SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

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

For the quarterly period ended June 30, 1999

                                       OR

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

   For the transition period from ___________________ to ____________________

                          Commission file number 1-8707

                         PEC Israel Economic Corporation
             ------------------------------------------------------
             (Exact Name of Registrant as Specified in Its Charter)

               Maine                                   13-1143528
   ---------------------------------              -------------------
   (State of Other Jurisdiction                   (I.R.S. Employer
   of Incorporation or Organization)              Identification No.)

    511 Fifth Avenue, New York, NY                       10017
----------------------------------------              ----------
(Address of Principal Executive Offices)              (Zip Code)

Registrant's Telephone Number, Including Area Code (212) 687-2400

--------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

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

Yes |X|   No |_|

      As of August 13, 1999 there were outstanding 18,362,188 shares of Common
Stock with par value of $1.00 per share.


                                                        Page 1 of 25 pages
<PAGE>

                         PART I - FINANCIAL INFORMATION

                PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                        June 30,    December 31,
                                                       ------------------------
                                                          1999           1998
                                                       ---------      ---------
                                                         (In thousands - except
                                                            per share amounts)
                                                       ------------------------
Assets
                                                      (Unaudited)
<S>                                                    <C>            <C>
Cash and cash equivalents                              $  36,447      $  22,007
Investments                                              506,280        432,112
Assets of General Engineers Limited                        7,812          7,950
Other assets                                               6,527          4,860
                                                       ---------      ---------

        Total assets                                   $ 557,066      $ 466,929
                                                       =========      =========

Liabilities and Shareholders' Equity

Liabilities:
    Notes payable - Banks                              $  44,065      $  20,000
    Liabilities of General Engineers Limited               5,051          5,163
    Deferred income taxes                                 42,630         28,487
    Other liabilities                                     10,779          8,054
                                                       ---------      ---------
      Total liabilities                                  102,525         61,704
                                                       ---------      ---------

Shareholders' equity:
    Common stock, $1.00 par value                         31,952         31,952
    Additional paid-in capital                           105,208        104,616
    Accumulated other comprehensive income               (46,544)       (65,952)
    Retained earnings                                    384,292        354,976
                                                       ---------      ---------
                                                         474,908        425,592


    Treasury stock                                       (20,367)       (20,367)
                                                       ---------      ---------
      Total shareholders' equity                         454,541        405,225
                                                       ---------      ---------

      Total liabilities and shareholders' equity       $ 557,066      $ 466,929
                                                       =========      =========
</TABLE>

See notes to consolidated financial statements.


                                                        Page 2 of 25 pages
<PAGE>

                PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                   For The                       For The
                                                                              Six Months Ended:            Three Months Ended:
                                                                          --------------------------    --------------------------
                                                                            6/30/99        6/30/98        6/30/99        6/30/98
                                                                          -----------    -----------    -----------    -----------
                                                                              (In thousands-except share and per share amounts)
<S>                                                                       <C>            <C>            <C>            <C>
Revenues:

   Interest and dividends                                                 $     2,491    $       491    $     1,243    $       309
   Equity in net income of Affiliated Companies                                21,728         22,015         11,371         10,187
   Net gain (loss) on issuance of shares by Affiliated Companies                6,522             73           (255)            14
   Revenues of General Engineers Limited                                        5,355          4,554          2,554          2,356
   Net gain (loss) on sales of investments in Affiliated Companies             10,531            610         11,331            (86)
   Net gain on sales, and changes in market
      value, of trading securities                                                 10          3,898              3            553
   Other                                                                        1,530          1,322          1,066            478
                                                                          -----------    -----------    -----------    -----------
                                                                               48,167         32,963         27,313         13,811
                                                                          -----------    -----------    -----------    -----------

Expenses:

   General and administrative                                                   2,736          1,725          1,386            867
   Cost of sales and expenses of General Engineers Limited                      5,479          5,049          2,721          2,479
                                                                          -----------    -----------    -----------    -----------
                                                                                8,215          6,774          4,107          3,346
                                                                          -----------    -----------    -----------    -----------

   Income before interest and income taxes                                     39,952         26,189         23,206         10,465
   Interest expense                                                             1,211            499            752            344
                                                                          -----------    -----------    -----------    -----------
   Income before income taxes                                                  38,741         25,690         22,454         10,121
   Income taxes                                                                 9,425          7,763          5,181          2,937
                                                                          -----------    -----------    -----------    -----------
   Net income                                                                  29,316         17,927         17,273          7,184
                                                                          -----------    -----------    -----------    -----------

Other comprehensive income:
   Unrealized gain (loss) on available-for-sale securities
      arising during period                                                    16,285         (1,710)         9,568         (1,736)
   Reclassification adjustment for gains
      included in net income                                                     (152)            --           (152)            --
                                                                          -----------    -----------    -----------    -----------

   Unrealized gain (loss) net of tax provision (benefit) of $8,618 and
      ($920) for the six months ended June 30, 1999 and June 30, 1998,
      respectively, and $5,002 and ($937) for the three months ended
      June 30, 1999 and June 30, 1998, respectively                            16,133         (1,710)         9,416         (1,736)


   Translation adjustment, net of tax provision (benefit) of $616 and
      ($564) for six months ended June 30, 1999 and June 30, 1998,
      respectively, and ($376) and ($350) for the three months ended
      June 30, 1999 and June 30, 1998, respectively                             3,275         (6,837)        (1,658)        (3,806)
                                                                          -----------    -----------    -----------    -----------

Other comprehensive income (loss)                                              19,408         (8,547)         7,758         (5,542)
                                                                          -----------    -----------    -----------    -----------

Comprehensive income                                                      $    48,724    $     9,380    $    25,031    $     1,642
                                                                          ===========    ===========    ===========    ===========

Earnings per common share - basic                                         $      1.60    $      0.98    $      0.94    $      0.39
                                                                          ===========    ===========    ===========    ===========

Earnings per common share - diluted                                       $      1.57    $      0.93    $      0.93    $      0.36
                                                                          ===========    ===========    ===========    ===========

Weighted average number of shares outstanding                              18,362,188     18,362,188     18,362,188     18,362,188
                                                                          -----------    -----------    -----------    -----------
</TABLE>

See notes to consolidated financial statements.


                                                        Page 3 of 25 pages
<PAGE>

                PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                     FOR THE SIX MONTHS ENDED JUNE 30, 1999
                                   (Unaudited)
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                      Accumulated Other
                                                                     Comprehensive Income
                                                                     --------------------

                                                    Additional  Unrealized Gains     Cumulative
                                           Common     Paid-in    on Available -      Translation  Retained    Treasury
                                            Stock     Capital  for-Sale Securities   Adjustment   Earnings      Stock      Total
                                           -------   --------  -------------------   ----------   --------    --------    --------
<S>                                        <C>       <C>            <C>               <C>         <C>        <C>          <C>
Balance,  January 1, 1999                  $31,952   $104,616       $  1,783          ($67,735)   $354,976   ($20,367)    $405,225

Paid in capital of
         Affiliated Companies                - - -        592          - - -             - - -       - - -      - - -          592

Change in market value
         of available-for-
         sale equity securities,
         net of tax benefit                  - - -      - - -         16,133             - - -       - - -      - - -       16,133

Accumulated translation
         adjustment, net of tax benefit      - - -      - - -          - - -             3,275       - - -      - - -        3,275

Net income                                   - - -      - - -          - - -             - - -      29,316      - - -       29,316
                                           -------   --------   ------------------    --------    --------   --------     --------
Balance, June 30, 1999                     $31,952   $105,208       $ 17,916          ($64,460)   $384,292   ($20,367)    $454,541
                                           =======   ========   ==================    ========    ========   ========     ========
</TABLE>

See notes to consolidated financial statements.


                                                        Page 4 of 25 pages
<PAGE>

                PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (Unaudited)

<TABLE>
<CAPTION>
                                                                                   For the Six Months Ended:
                                                                                ------------------------------
                                                                                 6/30/99               6/30/98
                                                                                ------------------------------
                                                                                        (In thousands)
<S>                                                                             <C>                   <C>
Cash Flows from Operating Activities:

Net income                                                                      $ 29,316              $ 17,927
Adjustments to reconcile net income to net cash
    provided by operating activities:
         Change in market value of trading securities                               (144)                1,912
         Purchase of trading securities                                            - - -                (8,365)
         Proceeds from sale of trading securities                                    135                17,289
         Equity in net income of Affiliated Companies                            (21,728)              (22,015)
         Gain on sales of investments in Affiliated Companies                    (10,531)                 (610)
         Net loss (gain) on sales of trading securities                              134                (5,810)
         Net gain on investment in partnerships                                     (723)                 (424)
         Loss of consolidated subsidiaries                                            22                    12
         Net gain on issuance of shares by Affiliated Companies                   (6,522)                  (73)
         Dividends from Affiliated Companies                                       4,026                12,326
Change in other assets and liabilities                                             2,083                  (307)
Provision for deferred income taxes                                                4,670                 3,233
                                                                                --------              --------

             Net cash provided by operating activities                               738                15,095
                                                                                --------              --------

Cash Flows from Investing Activities:

         Collection of loans                                                       9,455                     7
         Purchase of notes receivable                                             (1,305)                 (697)
         Proceeds from sale of equity interests                                   14,902                 2,645
         Acquisitions of equity interests                                        (33,416)              (53,511)
         Return of capital                                                            66                12,582
                                                                                --------              --------

             Net cash used in investing activities                               (10,298)              (38,974)
                                                                                --------              --------

Cash Flows from Financing Activities:
         Proceeds of Bank loan, net                                               24,000                20,000
                                                                                --------              --------
             Net cash provided by financing activities                            24,000                20,000
                                                                                --------              --------

Net increase (decrease) in cash and cash equivalents                              14,440                (3,879)
Cash and cash equivalents, beginning of period                                    22,007                 8,948
                                                                                --------              --------

Cash and cash equivalents, end of period                                        $ 36,447              $  5,069
                                                                                ========              ========

Supplemental Disclosures of Cash Flow Information:
         Cash paid during period for:
             Income taxes                                                       $    957              $  4,036
             Interest                                                           $    588              $    292
</TABLE>

See notes to consolidated financial statements.


                                                        Page 5 of 25 pages
<PAGE>

                PEC ISRAEL ECONOMIC CORPORATION AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements
                                   (Unaudited)

1.    The December 31, 1998 balance sheet presented herein was derived from the
      audited consolidated financial statements of PEC Israel Economic
      Corporation and subsidiaries ("PEC" or the "Company") for the year ended
      December 31, 1998 (the "1998 Financial Statements").

2.    These financial statements have been prepared in accordance with generally
      accepted accounting principles for interim financial information and with
      the instructions to Form 1O-Q and Rule 10-01 of Regulation S-X. The
      financial statements should be read in conjunction with the 1998 Financial
      Statements for a description of the significant accounting policies, which
      have continued without change, and other footnote information.

3.    On December 11, 1998, Crandon Capital Partners and Kenneth Steiner,
      allegedly shareholders of PEC, instituted a purported class action in the
      Supreme Court of New York State, County of New York, against PEC and its
      directors. In their complaint, the plaintiff shareholders allege that the
      defendants breached their fiduciary duties and engaged in self-dealing
      without regard to conflicts of interest in approving, on the date the
      complaint was filed, a proposed merger under which a wholly owned
      subsidiary of IDB Development would merge into PEC and each shareholder of
      PEC other than IDB Development (which then owned 81.35% of PEC's common
      stock) would, as a result of the merger, receive $30 in cash for each of
      his shares of common stock of PEC. The plaintiffs also assert that the $30
      per share price is unfair and inadequate and is below the fair or inherent
      value of PEC's assets and PEC's future prospects. PEC believes that the
      allegations in the complaint are without merit, and PEC intends to contest
      the action vigorously.

      On May 3, 1999, Mr. Norman Frank, allegedly a shareholder of PEC,
      instituted a purported class action in the Superior Court in Cumberland
      County, State of Maine against PEC, PEC Acquisition Corporation ("PEC
      Acquisition") and the directors of PEC. In his complaint, the plaintiff
      alleges that the $30 cash consideration to be paid to PEC's public
      shareholders for each of their shares of PEC common stock in the proposed
      merger of PEC Acquisition, a wholly owned subsidiary of PEC's parent
      corporation, Discount Investment Corporation Ltd., into PEC is unfair and
      grossly inadequate. The plaintiff asserts that in approving the proposed
      merger, the defendant directors of PEC breached their fiduciary duties and
      engaged in improper, unfair dealing and wrongful and coercive conduct
      without regard to their alleged conflicts of interest. PEC believes that
      the allegations in Mr. Frank's complaint are without merit and PEC intends
      to contest the action vigorously.

4.    On April 23, 1999, a subscriber of Tevel Israel International
      Communications Ltd. ("Tevel"), a cable television corporation in which PEC
      has a 23.7% ownership interest through PEC's holdings in DIC and PEC Cable
      TV Ltd., commenced an action in the District Court in Tel Aviv, Israel
      against Tevel and Israel's Minister of Communications alleging that Tevel
      is a monopoly in its area of operations and that Tevel should compensate
      all of its subscribers from May 10, 1996 though April 1, 1999 for the
      difference between the price that Tevel would have charged for cable
      television services during this period if the cable television market had
      been competitive and the price Tevel actually charged, an amount the
      plaintiff estimates is New Israel Shekel ("NIS") 260 million
      (approximately $63 million). The plaintiff requests that the District
      Court recognize his action as a class action on behalf of all of Tevel's
      subscribers since May 10, 1996 under Israel's Anti-Trust Law.

      In addition to seeking compensation, the plaintiff requests that the
      District Court order Tevel to reduce its prices to the "market price" as
      calculated by the plaintiff for as long as Tevel is a monopoly in its
      areas of operations and that the District Court order Israel's Minister of
      Communication not to extend Tevel's cable television license. The
      plaintiff acknowledges that the prices Tevel charged were less than the
      maximum prices Tevel was permitted to charge under its license from
      Israel's Ministry of Communications.


                                                        Page 6 of 25 pages
<PAGE>

      On May 5, 1999, a plaintiff subscriber of Tevel filed an action against
      Tevel in the District Court in Tel Aviv, Israel alleging that Tevel
      unnecessarily required all of its subscribers to use channel converters
      and, as a result, Tevel overcharged its subscribers by NIS 150 million
      (approximately $36 million). The plaintiff requests the District Court to
      recognize his action as class action and to order Tevel to refund to its
      subscribers the alleged NIS 150 million overcharge.

      Tevel believes the allegations in both of the foregoing actions are
      without merit and Tevel intends to contest both actions vigorously. Tevel
      is unable at this stage to evaluate the effect of the two actions on Tevel
      and, accordingly, PEC is unable to evaluate the effect, if any, of the two
      actions on PEC.

5.    The following is a reconciliation of the net income used in the
      computation of basic earnings per share to net income assuming conversion
      of potential common stock ("PCEs") issued by certain of PEC's Affiliated
      Companies (in thousands):

<TABLE>
<CAPTION>
                                                                              For the                For the
                                                                         Six Months Ended       Three Months Ended
                                                                        -------------------     -----------------
                                                                        6/30/99     6/30/98     6/30/99   6/30/98
                                                                        -------     -------     -------   -------
<S>                                                                     <C>         <C>         <C>        <C>
      Net income available to common shareholders--basic ............   $29,316     $17,927     $17,273    $7,184
                                                                        -------     -------     -------   -------

      Effect of dilutive securities:
         Dilutive effect of PCEs issued by certain Affiliated
         Companies ..................................................      (463)       (897)       (248)     (575)
                                                                        -------     -------     -------   -------

      Net income available to common shareholders--diluted ..........   $28,853     $17,030     $17,025    $6,609
                                                                        =======     =======     =======   =======
</TABLE>

      Basic and diluted earnings per share are computed using the weighted
      average number of common shares outstanding during the respective periods
      which was 18,362,188. Weighted average number of common shares used in the
      computation of basic and diluted earnings per share is not affected by the
      assumed exercise of the PCEs issued by the Affiliated Companies and is
      therefore the same for both calculations.

6.    On August 16, 1999, the $24.0 million loan to PEC Israel Financial
      Corporation Ltd., which is described in Note 9(c) of the 1998 Financial
      Statements and which had previously been extended for three months to
      August 18, 1999, was extended for three months to November 18, 1999.

7.    Certain reclassifications have been made to the financial statements for
      the three and six months ended June 30, 1998 to conform with the financial
      statements as of and for the three and six months ended June 30, 1999.

8.    All adjustments (recurring in nature) which are, in the opinion of
      management, necessary for a fair presentation of the results of the
      interim periods have been included. The results of the interim periods are
      not necessarily indicative of the results for the full year.


                                                        Page 7 of 25 pages
<PAGE>

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

RESULTS OF OPERATIONS

Three Months Ended June 30, 1999 Compared to Three Months Ended
June 30, 1998

            Consolidated net income for the three months ended June 30, 1999
rose to $17.3 million, up from $7.2 million for the three months ended June 30,
1998. The rise in net income reflected increases of $11.4 million in net gain on
sales of investments in Affiliated Companies, $1.2 million in equity in net
income of Affiliated Companies, $934,000 in interest and dividend income and
$588,000 in other income. The increase attributable to these items was partially
offset by increases of $2.3 million in the provision for income taxes and
$519,000 in general and administrative expenses and a decrease of $550,000 in
net gain on sales, and changes in market value, of trading securities.

            Equity in net income of Affiliated Companies for the second quarter
of 1999 rose to $11.4 million, up from $10.2 million for the corresponding 1998
period. PEC had increased net income in respect of some of its Affiliated
Companies, principally Elron, which recognized a gain, net of taxes, of
approximately $19.7 million from the sale of its holdings in Elbit Medical
Imaging Ltd. (PEC's share of Elron's net income for the second quarter of 1999
was $2.3 million compared with $410,000 for the second quarter of 1998),
Property & Building (PEC's share of Property & Building's net income for the
second quarter of 1999 was $4.2 million compared with $2.6 million for the
second quarter of 1998) and Gilat Satellite (PEC's share of Gilat Satellite's
net income for the second quarter of 1999 was $1.4 million compared with
$356,000 for the second quarter of 1998). This increase was partially offset by
decreases in PEC's net income with respect to certain Affiliated Companies,
especially Super-Sol (PEC's share of Super-Sol's net income was $117,000 for the
second quarter of 1999 compared with income of $1.4 million for the second
quarter of 1998).


                                                        Page 8 of 25 pages
<PAGE>

In addition, PEC incurred losses with respect to certain other Affiliated
Companies, particularly Tambour (PEC's share of Tambour's net loss was $275,000
for the second quarter of 1999 compared with net income of $1.3 million for the
second quarter of 1998) and DIC and PEC Cable TV Ltd.

            PEC recognized a net gain of $11.3 million on sales of investments
in Affiliated Companies for the second quarter of 1999 compared with a net loss
of $86,000 for the corresponding 1998 period. During the second quarter of 1999,
PEC realized a net gain of $10.6 million on the sale of its entire 4.2%
ownership interest in Libit Signal Processing Ltd. ("Libit") and a net gain of
$669,000 on the sale of its entire 2.4% ownership interest in Lipman Electronic
Engineering Ltd. ("Lipman"). During the second quarter of 1998, PEC wrote-off
its capital contributions to two corporations which were formed to bid on
infrastructure projects and were unsuccessful.

            PEC recorded dividend and interest income of $1.2 million for the
second quarter of 1999 compared with $309,000 for the corresponding 1998 period.
In November 1998, PEC and Discount Investment arranged a two year loan of $90
million (the "UPC Loan") to United Pan-Europe Communications N.V., of which 50%
was prepaid in February 1999. The primary reasons for the increase in interest
and dividend income are the interest on the UPC Loan, which did not exist during
the second quarter of 1998, and the recording of fee income in the second
quarter of 1999 from the prepayment of 50% of the UPC Loan.

            PEC's other income rose to $1.1 million for the second quarter of
1999, up from $478,000 for the corresponding 1998 quarter. This increase
primarily resulted from increased income from partnerships in which PEC is a
partner, particularly Gemini Israel Fund L.P., Gemini Israel II Limited
Partnership and Renaissance Fund LDC.

            PEC's general and administrative expenses increased to $1.4 million
for the second quarter of 1999 from $867,000 for the corresponding 1998 quarter
primarily because of costs associated with the proposed merger between PEC and a
subsidiary of Discount Investment pursuant to which Discount Investment will
acquire all of the shares of common stock of PEC held by the public.


                                                        Page 9 of 25 pages
<PAGE>

            PEC's provision for income taxes increased to $5.2 million for the
second quarter of 1999 from $2.9 million for the second quarter of 1998
primarily because PEC's income before income taxes increased to $22.5 million
for the second quarter of 1999 from $10.1 million for the corresponding 1998
quarter.

            PEC's comprehensive income rose to $25.0 million for the three
months ended June 30, 1999, up from $1.6 million for the corresponding 1998
period. PEC's unrealized gain on available-for-sale securities, net of taxes,
increased PEC's comprehensive income by $9.4 million for the second quarter of
1999 compared with a reduction, net of tax benefit, of $1.7 million for the
corresponding 1998 period. PEC's translation adjustment, net of tax benefit,
reduced PEC's comprehensive income by $1.7 million for the second quarter of
1999 compared with a reduction, net of tax benefit, of $3.8 million for the
corresponding 1998 period. The exchange rate of the New Israel Shekel declined
approximately 1.0% against the U.S. dollar as of June 30, 1999 compared with
March 31, 1999 while such exchange rate declined 1.9% as of June 30, 1998
compared with March 31, 1998.

Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998

            Consolidated net income for the six months ended June 30, 1999 rose
to $29.3 million, up from $17.9 million for the six months ended June 30, 1998.
The increase in net income reflected increases of $9.9 million in net gain on
sales of investments in Affiliated Companies, $6.4 million in net gain on
issuance of shares of Affiliated Companies and $2.0 million in interest and
dividend income. The increase attributable to these items was partially offset
by a decrease of $3.9 million in net gain on sales, and changes in market value,
of trading securities and increases of $1.7 million in the provision for income
taxes and $1.0 million in general and administrative expenses.

            Equity in net income of Affiliated Companies for the first six
months of 1999 was $21.7 million compared with $22.0 million for the first six
months of 1998. PEC experienced decreased net income with respect to certain
Affiliated Companies, principally Elron, which in the first half of 1998
recognized a gain of approximately $36.5 million from the sale by its affiliate,
Elbit Medical Imaging Ltd., of Elbit Medical's ultrasound division (PEC's share
of Elron's net income for the first half of 1999 was $3.1 million compared with
$5.9 million for the first half of 1998), Super-Sol (PEC's share of Super-Sol's
net income was $1.1 million for the first six months of 1999 compared to $3.3
million for the corresponding 1998 period) and Tambour with respect to which PEC
incurred a loss compared to net income for the first half of 1998 (PEC's share
of Tambour's loss was $368,000 for the first half of 1999 compared with net
income of $1.8 million for the first half of 1998). PEC's decreased net income
with respect to the foregoing Affiliated Companies was substantially offset by
increases recorded by some of PEC's other Affiliated Companies. PEC recorded net
income in respect of Scitex for the first half of 1999 compared with the first
half of 1998 when Scitex wrote off in process


                                                        Page 10 of 25 pages
<PAGE>

research and development costs in connection with its acquisition of Idanit
Technologies Ltd. (PEC's share of the net income of Scitex for the six months
ended June 30, 1999 was $708,000 compared with a loss of $2.8 million for the
six months ended June 30, 1998). In addition, PEC had increased net income with
respect to certain of its Affiliated Companies, especially El-Yam (PEC's share
of El-Yam's net income for the first half of 1999 was $3.0 million compared with
$1.3 million for the first half of 1998), Property & Building (PEC's share was
$6.7 million for the six months ended June 30, 1999 compared with $5.5 million
for the six months ended June 30, 1998) and Gilat Satellite (PEC's share was
$1.8 million for the first half of 1999 compared with $620,000 for the first
half of 1998).

            PEC realized a net gain on sales of investments of $10.5 million for
the six months ended June 30, 1999 compared with $610,000 for the corresponding
1998 period. During the first half of 1999, PEC realized net gains of $10.6
million and $669,000 on the sales of its entire ownership interests in Libit and
Lipman, respectively, and incurred a net loss of $800,000 on the write-off of a
loan to Unitel Vocal Communication Ltd., a start-up corporation. During the
first half of 1998, PEC realized a net gain of $696,000 from the sale of its
entire ownership interest in Lego Irrigation Ltd. and incurred a net loss of
$90,000 from the write-off of its capital contributions to two corporations
which were formed to bid on infrastructure projects and were unsuccessful.


                                                        Page 11 of 25 pages
<PAGE>

            PEC realized a net gain of $6.5 million on issuance of shares of
Affiliated Companies for the first six months of 1999 compared with a net gain
of $73,000 for the corresponding 1998 period. Substantially all of PEC's net
gain for the first six months of 1999 resulted from Gilat Satellite's sale of
ordinary shares in a public offering in the United States.

            PEC recorded dividend and interest income of $2.5 million for the
six months ended June 30, 1999, up from $491,000 for the six months ended June
30, 1998. The primary reasons for this increase are interest on the UPC Loan,
which did not exist during the first half of 1998, and fee income arising from
the prepayment of 50% of the UPC Loan in February 1999.

            PEC's general and administrative expenses increased to $2.7 million
for the first half of 1999, up from $1.7 million for the first half of 1998
primarily because of costs associated with the proposed merger between PEC and a
subsidiary of Discount Investment.

            PEC's provision for income taxes increased to $9.4 million for the
first half of 1999, up from $7.8 million for the first half of 1998 primarily
because PEC's income before income taxes increased to $38.7 million for the
first half of 1999 from $25.7 million for the corresponding 1998 period.

            PEC's comprehensive income rose to $48.7 million for the six months
ended June 30, 1999, up from $9.4 million for the corresponding 1998 period.
PEC's unrealized gain on available-for-sale securities, net of taxes, increased
PEC's comprehensive income by $16.1 million for the first half of 1999 compared
with a reduction, net of tax benefit, of $1.7 million for the corresponding 1998
period. PEC's translation adjustment, net of taxes, increased PEC's
comprehensive income by $3.3 million for the six months ended June 30, 1999
compared with a reduction, net of tax benefit, of $6.8 million for the
corresponding 1998 period. The exchange rate of the New Israel Shekel increased
approximately 2.1% against the U.S. dollar as of June 30, 1999 compared with
December 31, 1998 while such exchange rate declined 3.7% as of June 30, 1998
compared with December 31, 1997.


                                                        Page 12 of 25 pages
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES

            As of June 30, 1999, PEC's liquid assets (consisting of cash and
money market funds) totaled approximately $36.4 million.

            For the six months ended June 30, 1999, PEC received cash dividends
and interest totaling $7.2 million (including $4.0 million of cash dividends
received from Affiliated Companies, which do not affect PEC's net income for
financial statement purposes), which substantially exceeded PEC's general and
administrative and interest expenses. During the first half of 1999, PEC also
generated cash totaling $24.6 million, of which $12.9 million was realized from
PEC's sale of its entire 4.2% ownership interest in Libit, $8.4 million was
generated from the repayment by Cellcom of shareholder loans, $1.4 million was
realized from PEC's sale of its entire 2.4% ownership interest in Lipman, and
$548,000 was generated from PEC's sale of some of its shares of Isrotel.

            During the first half of 1999, PEC Israel Finance Corporation Ltd.
("PECFC"), a wholly owned subsidiary of PEC, borrowed $24.0 million from a bank
to finance the purchase of a 0.63% ownership interest in United Pan-Europe
Communication N.V., a cable television company whose shares are publicly traded
on the NASDAQ National Market System under the trading symbol "UPCOY". This loan
is unsecured, bears interest at a rate of 5.75% per annum, is guaranteed by PEC
and matures on August 18, 1999. The bank in its discretion may request PECFC to
provide security for the loan. PECFC and the bank have agreed to extend the
maturity of the loan for an additional three month term at an annual interest
rate equal to the sum of LIBOR for three month loans on August 17, 1999 plus
0.75%.

            During the first half of 1999, PEC purchased equity and debt
securities of several existing Affiliated Companies and other corporations for
approximately $34.7 million, including $5.2 million of securities purchased
during the second quarter of 1999. The securities purchased during the second
quarter of 1999 and their purchase price consist primarily of a 0.49% ownership
interest in Elron - $2.1 million; a 25% ownership interest in TeamWorks
Technology Ltd., a developmental stage multimedia software company - $1.0
million; a 5.4% ownership interest in


                                                        Page 13 of 25 pages
<PAGE>

Given Imaging Ltd., increasing PEC's ownership interest to 8.7% - $685,000; a
3.9% ownership interest in Witcom Ltd., increasing PEC's ownership interest to
8.9% - $556,000; and a 1% ownership interest in Klil - $481,000.

            In July 1999, PEC purchased a $600,000 convertible debenture of
E.D.S.L. Communication Ltd., a developmental stage company providing residential
communication access solutions ("EDSL"), which is convertible into a 6.7%
ownership interest in EDSL, and made a shareholder contribution to Mondex of
$376,000.


                                                        Page 14 of 25 pages
<PAGE>

                           PART II - OTHER INFORMATION

      Item 6.     Exhibits and Reports on Form 8-K

      Exhibit 10(i)     Application for Foreign Currency Loan (Floating
                        Interest) dated August 16, 1999 between the First
                        International Bank of Israel Ltd. and PEC Israel
                        Financial Corporation Ltd., which begins on page 17 of
                        this report.

      Item 27           Financial Data Schedule, which is page 25 of
                        this report.


                                                        Page 15 of 25 pages
<PAGE>

                                   Signatures

      Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                                    PEC ISRAEL ECONOMIC CORPORATION
                                    (Registrant)


                                    /s/ FRANK J. KLEIN
                                    ------------------------------------
                                    Frank J. Klein
                                    President

                                    /s/ WILLIAM GOLD
                                    ------------------------------------
                                    William Gold
                                    Treasurer, Principal Financial
                                    Officer and Principal Accounting
                                    Officer

Date: August 16, 1999


                                                        Page 16 of 25 pages