Expense      recognized in the income statement in respect of defined benefit      plans: |
|--|----|-------------------------------------------------------------------------------------------|

|                                |   | Year ended December 31 |    |   |
|-------------------------------------|--------|---------------------------------------|---------|--------|
|                                |   | 2007                                  |    |   | 2008 |   |   | 2009 |   |
|                                |   | NIS in thousands            |    |   |
| Current      services costs         |   |                                  | 28,693  |   |   |   | 32,410 |   |   |   | 31,657 |   |
| Interest      cost                  |   |                                  | 14,537  |   |   |   | 17,315 |   |   |   | 16,276 |   |
| Expected      return on plan assets |   |                                  | (13,919 | )      |   |   | (17,638 | ) |   |   | (12,874 | ) |
| Other      adjustments              |   |                                  | 306     |   |   |   | 113 |   |   |   | 101 |   |
|                                |   |                                  | 29,617  |   |   |   | 32,200 |   |   |   | 35,160 |   |

|  | e. | The      expenses were included in the following statement of income      items: |
|--|----|----------------------------------------------------------------------------------|

|                                     |   | Year ended December 31 |   |
|------------------------------------------|--------|---------------------------------------|--------|
|                                     |   | 2007                                  |   |   | 2008 |   |   | 2009 |   |
|                                     |   | NIS in thousands            |   |
| General      and administrative expenses |   |                                  | 28,999 |   |   |   | 32,523 |   |   |   | 31,758 |   |
| Financial      (income) expenses         |   |                                  | 618    |   |   |   | (323 | ) |   |   | 3,402 |   |
|                                     |   |                                  | 29,617 |   |   |   | 32,200 |   |   |   | 35,160 |   |

|                                |   | December 31 |      |
|-------------------------------------|--------|------------------|-----------|
|                                |   | 2008             |      |   | 2009 |   |
| Discount      rate                  |   |             | 5.1%-5.4  | % |   |   | 5%-6 | % |
| Inflation      rate                 |   |             | 1.7       | % |   |   | 2.6 | % |
| Expected      return on plan assets |   |             | 5.3%-6.15 | % |   |   | 2.6%-6.1 | % |
| Future      salary increases        |   |             | 3.4%-6    | % |   |   | 4.4%-5.7 | % |
| Rates      of employee turnover     |   |             | 4%-55     | % |   |   | 4%-55 | % |

----

|                                             |   | Terminationbenefits        |   |   | Legalclaims |   |   | Total  |   |
|--------------------------------------------------|--------|----------------------------|--------|--------|-------------|--------|--------|--------|--------|
|                                             |   | NIS in thousands |   |
| At      January 1, 2008                          |   |                       | -      |   |        |   | 35,073 |   |   |   | 35,073 |   |
| Charged      (credited) to the income statement: |   |                       |   |   |        |   |   |   |   |   |   |   |
| Provisions      made during the period           |   |                       | 6,000  |   |        |   | 6,072  |   |   |   | 12,072 |   |
| Provisions      reversed during the period       |   |                       | -      |   |        |   | (1,304 | )      |   |   | (1,304 | ) |
| Provisions      used during the period           |   |                       | -      |   |        |   | (2,444 | )      |   |   | (2,444 | ) |
| At      December 31, 2008                        |   |                       | 6,000  |   |        |   | 37,397 |   |   |   | 43,397 |   |
| Charged      (credited) to the income statement: |   |                       |   |   |        |   |   |   |   |   |   |   |
| Provisions      made during the period           |   |                       | -      |   |        |   | 16,182 |   |   |   | 16,182 |   |
| Provisions      reversed during the period       |   |                       | -      |   |        |   | (132   | )      |   |   | (132 | ) |
| Provisions      used during the period           |   |                       | (6,000 | )      |        |   | (2,149 | )      |   |   | (8,149 | ) |
| At      December 31, 2009                        |   |                       | -      |   |        |   | 51,298 |   |   |   | 51,298 |   |

|  | a. | Termination      benefits |
|--|----|---------------------------|

|  | b. | Legal      claims |
|--|----|-------------------|

----

|                                                                                                               |   | Year ended December 31 |   |
|--------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                                               |   | 2007                                  |   |   | 2008 |   |   | 2009 |   |
|                                                                                                               |   | NIS in thousands            |   |
| Other      gain:                                                                                                   |   |                                  |   |   |   |   |   |   |   |
| Capital      gain in respect of changes in holdings of subsidiaries as a result of a      reorganization (note 5b) |   |                                  | -      |   |   |   | 12,001 |   |   |   | 3,210 |   |
| Gain      from sale of property, plant and equipment                                                               |   |                                  | 1,775  |   |   |   | - |   |   |   | 1,451 |   |
| Reversal      of impairment provision                                                                              |   |                                  | 14,060 |   |   |   | - |   |   |   | - |   |
| Other                                                                                                              |   |                                  | -      |   |   |   | 232 |   |   |   | 38 |   |
|                                                                                                               |   |                                  | 15,835 |   |   |   | 12,233 |   |   |   | 4,699 |   |
| Other      losses:                                                                                                 |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Capital      loss in respect of the decrease in holdings of asubsidiary                                            |   |                                  | 1,520  |   |   |   | 2,220 |   |   |   | - |   |
| Termination      benefits                                                                                          |   |                                  | -      |   |   |   | 6,000 |   |   |   | - |   |
| Loss      from sale of property, plant and equipment and otherassets                                               |   |                                  | 8,532  |   |   |   | 2,569 |   |   |   | 4,750 |   |
| Impairment      provisions of property, plant and equipment and      intangible  assets                  |   |                                  | 2,376  |   |   |   | 3,420 |   |   |   | 19,981 |   |
| Reorganization      costs (see note 5b)                                                                            |   |                                  | -      |   |   |   | - |   |   |   | 2,700 |   |
| Other                                                                                                              |   |                                  | 327    |   |   |   | 507 |   |   |   | 5,372 |   |
|                                                                                                               |   |                                  | 12,755 |   |   |   | 14,716 |   |   |   | 32,803 |   |
| Other      gains (losses), net                                                                                     |   |                                  | 3,080  |   |   |   | (2,483 | ) |   |   | (28,104 | ) |

|                                                                  |   | Year ended December 31 |      |
|-----------------------------------------------------------------------|--------|---------------------------------------|-----------|
|                                                                  |   | 2007                                  |      |   | 2008 |   |   | 2009 |   |
|                                                                  |   | NIS in thousands            |      |
| Change      in inventories                                            |   |                                  | (20,438   | ) |   |   | (43,136 | ) |   |   | (17,224 | ) |
| Net      purchases                                                    |   |                                  | 5,019,277 |   |   |   | 5,273,649 |   |   |   | 5,175,890 |   |
| Wages      salaries and related expenses                              |   |                                  | *702,875  |   |   |   | *775,079 |   |   |   | 780,332 |   |
| Depreciation,      amortization and impairment charges                |   |                                  | 141,100   |   |   |   | 153,935 |   |   |   | 165,248 |   |
| Transportation      and storage expenses                              |   |                                  | *95,775   |   |   |   | *102,835 |   |   |   | 95,482 |   |
| Advertising      costs                                                |   |                                  | 75,811    |   |   |   | 87,191 |   |   |   | 82,070 |   |
| Rent      and maintenance expenses                                    |   |                                  | 154,238   |   |   |   | 183,313 |   |   |   | 226,517 |   |
| Other      expenses                                                   |   |                                  | 524,148   |   |   |   | 631,003 |   |   |   | 599,796 |   |
|                                                                  |   |                                  |      |   |   |   |   |   |   |   |   |   |
| Total      cost of sales, selling general and administrative expenses |   |                                  | 6,692,786 |   |   |   | 7,163,869 |   |   |   | 7,108,111 |   |

----

|                                                  |   | Year ended December 31 |    |
|-------------------------------------------------------|--------|---------------------------------------|---------|
|                                                  |   | 2007                                  |    |   | 2008 |   |   | 2009 |   |
|                                                  |   | NIS in thousands            |    |
| Wages,      salaries, including social security costs |   |                                  | 674,182 |   |   |   | 734,494 |   |   |   | 734,181 |   |
| Termination      benefits                             |   |                                  | -       |   |   |   | 6,000 |   |   |   | - |   |
| Share      options granted to managers and employees  |   |                                  | -       |   |   |   | 8,175 |   |   |   | 12,166 |   |
| Post-employment      benefits*                        |   |                                  | 28,693  |   |   |   | 32,410 |   |   |   | 37,387 |   |
|                                                  |   |                                  |    |   |   |   |   |   |   |   |   |   |
|                                                  |   |                                  | 702,875 |   |   |   | 781,079 |   |   |   | 783,734 |   |
| Number      of position (100%)**                      |   |                                  | 7,421   |   |   |   | 7,475 |   |   |   | 7,149 |   |

|                                                                            |   | Year ended December 31 |    |
|---------------------------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                                            |   | 2007                                  |    |   | 2008 |   |   | 2009 |   |
|                                                                            |   | NIS in thousands            |    |
| Income:                                                                         |   |                                  |    |   |   |   |   |   |   |
| Interests:                                                                      |   |                                  |    |   |   |   |   |   |   |
| Interest      income on short-term bank deposits                                |   |                                  | 27,896  |   |   |   | 10,668 |   |   |   | 3,044 |   |
| Interest      income from bank and others                                       |   |                                  | 8,921   |   |   |   | 8,208 |   |   |   | 8,543 |   |
| Net      gain from marketable securities                                        |   |                                  | 4,399   |   |   |   | 7,923 |   |   |   | 14,165 |   |
| Net      gain from equity securities at fair value through profit and      loss |   |                                  | -       |   |   |   | - |   |   |   | 10,000 |   |
| Changes      in fair value of derivatives:                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Conversion      component                                                       |   |                                  | 9,262   |   |   |   | 32,744 |   |   |   | - |   |
| Forward      contracts on the Israeli CPI                                       |   |                                  | -       |   |   |   | - |   |   |   | 21,283 |   |
| Embedded      derivatives                                                       |   |                                  | 10,500  |   |   |   | 1,157 |   |   |   | 7,745 |   |
|                                                                            |   |                                  | 60,978  |   |   |   | 60,700 |   |   |   | 64,780 |   |
|                                                                            |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Expenses:                                                                       |   |                                  |    |
| Interest      and differences from linkage to the Israel CPI:                   |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Bank      borrowings                                                            |   |                                  | 24,910  |   |   |   | 36,197 |   |   |   | 45,836 |   |
| Debentures      and convertible debentures                                      |   |                                  | 69,910  |   |   |   | 102,670 |   |   |   | 112,277 |   |
| Bank      commissions and others                                                |   |                                  | 4,674   |   |   |   | 7,307 |   |   |   | 9,971 |   |
| Changes      in fair value of derivatives:                                      |   |                                  |    |   |   |   |   |   |   |   |   |   |
| Conversion      component                                                       |   |                                  | 18,496  |   |   |   | 1,199 |   |   |   | 8,659 |   |
| Forward      contracts on the Israeli CPI                                       |   |                                  | -       |   |   |   | 11,593 |   |   |   | - |   |
| Embedded      derivatives                                                       |   |                                  | 307     |   |   |   | 7,313 |   |   |   | 711 |   |
|                                                                            |   |                                  | 118,297 |   |   |   | 166,295 |   |   |   | 177,454 |   |
| Net      finance cost                                                           |   |                                  | 57,319  |   |   |   | 105,595 |   |   |   | 112,674 |   |

----

|  | a. | Corporate      taxation in Israel |
|--|----|-----------------------------------|

|  | 1. | Measurement      of results for tax purposes under the Income Tax      (Inflationary Adjustments)      Law, 1985 (hereinafter - “the inflationary adjustments    law”) |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | Tax      rates |
|--|----|----------------|

|  | b. | Tax      assessments |
|--|----|----------------------|

|  | 1. | The      Company has received final tax assessments, or assessments deemed to be      final, for tax years through 1998 and for 2003.  Regarding tax      assessments for the years 1999-2001, see also note  31(f). |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | As      to deduction assessment for the years 2001-2004, see note      31(g),(h). |
|--|----|-----------------------------------------------------------------------------------|

|  | c. | Effect      of adoption of IFRS in Israel on taxliability |
|--|----|-----------------------------------------------------------|

----

|                                       |   | Year ended December 31 |   |
|--------------------------------------------|--------|---------------------------------------|--------|
|                                       |   | 2007                                  |   |   | 2008 |   |   | 2009 |   |
|                                       |   | NIS in thousands            |   |
| Current      taxes:                        |   |                                  |   |   |   |   |   |   |   |
| Current      tax on profits for the year   |   |                                  | 76,505 |   |   |   | 47,676 |   |   |   | 33,899 |   |
| Adjustments      in respect of prior years |   |                                  | (5,504 | ) |   |   | 130 |   |   |   | (1,188 | ) |
|                                       |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Total      current taxes                   |   |                                  | 71,001 |   |   |   | 47,806 |   |   |   | 32,711 |   |
|                                       |   |                                  |   |   |   |   |   |   |   |   |   |   |
| Deferred      taxes (note 21)              |   |                                  | (1,222 | ) |   |   | (4,000 | ) |   |   | (9,587 | ) |
| Income      tax expense                    |   |                                  | 69,779 |   |   |   | 43,806 |   |   |   | 23,124 |   |

|                                                                                |   | Year ended December 31 |   |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                |   | 2007                                  |   |   | 2008 |   |   | 2009 |   |
|                                                                                |   | NIS in thousands            |   |
| Deferred      tax:                                                                  |   |                                  |   |   |   |   |   |   |   |
| Tax      on actuarial loss (gain) on post employment benefitsscheme                 |   |                                  | 99     |   |   |   | 3,381 |   |   |   | (1,813 | ) |
| Tax      on fair value adjustments of available-for-sale financial      assets |   |                                  | (1,006 | ) |   |   | 873 |   |   |   | (2,622 | ) |
|                                                                                |   |                                  | (907   | ) |   |   | 4,254 |   |   |   | (4,435 | ) |

----

|   | e. | The      tax on the Company's profit before tax differs from the theoretical amount      that would arise using the weighted average tax rate applicable to profits      of the consolidated entities asfollows: |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                                                                                                                                          |   | Year      ended December 31 |    |
|-----------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------|---------|
|                                                                                                                                          |   | 2007                        |    |   | 2008 |   |   | 2009 |   |
|                                                                                                                                          |   | NIS      in thousands       |    |
| Profit      before tax                                                                                                                        |   |                        | 245,601 |   |   |   | 176,208 |   |   |   | 120,925 |   |
| Theoretical      tax expenses (29%, 27% and 26% respectivety)                                                                                 |   |                        | 71,224  |   |   |   | 47,576 |   |   |   | 31,441 |   |
| Tax      effects of:                                                                                                                          |   |                        |    |   |   |   |   |   |   |   |   |   |
| Difference      between the measurement basis of income for tax purposes and the      measurement basis of income for book purposes, net |   |                        | (2,460  | ) |   |   | (6,115 | ) |   |   | (5,651 | ) |
| Expenses      not deductible for tax purposes, net                                                                                            |   |                        | 3,287   |   |   |   | 9,241 |   |   |   | 5,001 |   |
| Utilization      of previously unrecognized tax losses                                                                                   |   |                        | -       |   |   |   | (1,420 | ) |   |   | (762 | ) |
| Tax      losses for which no deferred income tax asset was    recognized                                                                      |   |                        | -       |   |   |   | 8,031 |   |   |   | 9,669 |   |
| Tax      benefit recorded for the first time on carry forward capital losses      (gains)                                                |   |                        | 337     |   |   |   | - |   |   |   | (2,976 | ) |
| Decrease      in taxes resulting from computation of deferred taxes at a rate which      is different from the theoretical rate     |   |                        | (1,205  | ) |   |   | (2,083 | ) |   |   | (1,177 | ) |
| Non-taxable      financial (income) expenses*                                                                                                 |   |                        | 4,100   |   |   |   | (8,746 | ) |   |   | 3,030 |   |
| Capital      gains for which no deferred tax was recognized                                                                                   |   |                        | -       |   |   |   | (2,808 | ) |   |   | (74 | ) |
| Change      in future tax rate                                                                                                                |   |                        | -       |   |   |   | - |   |   |   | (14,189 | ) |
| Adjustment      in respect of prior years                                                                                                     |   |                        | (5,504  | ) |   |   | 130 |   |   |   | (1,188 | ) |
|                                                                                                                                          |   |                        |    |   |   |   |   |   |   |   |   |   |
| Tax      charge                                                                                                                               |   |                        | 69,779  |   |   |   | 43,806 |   |   |   | 23,124 |   |

|   | a. | Basic |
|--------|----|-------|

|                                                                                   |   | 2007   |       |   | 2008   |   |       | 2009   |   |
|----------------------------------------------------------------------------------------|--------|--------|------------|--------|--------|--------|------------|--------|--------|
|                                                                                   |   |   |       |   |   |   |       |   |   |
| Profit      attributable to equity holders of the Company (NIS in      thousands) |   |   | 143,628    |   |   |   | 104,586    |   |   |   | 77,163 |   |
| Weighted      average number of ordinary shares in issue                               |   |   | 42,355,339 |   |   |   | 43,372,819 |   |   |   | 43,558,614 |   |

----

|   | b. | Diluted |
|--------|----|---------|

|                                                                                                                                  |   | 2007                  |       |   | 2008   |   |       | 2009   |   |
|---------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|------------|--------|--------|--------|------------|--------|--------|
|                                                                                                                                  |   | NIS      in thousands |       |
| Profit      attributable to equity holders of the Company                                                                             |   |                  | 143,628    |   |   |   | 104,586    |   |   |   | 77,163 |   |
| Gain      from conversion feature and Interest expense on convertible debt (net of      tax)                                          |   |                  | -,-        |   |   |   | (31,527    | )      |   |   | -,- |   |
| Profit      used to determine diluted earnings per share                                                                              |   |                  | 143,628    |   |   |   | 73,059     |   |   |   | 77,163 |   |
| Weighted      average number of ordinary shares in issue adjustmentsfor:                                                              |   |                  | 42,355,339 |   |   |   | 43,372,819 |   |   |   | 43,558,614 |   |
| Assumed      conversion of convertible debt                                                                                           |   |                  | -,-        |   |   |   | 1,664,873  |   |   |   | -,- |   |
| Weighted      average number of ordinary shares for diluted earnings per      share                                                   |   |                  | 42,355,339 |   |   |   | 45,037,692 |   |   |   | 43,558,614 |   |
|                                                                                                                                  |   |                  |       |   |   |   |       |   |   |   |   |   |
| Options      which were not included in the computation of diluted earnings per share      due to anti dilutive effect                |   |                  | -,-        |   |   |   | 4,869,000  |   |   |   | 4,490,332 |   |
| Convertible      debentures which were not included in the computation of diluted earnings      per share due to anti dilutive effect |   |                  | 33,455,162 |   |   |   | -,-        |   |   |   | 13,268,880 |   |

----

|   | a. | From      April 2000 to May 2003, the Israeli Antitrust Authority conducted an      investigation into alleged restrictive trade arrangements between major      supermarkets chains in Israel and large suppliers. During the      investigation, an inquiry was conducted in the Company's offices and a      former CEO and other senior officers were  questioned. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | On      January 5, 2005, the Commissioner of the Israeli Antitrust Authority      issued his position regarding “commercial restrictive practices between      the dominant food suppliers and the major supermarket retail chains”.      According to the Commissioner’s position, some of these practices were      found to be restrictive trade agreements under the antitrust laws. The      Commissioner prohibited these practices unless approved by the Restrictive      Trade Practices Court or exempted by the Commissioner    himself. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Among      the practices that were found to be restrictive according to the      Commissioner were the following: arrangements with suppliers that      determine the suppliers of the retail chains, their identity and their      number; arrangements for the management of product categories in      conjunction with suppliers; arrangements regarding the retail selling      price; arrangements for determining market share of a particular      supplier’s products and arrangements for determining prices made by      suppliers to competing chains; arrangements with regard of the use of      suppliers’ manpower to stock merchandise on the shelves of the chain      stores. Limits were imposed on financial benefits to the chains with      regard to display areas and on special offers to chains for meeting      certain sale targets. After the publication of the position paper, the      Commissioner stated his position that these directives constitute a      position paper, which is “intended to provide the guidance concerning the      normative status of various practices in the food retail industry as      perceived by the Antitrust Authority”. The Commissioner indicated that      this document does not have normativestatus. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The      Company has been applying most of these directives among others, by      adopting an internal complianceprogram. |
|--------|---------------------------------------------------------------------------------------------------------------------------|

|   | Presently      the Company has no knowledge of how, if at all, its business would be      affected should the Commissioner take any action against it, with respect      to those issues under dispute, which to the Company's opinion are legal      based on consultations with its legalcounsel. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | In      August 2006, the Restrictive Trade Practices Court approved a consent      decree reached between the Commissioner and certain food      suppliers.  The consent decree is directed at the food suppliers      listed therein and stipulates various prohibitions, conditions and      restrictions that apply to these suppliers with regard to certain      practices. The consent decree addresses the following arrangements:      Reduction in the number of suppliers, acquisition of shelf and off-shelf      display space, category management, discounts and rebates in exchange for      meeting sales targets, setting market share, exclusivity in sales, price      dictation by supplier, and shelvearrangements. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | As      to shelve arrangements: whereas in his position document, the Commissioner      determined that the use of suppliers’ representatives to physically      arrange the shelves in the chains’ stores constitutes a restrictive      arrangement, the suppliers disagree with this position, and the      Commissioner agreed not to take enforcement measures with regard to such      arrangements for 30 months, so long as such arrangements satisfy certain      conditions. In February 2009, the above period was extended by 36 months,      until February 2012. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | The      Company is not a party to the consent decree; however, it could      nevertheless have an effect on the practices of the Company’s suppliers      and indirectly on the Company. At this stage, the Company cannot estimate      the effect of the Commissioner's position and the consent decree on its      financial results. |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | b. | The      operation of the Company’s supermarkets in Israel requires permits from      municipal authorities, which are conditioned on the prior approval of      various agencies, including the Health and Environment ministries and the      Police and Fire Departments. Some of these permits are currently in the      name of the Co-Op Blue Square Services Society, or the Co-Op, our former      controlling shareholder, and entities other than the Company, and have not      yet been transferred or re-issued to the Company. As well as result of the      reorganization conducted by the Company, such permits are to be      transferred to the name of its wholly owned subsidiary, Mega Retail Ltd.,      which operates all of the Company's retail activity. Furthermore, as a      result of the hostilities between Israel and the Palestinians, the      relevant authorities, including the police, have required the Company to      adopt various security measures. These safety requirements prescribe      extensive investment in safety equipment, the retaining of security      personnel and may lengthen the time dedicated for obtaining permits from      the municipal authorities. In the event that the Company is unable to      obtain or maintain the required permits, it may be required to close the      affected stores or take other action. However, the Company does not      anticipate that not obtaining the necessary permits will have a material      adverse effect on itsbusiness. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | c. | In      June 2008, a claim was filed against a subsidiary, Blue Square Chain      (Hyper Hyper) Ltd. (hereinafter - Hyper Hyper) and other defendants, in      connection with the marketing of ink cartridges. The plaintiffs have      requested to certify the claim as a class action.  The claim      alleges that the defendants coordinated the prices of certain      Hewlett-Packard ("HP") ink cartridges sold by them in a manner that      allegedly constitutes an agreement in restraint of trade. According to the      claim, the defendants allegedly sell HP ink cartridges for a higher price      than the price charged for such ink cartridges by smaller      retailers.  The plaintiff's personal claim is estimated at NIS      496, and if the claim is certified as a class action, the approximate      claim against all the defendants is estimated by the plaintiff at NIS 81      million. The claim requests a declaratory relief of an agreement in      restraint of trade, monetary compensation and an injunction to stop the      alleged pricecoordination. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | d. | In      July 2005, the Income Tax Authority issued to the Company a notice of a      deduction assessment for the years 2001- 2004. The amount claimed under      these assessments totaled NIS 34 million, and primarily relates to      certain benefits granted to employees in the Company’s branches. In      November 2005, several senior employees were questioned under warning,      with respect to these benefits. Following these assessments and after the      rejection of the Company's position on the matter, Income Tax Authority      issued to the Company deduction assessment orders for the years 2001- 2004      in the amount of approximately NIS 44 million. The Company filed appeals      with the District Court contesting these assessment orders which as of the      filing of this Annual Report are still pending.  In the opinion      of the Company and its advisors, the provisions included in the Company      financial statements are sufficient to cover the potential      liabilities. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | e. | In      July 2007, the Israeli Tax Authority issued to the Company Value Added Tax      assessment for the years 2001- 2006 in the amounts of approximately NIS 22      million in connection with the foregoing deduction assessments as      specified in clause e. The Israeli Tax Authority did not accept most of      the Company's assertions, although it agreed to deduct the total amount to      NIS 16.3 million. The Company filed an appeal with the District Court on      February 2009, which as of the filing of this Annual Report is still      pending. In the opinion of the Company and its advisors, the provisions      included in the Company financial statements are sufficient to cover the      potential liabilities. |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | f. | In      January 2009, the Company was served with a claim and a request for      approval as a class action, in which it is being sued regarding the      return of a credit note instead of cash, in accordance with the Deposit on      Drink Containers Law 1999. The Claim alleges that Blue Square has to      return cash returns to customers returning empty reusable bottles      according to the law, while in fact instead of returning cash returns, it      gives the customers  a credit note. The plaintiff's personal      claim is estimated at NIS 51.75 and if the claim is approved as a class      action, the approximate claim is estimated by the plaintiff at NIS 5.8      million. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | g. | On      September 14, 2009 the Company  was served with a claim and a      request for approval as a class action (the "Claim"), in which the Company      is being sued regarding the sale of cosmetics and perfume products without      marking the expiry date or the allowed use period after its opening, as is      allegedly obligatory according to the 15 amendment of the Pharmacists      directive [new edition] 1981 which is in effect since July 1,      2009. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | h. | On      December 8, 2009, the Company was served with a claim and a request for      approval as a class action ("the claim") in which the company is being      sued regarding alleged misrepresentations as to the contents of Fruit      spreads sold by the company under its private label "mega".  The      plaintiff's personal claim is estimated by him at approximately NIS 52 and      if the Claim is approved as a class action, the approximate claim is      estimated by the plaintiff at least at NIS 8.4 million. On      April 28, 2010 the Claim has been dismissed, following an agreement      reached between the Company and thePlaintiff. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | i. | In      February 2010, a claim was filed against the Company, regarding the grant      of discounts to "YOU" card holders. The plaintiffs have requested to      certify the claim as a class action.  The claim alleged that      during a period of time unknown to the plaintiff, the Company held a      special sale in which customers of Mega that are members of the YOU club      loyalty plan will receive an additional discount of 10% on the sale price      of certain products, and such discount was not granted fully as      advertised. |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The      plaintiff's personal claim is estimated at NIS 3.10, and if the claim is      certified as a class action, the approximate claim is estimated by the      plaintiff at NIS 2 million atleast. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | j. | On      March 2010, the Company's wholly owned subsidiary Mega Retail Ltd. and its      "YOU" customer loyalty plan were served with a claim and a request for      approval as a class action (the "Claim"), in which they are sued together      with Dor Alon Energy in Israel Ltd. (which holds 25% of the customers      club) regarding the grant of discounts to "YOU" card holders in certain      stores of "Alonit" chain. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The      Claim requests that the customer loyalty plan will return discount sums      that according to the Claim should have been granted to YOU card holders      who purchased in certain Alonit stores and did not receive a discount, or      received a discount of 5% instead of allegedly claimed discount of      10%. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The      plaintiff's personal claim is estimated by him at approx.  NIS      130 million, and if the Claim is approved as a class action, the      approximate claim is estimated by the plaintiff at approx. NIS 49.4      million.  In addition, the plaintiff requests a declaratory      relief according to which the customers club must grant a 10% discount in      all Alonit chain stores. |
|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | k. | The      Company is involved in various other legal or other proceedings incidental      to the ordinary course of its business.   Management of the      Company believes, based upon the opinions of the legal advisers handling      the claims, that the amounts provided in the financial statements are      sufficient under the circumstances, and that none of these proceedings,      individually or in the aggregate, will have a material adverse effect on      its business, financial position or operating  results. |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | l. | Certain      shareholders of Dr Baby and its former general manager (see also note 5),      are disputing the issuance of additional 5,000 shares of the Company,      which resulted in the dilution of their holdings, and the dismissal of the      former general manager of Dr Baby; they are requiring that any such      issuance will be annulled, or alternatively, that the Company will pay      them a compensation in the amount of NIS 15 million. The issue is in the      process of hearing before an arbitrator. The Company, based on the opinion      of its legal advisers, believes that the likelihood of these demands to be      accepted by the arbitrator are lower than 50% and therefore did not      include any provision in itsaccounts. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | a. | On      December 26, 2006, all conditions precedent for the completion of the      agreement between the Company and Dor Alon Energy (1988) Ltd., a related      party, (hereinafter - Dor Alon), the first party, and Cal - Israel Credit      Cards Ltd. (hereinafter - CAL) and Diners Club Israel Ltd (hereinafter -      Diners Israel), a subsidiary of CAL, the second party, were      satisfied. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | According      to the said agreement, the Company and Dor Alon jointly purchased from CAL      49% of the issued share capital of Diners in consideration for a total      amount of approximately NIS 21.3 million (hereinafter - the      Consideration). The holdings of the Company and Dor Alon in the issued      share capital of Diners are as follows: The Company - 36.75% and Dor Alon      - 12.25%. The consideration was financed through a non recourse loan      provided by CAL to the Company and Dor Alon. The loan is for a period of 8      years, and it is linked to the CPI and bears interest in an annual rate of      6%. The loan will be repaid in a single payment at the end of the period.      The loan and interest are secured only by the shares of Diners. Both      parties can cancel the agreement if, at the end of a period of 4 years      and/or 6 years, the number of credit cards will not exceed a pre-agreed      quantity, as set in the agreement, or if the loyalty plan ceases to      function or the customer club agreement (referred to in a below) is      terminated. |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | Furthermore,      the Company and Dor Alon are entitled to receive income arising from the      activity of the loyalty program, in proportion to their holdings in the      shares of Diners.  The entitlement of the Company and Dor Alon      to participate in the income from that activity of Diners, which is not      part of the loyalty program’s activity, is contingent upon meeting some      milestones in defined periods of times as specified in the      agreement.  As of the date of this report, the entitlement has      not yet been established as aforementioned, and hence, the Company has not      presented its share in the investment in Diners, and in conjunction, no      liability was recorded in respect of its share in the said loan. The      Company and Dor Alon will be entitled, under certain conditions and during      a pre-defined period, to purchase the right to participate in the income      of Diners, against a one-timepayment. |
|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | In      addition, the Company entered into two additional    agreements: |
|--------|----|--------------------------------------------------------------------------|

|  | 1. | An      agreement between the Company and Dor Alon for the establishment of a      joint loyalty club for the benefit of the customers of the Company and Dor      Alon under the brand name “YOU” (hereinafter - the Loyalty Program) that      has been incorporated as a partnership of the Company (75%) and Dor Alon      (25%) (hereinafter - the Customers’Club). |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2. | The      agreement of the Company and Dor Alon with Diners Israel prescribes that      the members of the Customers’ Club will receive a Diners credit card, and      defines the cooperation between the customers’ club and Diners, and      includes accompanying agreements to the said  agreement. |
|--|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | The      agreement determines, among other things, the division of costs between      the partnership and Diners in respect of the costs of attracting new      customers to the loyalty program, mailing and advertising costs including      the participation of Diners in the advertising budget of the loyalty      program, and clearing fees. |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Operating      lease commitments - the Company leases various retail outlets, offices and      warehouses under non-cancellable operating lease    agreements. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | The      lease terms are between five and 10 years, and the majority of lease      agreements are renewable at the end of the lease period at market rate.      The Company leases cars under cancellable operating lease agreements. The      Company is required to give up to two month notice for the termination of      these agreements. Future minimum payments under non-cancelable operating      leases for the years subsequent to the statement of position dates are as      follows: |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|                           |   | December      31      |      |
|--------------------------------|--------|-----------------------|-----------|
|                           |   | 2008                  |      |   | 2009 |   |
|                           |   | NIS      in thousands |      |
| First      year                |   |                  | 171,055   |   |   |   | 214,530 |   |
| Second      year               |   |                  | 170,293   |   |   |   | 201,450 |   |
| Third      year                |   |                  | 151,656   |   |   |   | 188,394 |   |
| Fourth      year               |   |                  | 140,542   |   |   |   | 149,649 |   |
| Fifth      year                |   |                  | 110,045   |   |   |   | 113,184 |   |
| Sixth      year and thereafter |   |                  | 286,886   |   |   |   | 308,778 |   |
|                           |   |                  | 1,030,477 |   |   |   | 1,175,985 |   |

|   | d. | Capital      commitments |
|--------|----|--------------------------|

|                               |   | December      31,     |   |
|------------------------------------|--------|-----------------------|--------|
|                               |   | 2008                  |   |   | 2009 |   |
|                               |   | NIS      in thousands |   |
| Property,      plant and equipment |   |                  | 35,764 |   |   |   | 38,557 |   |
| Inventory                          |   |                  | 3,000  |   |   |   | 17,200 |   |

----

|  | a. | Liens      for liabilities to banks, a proportionately consolidated Company have      registered fixed charges on its land, goodwill, rights to insurance and      share capital and floating charge on rent income. As of December 31, 2009,      the proportionately consolidated Company has liabilities to banks in the      amount of NIS 9.4 million. |
|--|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | b. | The      Bee Group and some of its investee companies (excluding Na'aman and      Vardinon) placed unlimited, fixed and floating charges and a first ranking      lien on the warehouse and all its assets, property, book debts, rent,      goodwill, profits, revenues, rights of ownership and other benefits in      favor of banks to secure their liabilities to the banks, amounting as of      December 31, 2009 to NIS 166.4million. |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | As      of December 31, 2009 there are charges on four of the transferred      properties to BSRE for the purpose of securing the liabilities of the      vendors of the above properties acquired by the Company vis-à-vis third      parties (mainly banks). In addition, such charges have been registered on      nine further properties from among the properties transferred. In the      latter case, however, the Company has received ‘exclusion letters’      (hereinafter - the conditional ‘exclusion letters’) from the holders of      the above charges. The Company has advised BSRE, that it has abided by, or      will abide by, the terms of the conditional ‘exclusion letters,’ and that      there is no significant impediment to the completion of their transfer to      BSRE. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | As      of December 31, 2009 there are charges on 15 of the transferred properties      from Mega  Retail to BSRE for the purpose of securing the      liabilities to the bank, amounting as of December 31, 2009 to NIS 248.2      million. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | On      December 31, 2009 BSRE's subsidiary took a loan in an amount of NIS 75      million to finance the establishment of logistic center in Beer Tuvia. A      first ranking lien on the property and the accompanying rights was      registered in favor of the bank to secure the pay back of the      loan. |
|--------|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f. | As      of December 31, 2009 there is charge on one of the transferred properties      from Mega Retail to BSRE for the purpose of securing the liabilities of      the vendors of the property acquired by Mega Retail to the third parties.      In addition, such charge has been registered on one further property. In      the latter case, however, Mega Retail has received "exclusion letter" from      the holders of the aboveproperty. |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | a. | The      Company has provided bank guarantees for third parties such as service      suppliers, gift certificates and customers in an aggregate amount of      approximately NIS 7 million. Furthermore, the Company has provided bank      guarantees for its subsidiary, Eden, in an aggregate amount of      approximately NIS 80.3 million. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | b. | BSRE      has provided bank guarantees for it's subsidiary in an aggregate amount of      NIS 75 million. Furthermore, BSRE has provided guarantees for it's vendor      in an aggregate amount of approximately NIS 10  million. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | c. | Mega      Retail has provided bank guarantee for a third party in an amount of      approximately NIS 0.7 million. A subsidiary (Hyper Hyper) has provided      bank guarantee for a third party in an amount of approximately NIS 2.3      million. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | As      of December 31, 2009, Bee Group and some of its investee companies      (excluding Na'aman and Vardinon) provided guarantees to each other for the      total liabilities to the banks of the group (excluding Na'aman and      Vardinon) in an amount of NIS 110.1million. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                      |   | Year      ended December 31 |    |
|---------------------------|--------|-----------------------------|---------|
|                      |   | 2007                        |    |   | 2008 |   |   | 2009 |   |
| Directors'      fees      |   |                        | 1,032   |   |   |   | 1,709 |   |   |   | 1,718 |   |
| Legal      consulting (5) |   |                        | 1,282   |   |   |   | 2,024 |   |   |   | 5,051 |   |
| Purchases      (4)        |   |                        | 755,396 |   |   |   | 851,666 |   |   |   | 840,486 |   |
| Commissions      (1)      |   |                        | (3,597  | ) |   |   | (5,743 | ) |   |   | (6,636 | ) |
| Discounts      (2)        |   |                        | 716     |   |   |   | 924 |   |   |   | 444 |   |

|  | 1) | In      January 2004 the shareholders of the Company approved an agreement      according to which the Company will provide to related parties purchasing      and supply services for stores operated by the related parties. In      consideration for these services, the Company is entitled to payment      equivalent to the cost of the services provided with the addition of a      margin as stated in theagreement. |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | 2) | On      September 13, 2005, the Company’s general shareholders meeting approved a      discount arrangement for some of the employees of the companies holding      directly or indirectly in the Company’s shares (some of the employees of      Alon Group) (hereinafter - “the entitled  employees”). |
|--|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 3) | The      Company is selling gift certificates for the par value in the certificate      less discount, according to the commercial terms that were negotiated with      the clients during regular course ofbusiness. |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | 4) | The      Company purchases goods from Tnuva and Dor Alon. These arrangements are in      the ordinary course of our business, and the terms and conditions of these      arrangements are at "arm's-length". The Company purchase most of our      dairy, fresh produce and poultry products from the Tnuva corporation,      which holds a leading position in the domestic dairy and poultry markets.      To our knowledge, some of the collective acquisition entities of kibbutzim      in Israel that hold shares of Alon, our controlling shareholder, hold      21.5% of Tnuva.   |
|--------|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | 5) | The      Company receives legal services from S. Biran & Co. a related party of      the Company. |
|--------|----|-------------------------------------------------------------------------------------------------------|

|   | 6) | Employment      agreement with Ms. Moran Wiessman |
|--------|----|---------------------------------------------------|

|                               |   | December      31,     |   |
|------------------------------------|--------|-----------------------|--------|
|                               |   | 2008                  |   |   | 2009 |   |
|                               |   | NIS      in thousands |   |
| Trade      receivables (note 3e):  |   |                  | 56,550 |   |   |   | 58,479 |   |
| Other      receivables (note 13b): |   |                  | 8,104  |   |   |   | 7,930 |   |
|                               |   |                  | 64,654 |   |   |   | 66,409 |   |
| Trade      payables                |   |                  | 74,403 |   |   |   | 70,894 |   |
| Other      payables                |   |                  | 80     |   |   |   | 233 |   |
|                               |   |                  | 74,483 |   |   |   | 71,127 |   |

----

|                                                 |   | Year      ended December 31, |   |
|------------------------------------------------------|--------|------------------------------|--------|
|                                                 |   | 2007                         |   |   | 2008 |   |   | 2009 |   |
|                                                 |   | NIS      in thousands        |   |
| Salaries      and other short-term employee benefits |   |                         | 17,071 |   |   |   | 17,539 |   |   |   | 20,741 |   |
| Post      employment benefits                        |   |                         | 957    |   |   |   | 1,401 |   |   |   | 1,597 |   |
| Share-based      payments                            |   |                         | -      |   |   |   | 3,977 |   |   |   | 6,172 |   |
|                                                 |   |                         |   |   |   |   |   |   |   |   |   |   |
|                                                 |   |                         | 18,028 |   |   |   | 22,917 |   |   |   | 28,510 |   |

|  | (1) | Supermarkets      –The Company is engaged through its fully held subsidiary, Mega Retail      Ltd. ("Mega Retail"), in Supermarket activities, offering a wide range of      food and beverage products and “Non-food” items, such as houseware, toys,      small electrical appliances, computers and computer accessories,      entertainment and leisure products and textile products and “Near-Food”      products, such as health and beauty aids, infants products, cosmetics and      hygiene products. As of December 31, 2009, the Company operated 203      supermarkets in this segment. This segment also includes properties owned      through  BSRE, in connection with the supermarket operation of      the Company's stores (including warehouses and  offices). |
|--|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (2) | Non-food      Retail and Wholesale – The Company is engaged, through Bee Group Retail      Ltd. ("Bee Group"), in Non- food Retail and wholesale activities .As      of  December 31, 2009, Bee Group consisted of 260 non- food      Retail outlets, mostly through franchisees, with activities in the      houseware and home textile, toys, leisure, and baby and young children      sectors. |
|--|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|  | (3) | Real  Estate      – The Company is engaged through BSRE in commercial centers, office      buildings and logistics centers owned by the Company for the purpose of      deriving long-term yield from lease, and land held for long-term capital      appreciation. |
|--|-----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|                                                                                                                       |   | Supermarkets          |      |   | Non - foodRetail andwholesale |   |    | Real estate |   |   | Adjustments |   |   | Total consolidated |    |
|----------------------------------------------------------------------------------------------------------------------------|--------|-----------------------|-----------|--------|----------------------------------------------|--------|---------|------------------|--------|--------|-------------|--------|--------|-------------------------|---------|
|                                                                                                                       |   | NIS      in thousands |      |
| Year      ended December 31, 2009:                                                                                         |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |
| Net      segment revenues                                                                                                  |   |                  | 6,863,020 |   |                                         |   | 464,266 |             |   |   | 21,790      |   |   |                    | -       |   |   |   | 7,349,076 |   |
| Inter      segment revenues                                                                                                |   |                  | -         |   |                                         |   | 58,874  |             |   |   | -           |   |   |                    | (58,874 | ) |   |   | - |   |
|                                                                                                                       |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   |   |   |
| Operating      profit before other gains and losses and net gain from adjustment of      investment property to fair value |   |                  | 211,120   |   |                                         |   | 34,321  |             |   |   | 12,145      |   |   |                    | 720     |   |   |   | 258,306 |   |
| Segment      profit                                                                                                        |   |                  | 190,882   |   |                                         |   | 23,245  |             |   |   | 32,920      |   |   |                    | 720     |   |   |   | 247,767 |   |
| Unallocated      corporate expenses                                                                                        |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | (17,341 | ) |
| Unallocated      corporate gains due to changes in holdings                                                                |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | 3,210 |   |
| Financial      income                                                                                                      |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | 64,780 |   |
| Financial      expenses                                                                                                    |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | (177,454 | ) |
| Share      in losses of associated companies - net                                                                         |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | (37 | ) |
| Income      before taxes on income                                                                                         |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | 120,925 |   |
| Additional      information -                                                                                              |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   |   |   |
| Depreciation      and amortization                                                                                         |   |                  | 153,347   |   |                                         |   | 11,901  |             |   |   | -           |   |   |                    | -       |   |   |   | 165,248 |   |
| Year      ended December 31, 2008:                                                                                         |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   |   |   |
| Net      segment revenues                                                                                                  |   |                  | 6,966,839 |   |                                         |   | 442,130 |             |   |   | 20,152      |   |   |                    | -       |   |   |   | 7,429,121 |   |
| Inter      segment revenues                                                                                                |   |                  | -         |   |                                         |   | 55,393  |             |   |   | -           |   |   |                    | (55,393 | ) |   |   | - |   |
|                                                                                                                       |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   |   |   |
| Operating      profit before other gains and losses and net gain from adjustment of      investment property to fair value |   |                  | 258,168   |   |                                         |   | 23,355  |             |   |   | 7,378       |   |   |                    | 2,957   |   |   |   | 291,858 |   |
| Segment      profit                                                                                                        |   |                  | 246,096   |   |                                         |   | 23,163  |             |   |   | 26,445      |   |   |                    | 2,957   |   |   |   | 298,661 |   |
| Unallocated      corporate expenses                                                                                        |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | (26,606 | ) |
| Unallocated      corporate gains due to changes in holdings                                                                |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | 9,781 |   |
| Financial      income                                                                                                      |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | 60,700 |   |
| Financial      expenses                                                                                                    |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | (166,295 | ) |
| Share      in losses of associated companies - net                                                                         |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | (33 | ) |
| Income      before taxes on income                                                                                         |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | 176,208 |   |
| Additional      information -                                                                                              |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   |   |   |
| Depreciation      and amortization                                                                                         |   |                  | 143,704   |   |                                         |   | 10,178  |             |   |   | -           |   |   |                    | -       |   |   |   | 153,882 |   |
|                                                                                                                       |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   |   |   |
| Year      ended December 31, 2007:                                                                                         |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   |   |   |
| Net      segment revenues                                                                                                  |   |                  | 6,655,845 |   |                                         |   | 310,367 |             |   |   | 15,772      |   |   |                    | -       |   |   |   | 6,981,984 |   |
| Inter      segment revenues                                                                                                |   |                  | -         |   |                                         |   | 42,111  |             |   |   | -           |   |   |                    | (42,111 | ) |   |   | - |   |
|                                                                                                                       |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   |   |   |
| Operating      profit before other gains and losses and net gain from adjustment of      investment property to fair value |   |                  | 281,200   |   |                                         |   | 20,284  |             |   |   | 9,775       |   |   |                    | 277     |   |   |   | 311,536 |   |
| Segment      profit                                                                                                        |   |                  | 286,375   |   |                                         |   | 19,709  |             |   |   | 20,231      |   |   |                    | 277     |   |   |   | 326,592 |   |
| Unallocated      corporate expenses                                                                                        |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | (22,338 | ) |
| Unallocated      corporate losses due to changes in holdings                                                               |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | (1,520 | ) |
| Financial      income                                                                                                      |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | 60,978 |   |
| Financial      expenses                                                                                                    |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | (118,297 | ) |
| Share      in losses of associated companies - net                                                                         |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | 186 |   |
| Income      before taxes on income                                                                                         |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   | 245,601 |   |
| Additional      information -                                                                                              |   |                  |      |   |                                         |   |    |             |   |   |        |   |   |                    |    |   |   |   |   |   |
| Depreciation      and amortization                                                                                         |   |                  | 137,290   |   |                                         |   | 3,810   |             |   |   | -           |   |   |                    | -       |   |   |   | 141,100 |   |

----

|  | a. | On      January 14, 2010 the Board of Directors declared a dividend in the amount      of NIS 75 million (NIS 1.7043168 per      share). |
|--|----|-----------------------------------------------------------------------------------------------------------------------------------------------|

|  | b. | On      April 7, 2010 the Company announced that it is considering a transaction      with its controlling shareholder, Alon Israel Oil Co. ("Alon"), pursuant      to which the Company would acquire from Alon all of Alon's 80.05% holdings      in Dor Alon Energy in Israel Ltd. ("Dor Alon"), a publicly traded company      listed on the Tel Aviv Stock Exchange (the "Acquisition"). Dor Alon is one      of the four largest fuel companies in Israel based on number of gas      stations and convenience stores. As of March 10, 2010, Dor Alon supplied      motor fuels and other petroleum products to 183 public retail outlets      operating under the “Dor Alon” brand and operated 168 convenience stores,      including 124 convenience stores branded “Alonit” and “Super Alonit” and      44 convenience stores operated by the AM:PM chain of stores. Dor Alon's      sales and operating income in 2009 were approximately NIS 6,247 million      and NIS 183 million, respectively. Dor Alon trades on the Tel Aviv Stock      Exchange (“TASE”). |
|--|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|   | c. | Through      March 31, 2010, additional convertible debentures with par value of NIS      5,804 were converted to 288,844 shares of the Company. In addition,      630,000 shares were issued for the exercise of employee and managers      options. |
|--------|----|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | d. | On      March 25, 2010, the Company purchased 89,888 of its own shares ("treasury      shares") from a related party at market value (NIS  47.64). |
|--------|----|----------------------------------------------------------------------------------------------------------------------------------------------------|

|   | e. | On      January 20, 2010 the Company purchased 150,200 subordinated Class B      limited partnership units of Holly Energy Partnership, L.P. for a total      consideration of approximately $ 6 million from Alon Assets Inc., a      related party. These units were converted, after March 2010, into ordinary      partnership units which are quoted in the New York Stock Exchange (NYSE).      The Company chose to classify  this investment as available for      sale financial asset. |
|--------|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | f. | On      April 15, 2010, the audit committee and board of directors of BSRE,      approved the agreements to purchase land rights in part of the wholesale      market area in Tel Aviv, the development, construction and marketing of a      project that includes an apartment building complex, areas for commercial      use and areas for multi–purpose use, in a joint venture (50%:50%) with a      third party (a company under the control of Moshe and Yigal Gindi and      Gindi investments 1 Ltd. - together referred to hereinafter as      "Gindi"). |
|--------|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

|  | g. | On      April 21, 2010 BSRE announced the approval by the Audit Committee and      Board of Directors of BSRE of (i) an agreement ("the aquisition      agreement") to purchase approximately 240-dunam parcel of property in      Point Wells, near Seattle, Washington, which serves primarily as a plant      for storage and distribution of fuel and oils (the "Property"), and (ii)      an agreement to develop the Property. ("the development      agreement"). |
|--|----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

----

| Holding Company                                     |   | Name of Company                                |   | Percentage ofownership and controlby holding Company asof December 31,2009 |   |   |                           |
|----------------------------------------------------------|--------|----------------------------------------------------------|--------|--------------------------------------------------------------------------------------------------------------------|--------|--------|--------------------------------|
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |
| Blue      Square-Israel Ltd.                             |   | Mega      Retail Ltd.                                    |   |                                                                                                               | 100    | %      |                           | Subsidiary |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Blue      Square Real Estate Ltd.                        |   |                                                                                                               | 78.35  | %      |                           | Subsidiary |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Bee      Group Ltd.                                      |   | 85%      (see note 5a1c)                                                                                           |   |   | Subsidiary(see      note 5a1c) |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Diners      Club Israel Ltd.                             |   |                                                                                                               | 36.75  | %      |                           | See      note 32(1) |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
| Mega      Retail Ltd.                                    |   | TheBlue      Square Chain (Hyper Hyper) Ltd.             |   |                                                                                                               | 100    | %      |                           | Subsidiary |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Eden      Briut Teva Market Ltd.                         |   |                                                                                                               | 51     | %      |                           | Subsidiary |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Loyalty      plan-partnership                            |   |                                                                                                               | 75     | %      |                           | See      note 32(1) |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
| The      Blue Square Chain (Hyper Hyper)  Ltd. |   | Shefa      Mehadrin Ltd.                                 |   |                                                                                                               | 100    | %      |                           | Subsidiary |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Radio      Non-Stop Ltd.                                 |   |                                                                                                               | 33     | %      |                           | Associated      Company |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
| Blue      Square Real Estate Ltd.                        |   | Kenyon      Hadar Management Company Ltd.                |   |                                                                                                               | 50     | %      |                           | Proportionatelyconsolidated |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Hyper      Lod Center Ltd.                               |   |                                                                                                               | 100    | %      |                           | Subsidiary |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Joint      venture Blue Square - Hadar                   |   |                                                                                                               | 50     | %      |                           | Proportionatelyconsolidated |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Logistic      Center Bee Square Real Estate Ltd.         |   |                                                                                                               | 100    | %      |                           | Subsidiary |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Center      Investments 1108 Ltd.                        |   |                                                                                                               | 50     | %      |                           | Proportionately      consolidated |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Izdarehet      Investments Company Ltd.                  |   |                                                                                                               | 50     | %      |                           | Proportionately      consolidated |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
| Bee      Group Ltd.                                      |   | Na'aman      Porcelain Ltd                               |   |                                                                                                               | 66.85  | %      |                           | Subsidiary |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Doctor      baby                                         |   |                                                                                                               | 100    | %      |                           | Subsidiary |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
| Na'aman      Porcelain Ltd.                              |   | Vardinon      Textile Ltd.                               |   |                                                                                                               | 88.74  | %      |                           | Subsidiary |
|                                                     |   |                                                     |   |                                                                                                               |   |   |                           |   |
|                                                     |   | Sheshet      Chain of Stores for Household Utensils Ltd. |   |                                                                                                               | 100    | %      |                           | Subsidiary |

----

| BLUE      SQUARE-ISRAEL LTD. |
|------------------------------|
|                         |   |
| By:                          | /s/Zeev Vurembrand |
|                         | Name: | Zeev      Vurembrand |
|                         | Title: | President      and Chief Executive Officer |
|                         |   |
| By:                          | /s/ Dror Moran |
|                         | Name: | Dror      Moran |
|                         | Title: | Vice      President and Chief FinancialOfficer |

----