CLAL INSURANCE ENTERPRISES HOLDINGS INTERIM FINANCIAL STATEMENTS by cuiliqing

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									          CLAL INSURANCE ENTERPRISES HOLDINGS



                INTERIM FINANCIAL STATEMENTS

                            AT JUNE 30, 2008

                                UNAUDITED




Part 1 - Board of Directors' Report

Part 2 - Consolidated, interim Financial Reports
Part 1 - Board of Directors' Report
                      Clal Insurance Enterprises Holdings Ltd.
                    Board of Directors' Report at March 31, 2008


The Board of Directors' Report on the state of the corporation's affairs for the period
ended June 30, 2008, reviews the principal changes in the Company's operations during
the first six months of 2008 ("Reporting Period"). The report is prepared in
accordance with the Securities (Periodic and Immediate Reports) Regulations, 5730-
1970, and taking into account that the reader is also in possession of the Company's full
Periodic Report for 2007.
Regarding the description of the consolidated insurers' business in the Company's
reports, the report was prepared in accordance with the Control of Insurance Business
(Reporting Details) Regulations, 5758-1998.


Transition to reporting in accordance with International Financial Reporting Standards
(IFRS)
In July 2006, the Israel Accounting Standards Board published Accounting Standard no.
29, Adoption of International Financial Reporting Standards ("IFRS"). IFRS
prescribes that entities that are subject to the Securities Law, 5728-1968, and are
obligated to report in accordance with the provisions of this law, shall prepare their
financial reports in accordance with IFRS for the periods commencing January 1, 2008.
IFRS prescribes, among other things, that entities that are not subject to the Securities
Law, 5728-1968, and are not obligated to report in accordance with its regulations, may
prepare their financial reports according to IFRS from the financial reports published
after July 31, 2006. The Board further prescribes that IFRS shall be adopted for the first
time by applying the provisions of IFRS 1, First-time Adoption of IFRS, for transition
purposes. See Note 3 to the Financial Statements.
In May 2007, the Commissioner of Insurance published a circular with instructions
concerning the adoption of IFRS, in which he instructed financial institutions to prepare
their financial statements according to IFRS for the periods commencing January 1,
2008. In April 2008, the Commissioner of Insurance published an insurance circular
concerning the instructions for adopting IFRS.
The Company implemented IFRS from the financial reports for the period commencing
January 1, 2008.


1.    Description of the Company
1.1   The Company's shareholders
      The principal shareholders of the Company, whose shares are traded on the Tel
      Aviv Stock Exchange Ltd., are as far as the Company is aware, at the date of
      publishing the report, I.D.B. Development Company Ltd. ("IDB Development")
      which holds approximately 57.5% of the shares, and Bank Hapoalim ("Bank
      Hapoalim"), which holds approximately 10% of the shares.
      On July 1, 2008, the Company's shares were delisted from the TA 25 (Maof)
      share index and were listed for trade on the TA 75 share index, due to a decline in
      the Company's market value relative to other companies.
1.2      The Company's operating segments
         The Company chose to adopt IFRS 8, Standard Concerning Operating Segments
         ("IFRS 8"), early, from January 1, 2008. See Note 5 to the Financial Statements.
         Within the framework of adopting IFRS 8, the Company's operating segments
         were reviewed and redefined. Consequently, the non-life areas of activity in
         Israel and Europe were grouped together with the non-life sectors that were
         previously not included in the operating segments, and together with the personal
         accident sector (which was previously part of health insurance) now form the
         non-life insurance sector in Israel and Europe.


      Operating segments in the Periodic Report for   Operating segments from January 1, 2008
      2007
      Long-term savings                               Long-term savings
      Health insurance                                Health insurance (excluding personal accident insurance)
      Insurance through a subsidiary in the US        Insurance through a subsidiary in the US
      Financial services                              Financial services
      Compulsory motor insurance
      Motor property insurance                        Non-life insurance in Israel and Europe (incl. personal
                                                      accident insurance and branches that were not included in
      Liabilities insurance                           the activity sectors in the Periodic Report for 2007
      Other property insurance
      Insurance through a subsidiary in England


         Following are the Company's operating segments:
         Long-term savings:
         This area of activity consists of life insurance, pension funds and provident funds,
         and study funds.
         The life insurance and pension fund branches provide savings solutions and
         solutions for risk. Most of the products in these branches offer combined
         insurance cover (life insurance, work disability, critical illness). The provident
         fund branch mainly offers savings solutions only.
         Life insurance activity takes place through Clal Insurance Company Ltd. ("Clal
         Insurance"). Activity in the pension sector includes the activity of Metavit-
         Atudot Pension Fund Management Company ("Metavit-Atudot"), which
         manages the new pension funds, and C.P.Y., a company that manages the rights
         of Israel Electric Employees ("C.P.Y."), which manages the central annuity fund
         of IEC employees. The Company also operates in the pension sector through Clal
         Insurance's holdings (50%) in Atudot Pension Fund for Salaried and Self-
         Employed Employees Ltd. ("Old Atudot"), which is an old, balanced pension
         fund. Activity in the provident fund sector takes place through Clal Gemel Ltd.
         ("Clal Gemel").
        Non-life insurance activity in Israel and Europe:
        This sector consists of compulsory motor insurance, motor property insurance,
        property insurance and other liabilities, activity through a subsidiary in England
        and through a subsidiary in Romania and other insurance products.
        Clal Insurance's non-life insurance activity comprises compulsory motor
        insurance in Israel, motor property insurance in Israel, property insurance
        (property loss or physical damage to property, insurance for engineering
        equipment and construction work, marine insurance, agricultural insurance,
        insurance of ships and aircraft), comprehensive household insurance and
        mortgage-related insurance, third-party liability insurance (employers' liability
        insurance, third party insurance, professional liability insurance, D&O insurance),
        personal accident insurance, insurance for sick pay, guarantees and financial
        insurance.
        Credit insurance and foreign-trade risks insurance takes place through Clal Credit
        Insurance Ltd. ("Clal Credit Insurance").
        Non-life insurance activity in England takes place through Broadgate
        Underwriting Ltd. ("Broadgate"), a subsidiary in England.
        Non-life insurance activity in Romania takes place through S.C. Clal Romania
        Asigurari Resigurari S.A. ("Clal Romania"), a subsidiary in Romania.
        Concerning developments in Clal Romania, see par. 2.1(1) below.

        Health insurance:
        This includes illness and hospitalization (individual and group health insurance,
        overseas travel insurance, dental insurance, insurance for foreigners residing in
        Israel, and insurance for Israelis residing abroad1), and long-term care insurance.
        Activity in this sector takes place through Clal Health Insurance Company Ltd.
        ("Clal Health").


        Insurance activity through a subsidiary in the US:
        This consists of the activity of Guard Insurance Group Inc. ("GIG"). GIG is a
        private holding company that owns four wholly owned private insurance
        companies (GIG and the companies it controls, hereinafter: "Guard Group" or
        "Guard"), which sells workers' compensation insurance policies in the US.

        Financial services:
        This consists mainly of investment banking activity, portfolio management and
        mutual fund management, the management of nostro investments, financial
        services and financial products. Activity in this sector takes place through
        companies that belong to the Clal Finance Group ("Clal Finance"). Clal Finance


1
    In July 2008, David Shield – Insurance Agency (2000) Ltd. ("David Shield") announced that it would
     not renew the agreement for the exclusive reciprocal marketing of health insurance products for
     Israelis residing overseas. The agreement is due to end on August 1, 2009. The premiums that Clal
     Health received from David Shield in 2007 accounted for 13% of the gross premiums earned by Clal
     Health.
      is a public company traded on the Tel Aviv Stock Exchange Ltd. in which the
      Company has a 78.65% stake.
      The Company also has other activity that is not included in the operating
      segments, including factoring and financial leasing through Clal Factoring Ltd.,
      the extending of consumer credit through Clal Consumer Credit Financing Ltd.,
      the running and management of long-term care departments in retirement homes
      and hospitals through Clal Health Hospitalization Services Ltd., the holding of
      insurance agencies through Clal Agencies Holdings Ltd., and other real activity.


2.    Developments since the last annual report
2.1   Development of the corporation's business
      1.    On June 30, 2008, C.I.E. ("CIE"), a company wholly owned by the
            Company, signed agreements with Elbit Ultrasound (Netherlands) B.V
            ("Elbit"), whereby CIE will allocate to Elbit 50% of its issued capital, in
            consideration of the sum of $17.76 million. As a company jointly owned
            by the Company and Elbit, CIE will operate in the insurance industry in
            Romania through Clal Romania, and in other eastern European countries
            defined in the agreements as the parties decide from time to time.
            Completion of the transaction is subject to obtaining various regulatory
            approvals, including certification from Romania's Commissioner of
            Insurance and from the European Antitrust Authority. See Note 12(k) to
            the Financial Statements.
      2.    On June 29, 2008, the Board of Directors of Clal Finance decided to
            embark on an internal restructuring of Clal Finance and the companies it
            controls, designed to more effectively utilize the organization's resources to
            support all the products and services offered by Clal Finance. See Note
            12(c) to the Financial Statements.


2.2   Human capital
      1.    In June 2008, the Board of Directors of Clal Finance decided to allot
            295,000 stock options to Clal Finance's senior officeholders and employees.
            See Note 9(b) to the Financial Statements.
      2.    In May 2008, Guard adopted a performance-based employee bonus plan to
            allot 80,000 "cash phantom" units to up to 35 senior officeholders and
            employees of Guard. See Note 12(j) to the Financial Statements.
      3.    On March 21, 2008, Mr. Shai Talmon took up his position as general
            manager (CEO) of the Company and Clal Insurance ("the Companies").
            Mr. Talmon replaced Mr. Avigdor Kaplan who was appointed as Executive
            Chairman of the Companies' boards of directors, replacing Mr. Eli Cohen.

2.3   Restrictions and supervision of the corporation's business
      This chapter will review the laws, regulations, circulars, draft legislation,
      regulations and principal circular published by the Commissioner of Insurance,
      the government or the Knesset, as the case may be, after the publication of the
      Periodic Report for 2007.
2.3.1    General
        1.   In August 2008, the Commissioner of Insurance published draft
             regulations, a draft circular and a draft clarification, the provisions of
             which adopt the recommendations of the Committee to Review the
             Necessary Measures for Increasing the Involvement of Financial
             Institutions in Israel's Capital Market ("Hamdani Commission"),
             which completed its work in January 2008.
             The draft Control of Financial Services (Provident Funds)
             (Management company's participation in a general meeting)
             Regulations, 5768-2008, prescribe, inter alia, the obligation of an
             institutional investor (management company – regarding investments
             made for the provident fund that it manages, and an insurer –
             regarding the investments held against performance-based
             commitments) to attend and vote at a general meeting of the
             corporation in which it has voting rights, on the subjects listed in the
             draft, and provisions concerning an agreement between an institutional
             investor and a professional entity for the purpose of formulating
             recommendations for voting at general meetings. If and when they are
             adopted, the draft provisions will replace the provisions of Article
             41E1 of the Income Tax (Rules for the approval and management of
             provident funds) Regulations, 5724-1964, on this subject.
             In addition to the draft regulations, as noted a draft circular for
             financial institutions was published concerning increasing the
             involvement of the financial institutions in Israel's capital market, in
             an effort to regulate several matters contained in the committee's
             recommendations that were not previously part of the regulations.
             Among other things, the draft circular arranges the institutional
             investor's obligation to specify and publish the following information
             on its website: (1) the voting policy with respect to proposed
             resolutions on various subjects (as specified in the regulations). The
             circular stipulates that if the institutional entity enters into agreement
             with a professional entity, pursuant to the regulations, it is not obliged
             to publish its voting policy but it must publish details regarding the
             identity of the professional entity, a reference to the professional
             entity's voting policy and to the circumstances in which the financial
             institution will not operate in accordance with the professional entity's
             recommendation; (2) the actual vote cast, including details of whether
             the vote was consistent with its voting policy or that of the
             professional entity with which it has an agreement; (3) criteria
             pertaining to the quality of the corporate governance of companies,
             that guides its investment committee when making decisions on
             investments in securities; (4) the policy prescribed by the investment
             committee for supervising the public companies in which the
             institutional investor invests. If approved, the provisions of the draft
             circular shall apply to insurance companies in respect of performance-
             based commitments, to management companies – in respect of the
             provident funds and pension funds that they manage, and to the old
             pension funds.
2.   In August 2008, a draft circular was published concerning an
     amendment to the circular for financial institutions form January 2008
     regarding a list of the financial institution's assets at individual asset
     level.    The main point of the draft circular postpones the
     implementation of this draft circular from January 2008 with respect to
     a management company's reports for all the provident funds together,
     and an insurer's reports for all the performance-based commitments
     together. The earlier draft circular should have been applied from the
     reports in respect of the second quarter of 2008, and it stipulates that
     the regulations will apply from the reports in respect of the annual
     report for 2008.
3.   In August 2008, a second draft was published amending the draft
     circular for financial institutions from April 2008 concerning the
     publication of financial institutions' yield components, and this
     pursuant to the provisions obligating the financial institutions to
     publish on their website the yield they have attained during the course
     of the month and the composition of the assets. The purpose of the
     draft circular is to enable savers to correctly and effectively compare
     the different yields attained by the financial institutions. To encourage
     disclosure and transparency, the financial institution must publish the
     monthly yield components, noting the contribution of each investment
     channel to the yield of the savings that it manages. Moreover, once a
     quarter, the accrued quarterly yield components shall be published
     together with the monthly yield components. The components shall be
     details in accordance with the provisions of the draft circular with
     respect to the various investment channels. The provisions of the draft
     circular apply to the financial institutions regarding the savings that
     they manage. The amended draft circular also changed and expanded
     the list of investment channels in respect of which the quarterly yield
     components must be listed. The draft also abolished the exemption
     from the application of the circular that had been issued as part of the
     first draft for old plant-related pension funds.
4.   In August 2008, a draft circular was published concerning the
     publishing of yield components for the insurance companies' nostro
     portfolios. The draft circular prescribes that insurance companies shall
     publish the monthly yield components once a quarter, noting the
     contribution of each investment channel to the yield of the nostro
     money that it manages. The allocation will be according to the various
     investment channels listed in the draft circular.
5.   In July 2008, a third draft of the Control of Financial Services
     (Investment rules) Regulations, 5766-2006, was published under their
     new name – Control of Financial Services (Provident Funds)
     (Investment rules that apply to insurers and management companies)
     Regulations, 5768-2008 ("New Draft Investment Regulations").
     The New Draft Investment Regulations replace and amalgamate the
     legal framework of the investment rules that apply to the financial
     institutions (provident funds, pension funds and insurance companies)
     that are currently anchored in two different provisions of law. A
     number of important changes were made in the New Draft Investment
     Regulations compared with the existing provisions of law, including
     equalizing the investment rules on the unregulated part of the old
     pension funds, eliminating the dependence between the rating level
     and the permitted rate of investment in an individual corporation and a
     group of borrowers, expanding the possibility of investing in countries
     whose credit rating is BB and above, and more. In addition, uniform
     rules were prescribed regarding the approval of transactions and/or
     investing in parties associated with the financial institutions. In this
     instance, quantitative restrictions were also established regarding the
     scope of the investments in related parties and/or through associates.
     If the New Draft Investment Regulations are accepted, they may affect
     the Company's investments in the securities of members of the IDB
     Group and/or in securities marketed by members of the IDB Group.
6.   In July 2008, a circular was published concerning the preparations for
     Solvency II. The circular was published pursuant to the adoption of
     the proposed wording for the Solvency II directive ("the Proposed
     Directive") by the European Union. The Proposed Directive
     constitutes a fundamental, comprehensive change of the regulations
     pertaining to ensuring the solvency and adequacy of capital of
     insurance companies in the EU nations and it aims to provide
     improved protection for policyholders' money, to improve the
     integration between the markets and to enhance competition in this
     sector. According to the information in the circular, the Commissioner
     of Insurance intends to implement the provisions of the Proposed
     Directive with respect to insurance companies in Israel when it is
     applied in the EU member states, projected for the second half of
     2012. The Proposed Directive is based on three layers: the first relates
     to quantitative requirements – rules for estimating the commitment
     towards the policyholders, evaluation of the assets held against
     liabilities and equity requirements in respect of the exposure to
     insurance risks, market risks, credit risks and operating risks. The
     second layer concerns qualitative requirements and addresses the
     supervisory review process that focuses on estimating the adequacy of
     the capital as well as the risk management process and framework.
     The third layer addresses the disclosure requirements and is designed
     to improve market discipline by improving disclosure and
     transparency. The purpose of the circular is to ensure that the
     insurance companies in Israel are organizationally prepared to
     implement the Proposed Directive, and it contains instructions for
     appointing a task force and person responsible for the process,
     preparations to be made by the Board of Directors, reports to the
     Board of Directors, disclosure in the Board of Directors' Report,
     reports to the Commissioner, and conducting a quantitative review.
7.   In July 2008, a draft circular for financial institutions was published
     concerning the collection of statistical information incidental to the
     settlement of claims. The draft circular prescribes an obligation to
     collect and save statistical information regarding claims of a financial
     institution and presenting them on the institution's website in each
     calendar year for the previous year, and this with respect to claims
     filed over the last four years. Among other things, the purpose of
     collecting and publishing the statistical information is to increase the
     supervision and enforcement of regulatory instructions regarding the
     settlement of claims as well as providing policyholders and potential
     members with an additional tool when choosing the financial
     institution with which they wish to enter into agreement.
8.   In July 2008, a circular was published for financial institutions
     concerning amendments and clarifications to credit circulars and a
     revised schedule for their implementation. The circular contains
     several amendments and clarifications to the credit circulars (financial
     institutions circular from August 207 concerning the management of
     credit risks incidental to investment activity, and financial institutions
     circular from August 2007 concerning the Extension of non-negotiable
     credit by financial institutions – basis for administrative, professional
     and operating support), including clarifications concerning the internal
     rating model, composition of the credit committee and postponing the
     implementation of most of the circulars' provisions to the end of July
     2008.
9    In July 2008, a second draft of a circular for financial institutions was
     published concerning compensation for outside directors of financial
     institutions. The purpose of the circular is to create consistency
     between the conditions of compensation for outside directors and
     representatives of financial institutions that are incorporated as private
     corporations with the conditions of compensation for outside directors
     of financial institutions that are incorporated as public companies.
     According to the draft circular, a financial institution shall comply
     with the Companies (Rules concerning compensation and expenses for
     an outside director) Regulations, 5760-2000, regarding the
     compensation payable to an outside directors, with the changes
     applicable from time to time, regardless of whether the institution is
     incorporated as a private company or as a public company, with the
     relevant adjustments and subject to the exclusions listed in the
     circular.
     It should be noted that in March 2008, an amendment to the
     Companies (Rules concerning compensation and expenses for an
     outside director) Regulations, 5760-2000, was published, the purpose
     of which is to increase the wage to which an outside director is
     entitled. The amendment further stipulates that the wage paid to an
     outside director of a financial institution shall be set in line with the
     institution's shareholders' equity plus the value of the assets that it
     manages for others. For the purpose of this clause, a financial
     institution is an institution as defined in the Insurance Law, including a
     mutual fund manager.
10. In July 2008, a circular for financial institutions was published
    concerning the first-time calculation of the investment assets of
    financial institutions, the purpose of which is to determine the method
    of calculating the value of a marketable asset and a non-marketable
    asset when the asset is first recognized. The circular prescribes that if,
    when a non-marketable asset is first recognized, there is a discrepancy
    between the value of the asset according to a model designed to reflect
     its fair value and the sum actually paid for it when the transaction
     takes place, an individual premium will be added such that the value
     of the asset according to the model plus the premium (positive or
     negative) will produce its value as actually determined when the
     transaction took place. This premium will remain fixed until the asset
     is redeemed and will be added whenever the asset is revalued. The
     provisions of this circular will become applicable from the day on
     which the Control of Financial Services (Provident Funds)
     (Calculating the value of assets) Regulations, 5768-2008, take effect
     or from September 1, 2008, the later of the two.
11. In June 2008, a draft position paper was published concerning the
    Commissioner of Insurance's policy for defining the controlling
    interest in insurance companies. The Commissioner's existing policy
    regarding the controlling interest in insurance companies stipulates
    that to secure the final holder's control of an insurance company, the
    controlling shareholder must hold at least 50.01% of the insurance
    company. Within the context of the position paper, the Commissioner
    is considering adopting a new policy with respect to the minimum size
    of the controlling entity in insurance companies, whereby approval
    will be given to reduce the minimum size of the controlling interest in
    an insurance company from 50.01% to a lower rate, at the
    Commissioner's discretion, and taking note of the structure of the
    holdings in the insurance company, the holdings of other interested
    parties in the company, liens that exist on the chain of holdings in the
    company, as well as other relevant subjects such as the value of the
    company, volume of its shareholders' equity and its corporate
    governance.
12. In June 2008, a circular was published concerning the method of
    implementing the presentation and measurement rules according to
    IFRS, for calculating the required equity and recognized equity of
    insurance companies, from the financial statements in respect of the
    second quarter of 2008. The purpose of the circular is to prescribe
    provisions concerning the method of implementing the capital
    regulations regarding investments in investee companies (including
    insurance companies and management companies owned by the
    insurance companies). Accordingly, under the equity regulations, the
    equity requirements will continue to be based on separate reports for
    calculating the recognized capital, the investment of an insurance
    company in an insurance company or in a controlled management
    company as well as in other investee companies shall be calculated on
    the basis of the linked holding rate in the investee's equity.
13. In June 2008, a circular for financial institutions was published
    concerning gifts and benefits offered to policyholders and members.
    The circular prescribes restrictions on the giving of valuable gifts or
    benefits that are not an integral part of the transaction to policyholders
    and members. Among other things, the circular limits the value of the
    gift or benefit, and prescribes the details that must be published in
    connection with the gift. Moreover, the circular stipulates that a
    policyholder or member shall not be required to meet any undertaking
     in return for accepting the gift and shall not be asked to return it. The
     circular applies to an insurer, management company, insurance agent,
     licensee (individual or corporation) or any person representing them
     directly or indirectly, and it shall commence from August 1, 2008.
14. In June 2008, a circular for financial institutions was published
    concerning the use of a polygraph to settle a claim. Among other
    things, the circular stipulates that a financial entity shall not make the
    conducting of a polygraph test obligatory. The circular further
    stipulates that a polygraph test shall only be conducted after an
    agreement has been signed between the financial institution and the
    claimant, that it may be suggested that the claimant only conducts a
    polygraph test if concerns of fraud on the part of the claimant have
    emerged or in the case of a claimant who is represented by an attorney
    – even if there are no suspicions of fraud by the claimant, provided
    that the polygraph agreement stipulates that if the claimant is found to
    be telling the truth, the test shall be conclusive evidence and if he is
    found to be untruthful, the test shall be viewed as not having taken
    place and the results shall not be used. The circular contains
    provisions concerning fair disclosure regarding the conditions of the
    polygraph agreement and concerning that the polygraph test must
    include. The circular further stipulates that a claimant may refuse to
    undergo a polygraph test and that such a refusal shall not affect his
    rights and shall not be submitted as evidence in court. According to
    the circular, when rejecting a claim or part of a claim, or when
    reducing or suspending temporary payments, a financial institution
    may not rely exclusively on the results of a polygraph test. This
    circular shall take effect on September 1, 2008 and it shall apply to
    any claim submitted to the financial institution from this date.
    Implementation of the circular is expected to significantly reduce the
    use of polygraph tests by insurance companies.
15. In May 2008, draft Control of Financial Services (Provident Funds)
    (Direct expenses on account of performing transactions) (Amendment)
    Regulations, 5768-2008, were published, as well as a draft circular for
    financial institutions concerning an investment in ETFs. The drafts
    address the investment of money belonging to members/ policyholders
    in ETFs and stipulate that the assets of the members / policyholders
    cannot be charged for any receipts received by the issuer of the ETF in
    any form, except for ETFs that meet several cumulative criteria
    defined in the drafts. Among other things, these drafts may reduce the
    volume of investments by financial institutions in ETFs issued by
    subsidiaries of Clal Finance.
16. In April 2008, the Commissioner of Insurance published the changes
    he intends to make in the draft Control of Financial Services
    (Minimum solvency required of an insurer) (Amendment)
    Regulations, 5768-2007, as published in October 2007. The draft
    amendment, that was amended in April 2008, proposes adding the
    following categories of equity requirements to the existing equity
    requirements: (1) assets that are held against liabilities that are not
    performance based; (2) catastrophe risks in non-life insurance
           business; (3) credit risks as a rate of the assets in line with the extent
           of the risk that characterizes the various assets; (4) operating risks.
           According to the draft regulations, the insurance companies will be
           required to increase their equity by the end of 2010 in three equal,
           annual parts. The insurance companies and the Commissioner of
           Insurance are discussing the issue.
      17. In April 2008 a draft circular for financial institutions was published
          concerning the improvement of data on the rights of members of
          institutional entities.     The draft circular prescribes provisions
          pertaining to the management and improvement of information on the
          rights of members or policyholders that include improving all the
          information pertaining to policyholders / members, verification and
          monitoring processes, and the ability to retrieve and analyze the
          information. The draft circular also prescribes provisions concerning
          management of the improvement process, including the obligation to
          hold board of directors' meetings, to analyze and map the gaps, to
          prepare a work plan and to include details with respect to the financial
          institution's compliance with the provisions of the circular in the board
          of directors' report. If and when it is adopted as a binding circular, this
          draft circular may result in higher expenses for the Company. The
          Company is still studying the provisions of the draft acicular and at
          this stage it is unable to estimate its anticipated repercussions, that
          depend in part on the details of the arrangements to be adopted in the
          circular.
      18. In April 2008, a position paper was published concerning the
          application of the doctrine of contributory fault in contractual disputes
          in insurance law – the position of the Attorney General. In the
          position paper, the Commissioner of Insurance adopts the position of
          the State Attorney, whereby an allegation of contributory fault applies
          in insurance law only when the following conditions are present: A)
          the policy contains a specific clause exempting the insurance company
          from payment if the insured is negligent. B) The insured was guilty of
          gross negligence. C) The Insured acted hastily or without care as to
          the consequential damage. The Company is of the opinion that there
          will be no significant repercussions in implementing this position even
          if it is adopted by the courts.


2.3.2 Life insurance and long-term savings
      1.   In August 2008, a circular for financial institutions was published
           concerning the transfer of money between provident funds, and this
           pursuant to and in accordance with the Control of Financial Services
           (Provident Funds) (Transfer of money between provident funds)
           Regulations, 5768-2008 ("the Regulations"). The purpose of the
           circular is to regulate the process of transferring money between
           provident funds. Among other things, the circular addresses the
           timetable for transferring money, the method and dates of transferring
           the insurance cover, the information to be transferred between the
           management companies and the cancellation and expiry of the transfer
     request. The circular also obligates the entity that manages the
     receiving fund to check whether the transfer for the member who
     wishes to move from the transferring fund to the receiving fund can be
     performed according to the Regulations, and whether the said member
     complies with the rules for joining the receiving fund. The circular
     will become applicable from October 1, 2008. Notwithstanding the
     above, with respect to the transfer of money from a transferring fund
     that is an insurance fund, or to a receiving fund that is an insurance
     fund, the circular shall apply three months from the commencement
     date.
2.   In August 2008, a draft amendment to a circular was published
     concerning reporting to the public on direct expenses that are deducted
     from members' accounts. The main purpose of the amendment is to
     stipulate that the reporting by provident funds separately for each
     provident fund, and the reporting of performance-based commitments
     separately for each track and fund, as specified in the circular, shall
     commence from the reports in respect of the annual report for 2008.
     The draft further clarifies that the precise allocation of the fees
     collected by the various stock exchange members to each of the funds
     or tracks, as the case may be, must be verified. If the amendment
     takes effect, it shall be from its date of publication.
3.   In July 2008, a second draft circular for financial institutions was
     published concerning a uniform structure for the transfer of
     information relating to pension savings – "uniform language". The
     purpose of the circular is to simplify the transfer of money between the
     different entities. The uniform structure in this draft constitutes an
     expansion and revision of the uniform structure presented in the first
     draft. When they take effect, the provisions of this circular shall apply
     to all the financial institutions and shall be valid from January 2009.
     Insofar as this draft circular may take effect, operational preparations
     may be required of the Company.
4.   In July 2008, a third draft circular for agents and advisers was
     published concerning provisions relating to an explanatory document
     and submitting it to the customer. This draft circular specifies the
     method of preparing the explanatory document, the minimum
     information it must contain, the duration for which the licensee must
     keep a copy of the explanatory document, and the financial
     institution's duty when enrolling a customer in a pension product, and
     this further to the obligations imposed on the licensee under Sections
     12-14 of the Control of Financial Services (Engaging in Pension
     Advice and Pension Marketing) Law, 5765-2005, in connection with
     adapting the advice and the marketing to the customer's needs the duty
     to provide an explanation.
     Among other things, the draft circular prescribes provisions regarding
     the preparation, content and submittal of the explanatory document
     and with respect to the explanations to be given to the customer.
     According to the amended draft circular, the explanatory document
     must include all the customer's characteristics that are relevant to the
     pension advice or pension marketing, including circumstances that are
     not expressly listed in the draft, to the extent that the customer was
     asked and agreed to provide information in respect thereof. In the
     explanatory document, the licensee must detail the considerations
     taken into account when making the recommendation, as detailed in
     the addendum to the circular, as well as the main advantages and
     disadvantages in the product recommended to the customer.
     Regarding the transfer of money from one pension product to another,
     the licensee must provide comparative data and any other criteria
     listed in the draft circular, insofar as additional criteria were taken into
     account for the purpose of giving the recommendation. The draft
     circular prescribes alternative methods of presenting a list of the
     financial institutions whose products are marketed by a licensee who is
     an insurance agent.
     According to the third draft, the licensee's statement concerning the
     customizing of the pension advice and/or marketing to the customer's
     needs, shall also address the class of pension product and not only the
     pension product and the financial institution. Moreover, the third draft
     stipulates that as part of his statement, the customer shall also declare
     that the information he has given is correct, as far as he is aware. The
     draft circular obligates the financial institution to conduct random
     checks regarding customers who have been enrolled by a licensee who
     is an insurance agent, and to review whether the customers were
     recruited in accordance with the provisions of the draft circular. The
     circular shall apply to all licensees and financial institutions subject to
     the defined exclusions. If it takes effect, the circular shall apply from
     June 1, 2009.
5.   In July 2008, a second draft of a circular for financial institutions was
     published clarifying the issue of members who enroll in a financial
     institutional. Unlike the first draft, which addressed the enrollment of
     members in a provident fund by a management company, this draft
     refers to the enrollment of members in a financial institution. The
     draft circular stipulates that any contact by an individual with a license
     (Pension advisor, pension insurance agent or pension marketing agent)
     constitutes pension advice or marketing, as the case may be, due to the
     nature of their activity, and a transaction can therefore not take place
     without a pension marketing or pension advice procedure. The draft
     stipulates the cases in which action taken by a financial institution is
     not considered pension advice and marketing, and does not require
     performing a pension advice or pension marketing procedure: among
     others, when the financial institutions is defined by an employer as the
     default option and the enrollment takes place through the employer or
     where an individual voluntarily applies to the financial institution,
     where the financial institution is completely passive and does not
     initiate any marketing activity.
6.   In June 2006, a second draft circular for financial institutions was
     published concerning temporary operating services.         With the
     regulation of pension advice and pension marketing activity in the
     Control of Financial Services (Engaging in pension advice and
     pension marketing) Law, 5765-2005 ("the Advice Law"), some of
     the activities that were included as part of the management services
     that management companies received from the banking corporations
     were restricted, such that the operating services shall not include direct
     contact with the members of the provident funds that they manage
     (Back Office services only). Nevertheless, to avoid derogating from
     the services that the provident fund members received before the
     Advice Law took effect, and in an effort to allow a management
     company, where a provident fund that it manages received operating
     services from a bank corporation or was controlled by the bank
     corporation before the Advice Law took effect, to prepare for
     providing services to members, a period of time was prescribed during
     which the management company may render services that should have
     been rendered by the management company or by the pension advice
     or pension agent licensee to the provident fund members, through a
     bank corporation as well, as part of the operating services that it
     provides ("Temporary Operating Services"). The Temporary
     Operating Services listed in the draft circular shall be rendered by the
     banking corporations for additional different periods, the last of which
     will, according to the draft, end by August 1, 2010. Any agreement
     with a banking corporation regarding Temporary Operating Services
     shall be submitted to the Commissioner before it takes effect.
7.   In June 2008, a clarification circular was published concerning
     professional rehabilitation in P.H.I. policies which define a specific
     occupation. The insured shall not be required to undergo professional
     rehabilitation (retraining) and the continued payment of insurance
     compensation cannot be made conditional on such a process.
     Moreover, the circular stipulates that in such policies, if the insured
     decides to undergo professional rehabilitation, this shall not reduce or
     terminate the payment of insurance compensation to which he is
     entitled under the policy conditions. Under the provisions of the
     circular, the information in this circular is in no way intended to
     derogate from the specific provisions in the policy, and if there are
     such specific provisions, the insured shall act accordingly.
8.   In June 2008, a legislative memorandum amending the Income Tax
     Ordinance, 5768-2008 ("the Memorandum") was published, the
     main purpose of which was to amend supplementary legislation to
     Article 3 of the Control of Financial Services (Provident Funds) Law,
     5765-2005 ("Provident Funds Law"). Among other things, the
     Memorandum addresses the following subjects:
     (a) The Memorandum proposes establishing that the tax benefit of
     "continuation of compensation" shall also apply where the severance
     pay money was deposited in an annuity provident fund. This is due to
     the fact that under Amendment no. 3 to the Provident Funds Law,
     severance pay may now be deposited only in an annuity fund. The tax
     benefit of continuation of compensation allows the assessee not to
     accept the retirement grants payable to him (including severance pay)
     at the time of retirement, but to deposit them / leave them in a
     provident fund, in practice thus postponing the tax liability to the date
     on which he asks the money to be released. The Memorandum
     proposes limiting the amount of the retirement grant, where the
     retirement amount is greater than the assessee's entitlement under the
     Severance Pay Law, 5723-1963, and in respect of which he is entitled
     to the continuation of compensation benefit, to a maximum that is
     obtained by multiplying the assessee's maximum wage by the number
     of years he has worked for that employer or by four times the average
     wage in the economy (the lower of the two).
     (b) The provisions of the Memorandum propose amending Section 13
     of the Provident Funds Law such that the Commissioner shall be
     entitled to grant approval as a pension provident fund, money that has
     been accrued up to December 31, 2007, even if this money is managed
     in another provident fund.
     (c) With regard to calculating the minimum annuity amount (NIS
     3,850 index linked), where if the member has no entitlement to such
     amount he will be unable to withdraw the capital amount from the
     annuity provident fund on reaching retirement, the Memorandum
     proposes clarifying that when calculating the said minimum annuity
     amount, benefits to which the member is entitled from the state
     treasury or from his employer's fund shall also be taken into account.
     (d) The Memorandum proposes allowing a provident fund that does
     not pay an annuity to pay the amount accrued to the member's credit in
     the fund directly, provided that it is no more than NIS 40,000, and this
     subject to the member having no other accounts in a fund that does not
     pay an annuity, or in an annuity fund that is not an old fund, and the
     member has reached compulsory retirement age, as referred to in the
     Retirement Age Law, 5764-2004.
     (e) Regarding the activity of a management fund, the Memorandum
     proposes establishing that such a company will also be able to engage
     in other activity approved by the Commissioner, other than provident
     fund management. The Memorandum also proposes determining that
     an annuity provident fund company will also be permitted to manage
     an old pension fund.
     (f) According to the proposed wording of the Memorandum, should
     the amended Ordinance take effect, it will do so retroactively with
     respect to entire year 2008.
9.   In April 2008, a document was published concerning issues pertaining
     to Amendment no. 3 to the Control of Financial Services (Provident
     Funds) Law, 5765-2005 ("the Amendment" and the "Clarification
     Document" respectively), clarifying applications made to the Capital
     Market, Insurance and Savings Division on various issues that arose in
     connection with the said Amendment.
     Among other things, the Clarification Document arranged the
     following issues:
     (a) Exceptional cases were defined in which money that was accrued
     from January 1, 2008 in a provident fund that does not pay an annuity
     may be withdrawn directly from a provident fund that does not pay an
     annuity, and not by way of transferring the money to an annuity
           provident fund. Under the conditions specified in the Clarification
           Document, a fund that does not pay an annuity shall pay severance
           pay, money paid to beneficiaries in group life insurance according to
           Article 31 of the Income Tax Regulations, and money paid to the
           beneficiary of a deceased member.
           (b) Regarding the minimum sum for annuity, as defined in Section
           23(e) of the Control of Financial Services (Provident Funds) Law,
           5765-2005 (which cannot be withdrawn as a lump sum), the document
           states that annuity amounts from another source to which the member
           is entitled will also be taken into account, such as another provident
           fund or employer, subject to obtaining approval that an annuity is
           being received from another source.
           (c) It was clarified that Income Tax shall not approve money in a
           personal severance pay fund as a provident fund for pension, should a
           salaried member wish to transfer such money under the provisions of
           Article 34A(a) of the Income Tax Regulations (to the account of a
           self-employed member or the account of a salaried member, as
           detailed in the said Article, that refers to money that the member is
           entitled to withdraw) as such a transfer constitutes a new deposit.
           (d) It was clarified that a member of a provident fund that does not
           pay an annuity, where the accrual in respect of new deposits does not
           entitle the member to a monthly pension that is more than 5% of the
           minimum wage, for example – where the member joins the provident
           fund at a relatively late age, may transfer his accrual to a provident
           fund that pays annuity and withdraw the accrual in accordance with
           the provisions of Section 34(e) of the Income Tax Regulations, that
           define the conditions in which the entire accrued amount may be
           withdrawn.
      10. In March 2008, a draft circular was published clarifying prescription
          in the event of death. According to the draft circular, prescription that
          is claimed before all the processes have been exhausted to find the
          beneficiaries according to a circular from April 2003 on the subject of
          locating beneficiaries and handling unclaimed assets in insurance
          policies, is a violation of the provisions of the circular and no claim for
          prescription can be made before the said procedures have been
          exhausted.


2.3.3 Non-life insurance
      1.   In August 2008, the Knesset passed the Used Car Sales (Entitlement to
           information and fair disclosure) Law, 5768. Among other things, the
           Law prescribes that a person who purchases a used car is entitled to
           receive information from the insurer who insured the vehicle about the
           amount of insurance compensation paid for the car and details of the
           class of damage or impairment of value on account of which the
           compensation was paid. An insurer may collect payment for the
           expenses entailed in delivering such information. The law obligates
           the insurer to keep documents about cars it has insured for seven
           years.
     2.   In July 2008, the Minister of Finance submitted draft Motor Vehicle
          Insurance (Deductible) (Temporary order) Regulations, 5768-2008 to
          the Knesset Economic Affairs Committee. The draft regulations allow
          a condition concerning a deductible in compulsory motor insurance
          policies to be included that covers the use of a privately owned
          motorbike for the driver whose name appears in the policy, and this if
          the insured chose this option by signing a separate addendum to the
          proposal form containing disclosure regarding the amount of the
          deductible and the difference compared with a policy that does not
          include such a condition. All this is in an effort to lower the rates for
          compulsory insurance for motorbikes.
     3.   In April 2008, a third draft of an insurance circular was published
          concerning the use of a database to locate fraud in the compulsory
          motor insurance sector. The Motor Vehicle Insurance (The setting up
          and administering of databases) Regulations, 5764-2004, stipulate that
          information shall be transferred to the database for locating insurance
          fraud, that the information in the database and the posing of questions
          concerning details in the database may be reviewed only by persons so
          authorized by the insurer. The regulations prescribe that each insurer
          shall appoint one of its senior employees to be responsible for
          preventing insurance fraud, and this employee shall be responsible,
          among other things, for defining the qualifications of the authorized
          persons. The circular is designed to specify the criteria for defining
          the qualifications of the authorized persons who are authorized
          signatories as defined in the regulations and other provisions
          concerning the underwriting process. Application of the clause
          prescribing that a compulsory motor insurance certificate for a private
          and commercial vehicle weighing up to 4 tons and for a motorbike
          shall not be issued without verification through an on-line question to
          the database during the underwriting process, at least with respect to
          the information in the compulsory fields in the statistical program, was
          postponed to January 1, 2009.


2.3.4 Health insurance
     1.   In July 2008, a second draft circular was published concerning
          information provided on insurance compensation in health insurance
          plans. According to the draft, if the plan defines a maximum amount
          of compensation payable when the insured event occurs that is not a
          face value amount, the insurer must publish on the company's website
          the nominal sum of money for each of the insured events in respect of
          which the plan prescribes maximum amounts not at their face value.
          The draft circular stipulates that in certain cases, as specified in the
          circular, the insurer may limit the access to the details of the insurance
          compensation. In this case, he must allow the policyholders access to
          the details of the insurance compensation published on the website
          (such as by using a password to be sent to the policyholders in
          advance). The draft circular further states that, upon request and when
          the insured asks the insurer to clarify his rights due to a particular
          insured event, the insurer shall produce for the insured a list of the
           insurance compensation included in the plan. The draft circular states
           on the fair disclosure form of the insurance plan that includes the
           amount of insurance compensation that is not a sum of money at face
           value, the insured must specify his right to receive details of the
           insurance compensation and the possibilities available to him for
           receiving information about the details of the insurance compensation.
           According to the draft circular, an insurer may only change the list of
           the insurance compensation in the instances and within the limits
           specified                in                 the                circular.
           The draft circular includes implementation instructions that define the
           date up to which written notice can be sent to existing policyholders
           that contains the information to be included in the fair disclosure as
           well as details of access to the website if access is restricted.
           The provisions of the circular shall apply to health insurance plans,
           excluding cover for medical procedures performed overseas.
           Should it take effect, the circular will become applicable on February
           1, 2009, excluding implementation provisions regarding the submittal
           of a sample fair disclosure form that complies with the requirements of
           the circular as well as an instruction allowing the insurer to ask to
           change the payment format in an insurance plan so that it does not
           include maximum insurance compensation that is quoted not at face
           value after the onset of the circular, to take effect when the circular is
           published.
      2.   In July 2008, an insurance circular was published concerning "Cover
           given for medicines as part of the cover for performing surgery,
           transplants or special treatment" – clarification. The circular states
           that insurance cover that provides indemnity in respect of surgery,
           transplants or special treatment performed privately in Israel or
           overseas, includes, among other things, cover for medicines, including
           medicines that are not listed in the health services basket, that are used
           during the course of and to perform the procedures, including during
           hospitalization related to performing these procedures, and as
           determined by the attendant doctor.


2.3.5 Insurance activity through a subsidiary in the US
      At the date of this report, like the other insurers in the US, Guard is subject
      to insurance regulation most of which is at sate level. Recently, various
      laws and bills have been tabled in the US Congress and House of
      Representatives aimed at reforming the regulations that apply to insurers in
      the US that would allow them to choose between being governed by state
      regulations and federal regulations. The proposed reforms do not include
      or describe the details of the federal regulations but only the structure of the
      system. At this stage, it is impossible to estimate the impact of this reform
      on Guard, if and when it is adopted.
2.4   Developments in the macro-economic environment
      2.4.1 Economic and employment developments
           During the first quarter of 2008, the economy grew at a rate of 5.4% in
           annual terms. In view of the figures for the first quarter, the Bank of Israel
           revised its forecast for growth to 4.2%, after beginning the year with a
           forecast of 3.2%.
           During the second quarter of 2008 there were signs of a slowdown in the
           rate of growth of activity in the Israeli economy. During this quarter, a
           budget deficit of NIS 2.8 billion was recorded, stemming from high
           seasonal expenses. Nevertheless, the first six months of the year concluded
           with a budget surplus of NIS 2.7 billion.
           In February 2008, the Fitch global rating agency increased Israel's credit
           rating from A- to A, thus falling into line with S&P, which raised Israel's
           credit rating in November 2007. In April 2008, Moody's rating agency
           raised Israel's credit rating from A to A+.
           The unemployment rate continued to fall, reaching 6.1% in May 2008. The
           average wage for a salaried employee rose 4.5% in April compared with the
           corresponding month last year.


      2.4.2 Developments in the capital market
           During the second quarter of 2008, the sharp fall in share prices on the
           capital markets in Israel and worldwide, which had characterized the first
           quarter of the year, slowed somewhat. The quarter concluded with a mixed
           trend on key capital markets worldwide, with most capital markets posting
           share prices that were 1% to 7% lower. The credit crunch and liquidity
           crisis in the US continued to play havoc with the markets. The governor of
           the American Federal Reserve took further significant measures in an effort
           to solve eh cries and accelerate the US economy's move out of the
           slowdown. These measures included increasing the list of collateral
           required of financial institutions, increasing the number of monetary
           tenders issued to financial entities, and increasing the amount of liquidity
           available to the Central European Bank and to the Swiss Central Bank.
           For the time being, the interest rate in the US is no longer being cut, for
           several reasons: rising inflation, as a result of which bond yields began to
           show expectations of rising interest rates, and the yield curve for US
           treasury bonds returned to its level at the beginning of the year.
           The figures for the growth of the domestic economy led the Bank of Israel
           to revise its projections for growth and change its interest policy. In the
           first quarter of the year, the interest rate was cut 1.0% to a record low of
           3.25%. During the second quarter, this trend was reversed due to the
           higher-than-expected increase in inflation and due to good growth figures.
           The interest rate rose by a cumulative 0.5% to 3.75%. At the end of July,
           the interest rate was increased by a further 0.25% to 4.0%. The gap
           between the interest rates in the domestic economy and that in the US at the
           end of the quarter was 1.25%, and at the end of July was 2.0%.
                    During the second quarter, trading trends on the local share indices were
                    mixed. At the end of the quarter, the leading share indices posted a positive
                    yield, thanks to the weight of Israel Chemicals and the Israel Corporation
                    on the Maof and TA100 share indices.


                           Share indices                                                 Bond indices
                          Q2                    First half                               Q2                 First half
                 2008          2007         2008         2007                     2008       2007       2008        2007
     TA 25       8.87%       11.60%        (10.80%)    20.15%      General       2.21%      2.23%       3.78%       4.09%
                                                                   Index
     TA 100      6.41%       10.83%        (14.47%)    19.58%                    4.56%      3.17%       8.04%       5.27%
                                                                   linked
     Yeter      (7.92%)       9.01%        (23.58%)    25.27%      Shekel        0.12%      1.00%       2.36%       2.63%
     General
                5.54%        10.95%        (12.17%)    22.13%      Corporate     2.50%      2.70%       2.53%       4.68%
     share



                    During the second quarter, the Consumer Price Index rose 2.2%, and from
                    the beginning of the year it has risen by 2.3% (applicable index). The
                    known index rose 2.4% during the second quarter, and by 2.8% from the
                    beginning of the year.
                    At the end of the second quarter of the year, the dollar exchange rate
                    strengthened 6.5% against the Japanese yen, while trade was stable against
                    the other leading currencies. In the domestic market, the shekel continued
                    to appreciate against the leading currencies. The shekel appreciated 5.5%-
                    6% against the US dollar, euro and pound sterling, and 11% against the
                    Japanese yen.
                    A moderate fall in prices was recorded on the leading stock markets
                    worldwide for the second quarter. The London and Frankfurt stock
                    exchange indices fell 1% - 2%, the Tokyo stock exchange rose 8%, mixed
                    trends were recorded on the main stock exchanges in the US, the Dow
                    Jones fell 7% and the Nasdaq index rose slightly.
                    Following are the nominal yields on share indices worldwide for the first
                    six months and the second quarter of 2008 and 2007:
                          Q2 2008                     First half 2008                  Q2 2007                  First half 2007
                   In local        In             In local          In          In local        In          In local          In
                  currency       shekels         currency         shekels      currency       shekels      currency         shekels
Dow Jones       (7.44%)       (12.68%)         (14.44%)        (25.43%)      8.53%         10.99%        7.59%           8.20%
Nasdaq          0.61%         (5.08%)          (13.55%)        (24.65%)      7.50%         9.93%         7.78%           8.39%
Nikei – Tokyo   7.63%         (4.33%)          (11.93%)        (18.61%)      4.92%         2.56%         5.30%           1.98%
CAC – Paris     (5.78%)       (11.35%)         (21.00%)        (26.23%)      7.47%         10.94%        9.26%           12.18%
FTSE – London   (1.34%)       (6.80%)          (12.87%)        (24.60%)      4.75%         9.67%         6.22%           9.02%
DAX –                                                          (25.70%)      15.76%
Frankfurt       (1.79%)        (7.56%)         (20.44%)                                    19.50%        21.38%          24.63%
MSCI World      (2.45%)        (7.97%)         (11.75%)        (23.08%)      5.82%         8.22%         7.95%           8.57%
2.5     Developments in markets in which the Group operates
        2.5.1 Developments in Israel's insurance market
                Volume of premiums in the market: according to the information
                published in the insurance companies' financial statements, premiums in the
                insurance market (life insurance, non-life insurance and health insurance)
                for the first quarter of 2008 totaled NIS 9.6 billion (of which NIS 0.4 billion
                was in insurance companies held overseas), compared with NIS 8.8 billion
                (of which NIS 0.3 billion in insurance companies held overseas) for the
                corresponding quarter last year.
                Data on crime in Israel: according to figures published by the Israel
                Insurance Association, there were 11,981 car thefts in Israel during the
                period January – June 2008, compared with 15,645 car thefts for the
                corresponding period last year – a 22.5% decline.
                According to figures published by the Central Bureau of Statistics, the
                number of breaks-ins to businesses during the Reporting Period was 4,484,
                compared with 5,794 for the corresponding period last year. 14,134 homes
                were broken into during the Reporting Period, compared with 16,454
                during the corresponding period last year.


        2.5.2 Developments in the long-term savings market
                Volume of premiums in the life insurance market:2
                According to the figures published in the insurance companies' financial
                statements, life insurance premiums in the market for the first quarter or
                2008 totaled NIS 4.3 billion, compared with NIS 3.9 billion for the
                corresponding quarter last year.
                Developments in the life insurance market:
                According to information published by the Ministry of Finance, assets in
                profit-sharing policies in the life insurance market totaled NIS 96.3 billion
                at June 30, 2008, compared with NIS 94.2 billion at December 31, 2007 –
                an increase of 2.2%.
                According to information published by the Association of Life Insurance
                Companies, the volume of premiums in the branch for the first six months
                of 2008 from new on-going sales (excluding one-time premiums) totaled
                NIS 1,514.0 million, an increase of 0.95% compared with the
                corresponding period last year. Of this, the premiums in personal lines
                policies accounted for NIS 272.9 million (a 32.2% decline), premiums in
                pension insurance for the self employed accounted for NIS 66.1 million (a
                6.1% decline), and premiums in mangers' insurance totaled NIS 1,175.0
                million (a 14.4% increase).
                Developments       in     the    new      pension      funds      market:
                According to information published by the Ministry of Finance, the volume
                of assets accrued by the new pension funds at June 30, 2008 totaled NIS

2
    The life insurance branch, which is part of long-term savings, includes several insignificant amounts of
    long-term care premiums, and this in insurance companies in which the long-term care branch is not
    part of the health service sector.
            50.4 billion, a 6.7% increase compared with December 31, 2007.
            Assets in the pension funds owned by the insurance companies totaled NIS
            49.2 billion at June 30, 2008, compared with NIS 44.5 billion at December
            31, 2007. The increase was due mainly to the acquisition of the Gilad
            Pension Fund – Pensions for Religious Employees Ltd., by the insurance
            company.
            Net accrual in the new pension funds for the Reporting Period was NIS 3.7
            billion, some NIS 3.6 billion of the accrual is in the pension funds owned
            by insurance companies.
            Developments in the provident fund market:
            According to information published by the Ministry of Finance, at June 30,
            2008, the provident funds held assets totaling NIS 264.2 billion (of which
            NIS 87.7 billion was in the study funds), compared with NIS 276.4 billion
            at December 31, 2007 (of which NIS 89.7 billion was in the study funds) –
            a 4.4% reduction. Most of the reduction in assets was due to the negative
            yield resulting from the poor performance of the capital market and the
            negative accruals in the funds.
            Assets held by the provident funds owned by the insurance companies
            totaled NIS 76.4 billion at March 31, 2008.
            The provident funds recorded a net negative accrual for the Reporting
            Period, amounting to NIS 2,309.8 million. Of this, the negative accrual by
            the provident funds owned by insurance companies was NIS 683.8 million.


      2.5.3 Developments in the finance market
            Assets in the mutual funds market in Israel totaled NIS 116 billion at June
            30, 2008. At the end of the first six months of the year, the mutual funds
            had raised only NIS 112 million net. The money mutual funds market,
            which forms an alternative to short-term bank deposits, raised a net amount
            of NIS 14.4 billion during the six-month period.


2.6   Legal proceedings
      On the subject of developments in the status of class actions and claims pending
      against the Company (that are not part of the normal course of business), see Note
      11 to the Financial Statements.
  3.      Financial situation
  3.1     Principal date from the financial statements:
          3.1.1 Figures from the consolidated balance sheet
                                                  June 30          June 30         %               December 31
(NIS thousands)
                                                  2008             2007            change          2007
Total assets for performance-based contracts
in consolidated insurance cos.                      23,208,842       21,973,020          5.6%            22,837,481
Total other financial investments                   25,894,994       24,636,219          5.1%            24,878,285
Other assets                                        12,549,177       12,033,264          4.3%            11,630,184
Total assets                                        61,653,013       58,642,503          5.1%            59,345,950

Total equity                                         3,415,078        3,981,646        (14.2%)            3,911,512
Liabilities:
Liabilities for non performance-based
insurance contracts and investment contracts        22,096,953       21,305,994          3.7%            21,599,756
Liabilities for performance-based insurance
contracts and investment contracts                  22,872,993       21,690,797           5.5%           22,480,477
Deferred liability notes                             1,057,984        1,007,792           5.0%            1,028,357
Other liabilities                                   12,210,005       10,656,274          14.6%           10,325,848
Total capital and liabilities                       61,653,013       58,642,503           5.1%           59,345,950



          3.1.2 Figures from the consolidated Statement of Income:
                                                               %
(NIS thousands)                      1-6/2008     1-6/2007                  4-6/2008     4-6/2007        1-12/2007
                                                               change
Premiums earned in retention          3,828,382    3,300,466      16.0%      1,936,537    1,717,430       7,099,112
Net profit from investments and
financing income                       234,896     2,596,243    (91.0%)      1,065,244    1,692,287       3,313,907
Income from management fees
and portfolio management               374,856      510,505     (26.6%)       193,055       281,346         827,799
Income from commissions                130,310      115,516       12.8%        52,880        54,527         244,372
Income from other financial
services                                69,278      155,963     (55.6%)        33,491        78,397         247,021
Profit from sale of investments in
investee and other companies             1,371      157,504     (99.1%)         1,371              970      160,210
Other income                            18,057       13,380       35.0%         8,098            6,784       29,609
Change in insurance commitments
and payments for insurance
contracts in retention                3,023,565    4,652,101    (35.0%)      2,404,968    2,714,942       8,039,014
Sales, marketing and other
acquisition fees and costs             611,404      521,245       17.3%       309,020       270,791       1,125,593
Operating, G&A, and other
expenses                               878,552      738,729       18.9%       452,161       396,952       1,614,492
Financing expenses                     140,458       68,488      105.1%       100,398        37,798         183,110
Share of affiliates companies
profits (losses), net                    5,252        1,172      348.1%         1,277            2,267        4,210
Profit (loss) before income tax          8,423      870,186     (99.0%)        25,406       413,525         964,031
Tax on income                           18,640      277,029      (93.3%)       18,489       150,292         300,786
Profit (loss) for period               (10,217)     593,157             #       6,917       263,233         663,245
            3.1.3 Figures for gross premiums earned
                    Premiums earned, gross, by activity segment

            NIS thousands
                                                                    %
                                          1-6/2008    1-6/2007    change   4-6/2008 4-6/2007 1-12/2007
Motor property insurance in Israel         363,026     356,265      1.9%    182,630    178,821     715,861
Compulsory motor insurance in Israel       310,456     320,893    (3.3%)    159,975    161,514     645,017
Other non-life insurance                  1,040,182   1,058,845   (1.8%)    494,051    495,266    2,031,706
Non-life insurance segment in Israel &
Europe                                    1,713,664   1,736,003   (1.3%)    836,656    835,601    3,392,584
Long-term savings sector                  2,056,410   1,869,486    10.0%   1,043,928   945,484    3,822,758
Health insurance sector                    298,325     280,726      6.3%    155,209    139,071     610,494
Insurance through a subsidiary in the
US                                         391,447      62,410    527.2%    184,793      62,410    505,070
                                3                                                      1,980,70
Total premiums earned, gross              4,456,782   3,944,715   13.0%    2,218,960              8,324,773
                                                                                              6




    3.2     Shareholders' equity
            Total equity at June 30, 2008, was NIS 3,415.1 million, compared with NIS
            3,911.5 million at December 31, 2007. Of the equity at the reporting date,
            approximately NIS 3,096.6 million is attributed to the Company's shareholders,
            compared with NIS 3,585.7 million at December 31, 2007. This decline is mainly
            the result of a dividend paid in the amount of NIS 360 million, an increase in the
            condition for classifying a liability to outside shareholders in the amount of NIS
            58.3 million (see Note 12(b) to the Financial Statements), a decline in a capital
            fund in respect of assets available for sale in the amount of NIS 78.1 million, and
            a decline in a translation fund in the amount of NIS 121.3 million. See Note 8 to
            the Financial Statements (details of other transactions in shareholders' equity) and
            a report on income and expenses that were recognized.


    3.3     Dividend
            On May 15, 2008, the Company distributed a dividend in the amount of NIS 360
            million.




    3
        After adjustments and set offs.
4.       Performance
4.1      Results of operations

                                                         For six-month period ended       For three-month period                  For year ended
                                                                  June 30                      ended June 30                     December 31, 2007

                                                                                                                                   Effect of      Results acc.
                     NIS thousands                                                                                  Results acc. transition to      to Israeli
                                                         2008       2007      % change      2008           2007      to IFRS        IFRS           standards
 Pre-tax profit from activity segments:
 Profit (loss) from long-term savings                     22,818   317,553     (92.8%)         55,561     170,418     343,623            35,357      308,266
 Profit from non-life insurance in Israel & Europe        75,855   187,655     (59.6%)         44,097     120,647     253,005            79,468      173,537
 Profit from health insurance                             15,349    38,141     (59.8%)         11,723      28,678      75,178             6,840       68,338
 Profit from insurance through a subsidiary in the US     13,472    14,782      (8.9%)            913      14,782      63,697          (18,510)       82,207
 Profit (loss) from financial services                  (65,580)   247,757           #       (52,003)      55,542     258,380            11,233      247,147
     Total pre-tax profit from reportable activity
     segments                                            61,914    805,888     (92.3%)        60,291      390,067     993,883          114,388       879,495

 Pre-tax profit from others (not included in activity
 segments)                                                 9,600     14,431    (33.5%)         4,834        8,061      21,252                38       21,214
 Income from investments                                  14,697     74,433    (80.3%)        14,321       47,179      37,158             1,196       35,962
 Operating, G&A and other expenses                        16,429     18,221      (9.8%)       10,525       13,046      30,715           (1,028)       31,743
 Financing expenses                                       61,554     30,133     104.3%        43,399       18,839      80,930             1,268       79,662
  Profit from sale of investments in investee cos.             -     25,925           -            -            -      25,925                 -       25,925
 Profit (loss) after tax                                     195    (2,137)           #        (116)          103      (2,542)                -       (2,542)
 Profit (loss) before tax                                  8,423   870,186     (99.0%)        25,406      413,525     964,031          115,382       848,649
 Tax on income                                            18,640   277,029     (93.3%)        18,489      150,292     300,786            45,158      255,628
 Transfer from reserve for risks                               -          -           -            -            -            -       (315,240)       315,240
   Profit (loss) for period                             (10,217)   593,157            #        6,917      263,233     663,245        (245,016)       908,261

 Attributed to:
     Owners of the Company's equity rights                 2,004   579,578     (99.7%)        15,671    254,520       650,692        (234,820)       885,512
     Minority rights                                    (12,221)   13,579            #        (8,754)   8,713          12,553         (10,196)        22,749
     Profit (loss) for period                           (10,217)   593,157           #          6,917   263,233       663,245        (245,016)       908,261
Changes in the results of operations in the transition from Israeli standards to
IFRS for year ended December 31, 2007
The Company's net profit at December 31, 2007 according to Israeli standards
was NIS 908.3 million, compared with profit of NIS 663.2 million according to
IFRS (see Note 13 to the Financial Statements). Following are the material
changes in results of the areas of activity, as they appear in the list of results of
operations, between the Israeli standards and IFRS. At December 31, 2007:
•   Long-term savings: profit from long-term savings under Israeli standards
    totaled NIS 308.3 million, compared with NIS 343.6 million according to
    IFRS.
    Most of the increase was due to a revision of the reserve for payment of an
    annuity in life insurance (see Note 13(d)24) and to a change in the accounting
    treatment of financial instruments held against insurance commitments (see
    Note 3(g) to the Financial Statements). On the other hand, profit fell due to
    benefits to workers in view of the implementation of IAS 19.
•   Non-life insurance in Israel and Europe: profit in this sector according to
    Israeli standards was NIS 173.5 million, compared with NIS 253.0 million
    according to IFRS. Most of the increase was due to a change in the
    accounting treatment of financial instruments held against insurance
    commitments (see Note 3(f) to the Financial Statements).
•   Insurance through a subsidiary in the US: profit in this operating segment
    according to Israeli standards was NIS 82.2 million, compared with NIS 63.7
    million according to IFRS. In the Company's Financial Statements at
    December 31, 2007, according to Israeli standards, the investment profit from
    Guard that had not yet been realized was credited to the statement of income.
    In the Company's Financial Statements at December 31, 2007, according to
    IFRS, these profits were credited to a capital fund.
•   Financial services: profit in this sector according to Israeli standards totaled
    NIS 247.2 million, compared with NIS 258.4 million according to IFRS.
    Most of the increase was due to accounting treatment of sale and purchase
    options in investee companies (see Note 14(d)20), and to a revision of the
    profit from the Clal Finance flotation due to a different allocation of the
    proceeds of the sale.
Concerning the cancellation of the reserve for extraordinary risks, see Note
3(d)1(E) and Note 14(d)1.


Performance
A net loss of NIS 10.2 million was posted for the Reporting Period, compared
with profit of NIS 593.2 million for the corresponding period last year. Profit for
the second quarter totaled NIS 6.9 million, compared with NIS 263.2 million for
the corresponding quarter last year.
The pre-tax profit for the Reporting Period was NIS 8.4 million, compared with a
pre-tax profit of NIS 870.2 million for the corresponding period last year. During
the corresponding period last year, a pre-tax non-recurring profit was recorded
from the issue of Clal Finance and the sale of the Company's holdings in FIS
Software Ltd., in the amount of NIS 156.5 million.
           Performance during the Reporting Period was affected mainly by a decline in the
           results of the operating segments, a decline in income from investments that were
           not attributed to the operating segments, and an increase in financing expenses.
           During the Reporting Period, the operating segments posted a profit of NIS 61.9
           million, compared with NIS 805.9 million for the corresponding period last year
           (a non-recurring profit in the financial services sector of NIS 130.6 million was
           posted in the corresponding period last year from the issue of Clal Finance).
           The operating segments posted a profit of NIS 60.3 million for the second quarter,
           compared with NIS 390.1 million for the second quarter last year.
           Most of this decline during the Reporting Period was due to the long-term savings
           sector, following a loss in the life insurance branch (see par. 4.2.1 below), a loss
           in the financial services sector (see par. 4.2.5 below) and decline in profit in the
           non-life insurance sector in Israel and Europe in view of the lower profits in the
           compulsory motor sector (see par. 4.2.2 below).
           Pre-tax profit from the activity that was not included in the operating segments
           totaled NIS 9.6 million, compared with NIS 14.4 million for the corresponding
           period last year.
           Operating, administrative, general and other expenses that were not included in
           the operating segments totaled NIS 16.4 million for the Reporting Period,
           compared with NIS 18.2 million for the corresponding period last year.
           Income from investments that were not included in the operating segments was
           NIS 14.7 million for the Reporting Period, compared with NIS 74.4 million for
           the corresponding period last year.
           Financing expenses stemming from the deferred liability notes issued by Clal
           Insurance grew during the Reporting Period in view of the increase in the
           Consumer Price Index during the second quarter. Financing expenses for the
           Reporting Period were NIS 61.6 million, compared with NIS 30.1 million for the
           corresponding period last year. Financing expenses in the second quarter were
           NIS 43.4 million, compared with NIS 18.8 million for the corresponding quarter
           last year.
           For a description of performance by sector, see par. 4.2 below.


    4.2    Financial information by operating segment
           4.2.1 Long-term savings
                   Main points of the note on the results of long-term savings activity: *

NIS thousands                                                     %
                                        1-6/2008    1-6/2007    change    4-6/2008    4-6/2007    1-12/2007
Premiums earned, gross                  2,056,410   1,869,486    10.0%    1,043,928    945,484    3,822,758
Income (loss) from investments, net      (18,333)   2,212,556        #     881,926    1,444,581   2,664,276

Income from management fees              255,030     330,710    (22.9%)    133,334     188,801      477,186
Income from commissions                   38,227      17,948    113.0%      18,890        8,561      46,593
Increase (decrease) in insurance
commitments and payments in
respect of insurance contracts, gross   1,750,731   3,678,321   (52.4%)   1,740,204   2,191,421   5,698,121
NIS thousands                                                    %
                                      1-6/2008     1-6/2007    change     4-6/2008     4-6/2007     1-12/2007
Sales, marketing, acquisition and
other expenses and commissions          252,995     226,374      11.8%     122,074      118,153       467,814
Operating, administrative, general
and other expenses                      262,866     184,037      42.8%     136,688        96,178      423,082
Pre-tax profit                           22,818     317,553    (92.8%)       55,561     170,418       343,623

           * For other data regarding the pension and provident funds sector, see the
             following tables:


                  Main points of the Note on results of activity in the provident fund sector:
                                                                 %
NIS thousands                         1-6/2008     1-6/2007    change     4-6/2008     4-6/2007     1-12/2007
Income from management fees             131,263       14,490    805.9%       70,185        7,376      117,110
Marketing expenses                        6,116        3,485     75.5%        3,146        1,444        7,892
Operating, management, general and
other expenses                           66,799        9,189    626.9%       34,788        4,759       59,595

Total pre-tax profit                     58,506        1,882    3009%        32,317        1,207       49,760



                  Main points of the Note on results of activity in the pension fund sector:
                                                                 %
 NIS thousands                       1-6/2008     1-6/2007     change    4-6/2008     4-6/2007     1-12/2007
 Investment income, net                    469        2,634    (82.2%)        672         (411)        3,033
 Income from management fees            52,863      47,543      11.2%      27,166       26,007        93,322
 Marketing expenses                     13,217      12,274       7.7%        7,290        6,860       25,227
 Operating, management, general
 and other expenses                     24,085      18,332      31.4%      12,330         8,754       41,730

 Total pre-tax profit                   16,125      19,650     (17.9%)       8,313      10,024        29,565



                     The long-term savings sector posted a loss during the Reporting Period of
                     NIS 22.8 million, compared with profit of NIS 317.6 million for the
                     corresponding period last year. Results during the Reporting Period were
                     affected by losses in the life insurance sector in the amount of NIS 50.2
                     million on the one hand, and by profit in the provident funds sector of NIS
                     58.5 million and of NIS 16.1 million in the pension fund sector on the
                     other.
                     The following explains the performance of branches in the long-term
                     savings sector:

                     Results of activity in the life-insurance sector:
                     The life-insurance sector posted a loss of NIS 50.2 million during the
                     Reporting Period, compared with profit of NIS 296.2 million for the
                     corresponding period last year. Profit of NIS 16.2 million was posted in
the second quarter, compared with NIS 158.7 million for the
corresponding period last year. Results for the Reporting Period were
affected mainly by a decline in management fees on profit-sharing
policies, due to the poor performance in the capital market. During the
Reporting Period, only fixed management fees were collected, in the
amount of NIS 70.9 million, whereas during the corresponding period
fixed and variable management fees were collected, in the amount of NIS
268.7 million.
Gross premiums earned during the Reporting Period totaled NIS 2,056.4
million, compared with NIS 1,869.5 million for the corresponding period
last year, a 10.0% increase. 93.9% of all premiums were from on-going
premiums and the remainder were from non-recurring premiums.
During the Reporting Period the rate of surrenders of life insurance
policies from the average reserve continued to decline, amounting to
1.36% compared with 1.42% for the corresponding period last year.
Operating, general and administrative and other expenses totaled NIS
172.0 million for the Reporting Period, compared with NIS 156.5 million
for the corresponding period last year. The increase in general and
administrative expenses was mainly due to an increase in automation
costs.
The poor performance on capital markets worldwide that began during
2007, continued during the Reporting Period (see par. 2.3.2 above). This
resulted in a decline in investment income, including in the nostro
portfolio, and a negative yield in the profit-sharing policies portfolio.
Pursuant to the Control of Insurance Business Regulations, in profit-
sharing portfolios that were sold between the years 1991-2003 (J Fund),
an insurer may collect fixed management fees plus a sum deriving from
the rate of the real yield on the investment portfolio, after deducting the
fixed management fees ("supplement"). The supplement is calculated
annually, on an annual basis in positive or negative values. The insurer
may only collect a positive supplement, however when calculating each
positive supplement, the negative supplement that has accrued during
previous periods shall be deducted. If this supplement is not collected, the
Company's profits may be affected. At the end of June 2008, the gross
negative yield in the profit-sharing portfolio was 6.08%. Consequently, at
the reporting date, there was a negative supplement (loss of potential
income) to be deducted in future from any positive supplement, if and
when such a supplement is created, of NIS 170.6 million. At the end of
July 2008, in view of the continuing decline in the capital markets, this
sum amounted to NIS 198.1 million.
              Details of yield rates in profit-sharing policies:

                                                             Policies issued 1992-2003 (J Fund)

                                                      1-6/2008      1-6/2007      4-6/2008     4-6/2007
Real yield before payment of management fees          (6.08%)        9.64%        (0.27%)       5.77%
 Real yield after payment of management fees          (6.36%)        7.92%        (0.41%)       4.76%


 Nominal yield before payment of mgmt. fees           (3.42%)        9.94%         2.00%        6.49%
 Nominal yield after payment of mgmt. fees            (3.70%)        8.21%         1.86%        5.47%



                                                      Policies issued from 2004 (General Track 3) 4
                                                      1-6/2008      1-6/2007     4-6/2008      4-6/2007
Real yield before payment of management fees           (5.89%)       10.67%       (0.41%)       6.36%
 Real yield after payment of management fees           (6.47%)       10.12%       (0.70%)       6.11%


 Nominal yield before payment of mgmt. fees            (3.06%)       10.97%        2.03%        7.08%
 Nominal yield after payment of mgmt. fees             (3.62%)       10.40%        1.75%        6.82%



                  Details concerning the investment profits credited to holders of profit-
                  sharing policies and the management fees :

 (NIS millions)                                   1-6/2008       1-6/2007       4-6/2008       4-6/2007
Nominal investment profit credited to
                                                   (625.9)        1,464.5          417            979.2
policyholders after management fees
Management fees5                                     70.9          268.7           36.0           155.4


                  Results of activity in the provident fund sector :
                  During the Reporting Period, the provident fund sector recorded pre-tax
                  profit of NIS 58.5 million, compared with NIS 1.9 million for the
                  corresponding period last year. Most of this increase was due to an
                  increase in income from management fees, in view of the growth of assets
                  under management. During the Reporting Period, an expense of NIS 20.2
                  million was recorded in respect of a reduction in the acquisition costs
                  attributed to the provident funds acquired in 2007.
                  At the reporting date, the Group held assets under management in
                  provident funds in the amount of NIS 30.7 billion, compared with NIS
                  22.6 million at June 30, 2007.


 4
     The yield after payment of management fees is calculated according to the average management fees in
      the portfolio.
 5
     The management fees are calculated in accordance with the Commissioner of Insurance's instructions,
      based on the quarterly yield and balances of the Company's average insurance commitments.
        Income from management fees for the Reporting Period totaled NIS 131.3
        million, compared with NIS 14.5 million for the corresponding period last
        year. Income from management fees in the second quarter totaled NIS
        70.2 million compared with NIS 7.4 million for the corresponding quarter
        last                                                               year.
        The net accrual in the provident funds for the Reporting Period was
        negative and amounted to NIS 385.3 million. The average accrued
        nominal yield for the Reporting Period attained by the Group's provident
        funds was negative at -1.50%.


        Results of activity in the pension sector:
        During the Reporting Period, the pension fund sector posted pre-tax profit
        of NIS 16.1 million, compared with NIS 19.7 million for the
        corresponding period last year. The result was mainly affected by a
        decline in income from investments and an increase in general and
        administrative expenses and in marketing expenses on the one hand, and
        an increase in income from management fees on the other.
        Income from management fees for the Reporting Period totaled NIS 52.9
        million, compared with NIS 47.5 million for the corresponding period last
        year.
        At the reporting date, assets in the Metavit-Atudot pension fund totaled
        NIS 8.0 billion, compared with NIS 6.7 billion at June 30, 2007. At the
        reporting date, Metavit-Atudot accounts for 15.8% of the new pension
        fund                                                            market.
        Metavit-Atudot's accrued a net NIS 712.8 million during the Reporting
        Period. The average accrued nominal yield for the Reporting Period
        attained by Metavit-Atudot was positive at 0.02%.
        The volume of assets accrued by the old pension fund managed by the
        Group was NIS 4.0 billion at the reporting date, and the volume of assets
        under management held by C.P.Y. at that date was NIS 17.3 billion.


4.2.2   Non-life insurance in Israel and Europe
        Gross premiums earned during the Reporting Period totaled NIS 1,713.7
        million, compared with NIS 1,736.0 million for the corresponding period
        last year, a 1.3% decline. Gross premiums earned in the second quarter
        totaled NIS 836.7 million, compared with NIS 835.6 million in the
        corresponding quarter last year.
        Gross premiums earned in the Reporting Period from compulsory motor
        insurance in Israel, totaled NIS 310.5 million, compared with NIS 320.9
        million for the corresponding period last year. During the Reporting
        Period, a large group with an annual premium of approximately NIS 55
        million did not renew its compulsory motor insurance. Gross premiums
        earned during the Reporting Period in motor property insurance in Israel
        totaled NIS 363.0 million, compared with NIS 356.3 million for the
        corresponding period last year. Gross premiums earned during the
        Reporting Period in other non-life insurance totaled NIS 1,040.2 million,
        compared with NIS 1,058.8 million for the corresponding period last year.
        The decline was mainly due to property insurance.
        Total pre-tax profit in the non-life insurance sector during the Reporting
        Period was NIS 75.9 million, compared with NIS 187.7 million for the
        corresponding period last year. The decline in profit was mainly due to a
        reduction in income from investments and an increase in insurance
        liabilities in the liabilities sector in view of the increase in the Consumer
        Price Index.
        Profit from compulsory motor insurance during the Reporting Period
        totaled NIS 9.1 million compared with NIS 10.8.0 million for the
        corresponding period last year. The result was mainly affected by the
        decline in income from investments, an increase in insurance liabilities
        due to the higher CPI, a decline in profit that was released in respect of the
        2005 underwriting year relative to the profit that was released last year in
        respect of the 2004 underwriting year, and by a revision of actuarial
        estimates.
        Profit from motor property insurance in Israel during the Reporting Period
        totaled NIS 20.4 million, compared with NIS 21.5 million for the
        corresponding period. The results for motor property insurance were
        affected by fewer car thefts on the one hand, and a decline in income from
        investments and an increase in general and administrative expenses on the
        other.
        Profit from other non-life insurance for the Reporting Period totaled NIS
        75.9 million, compared with NIS 58.2 million for the corresponding
        period last year. The result was affected by lower profits in the liabilities
        and property sectors in Israel, an increase in the loss from insurance
        activity in Romania and an increase in Broadgate's profits.


4.2.3   Health insurance
        Gross premiums earned from health insurance during the Reporting Period
        totaled NIS 298.3 million, compared with NIS 280.7 million for the
        corresponding period last year. Of the gross premiums earned, premiums
        from illness and hospitalization were NIS 234.4 million, compared with
        NIS 225.7 million for the corresponding period last year. Gross premiums
        earned from long-term care insurance totaled NIS 63.9 million, compared
        with NIS 55.0 million.
        The health insurance sector posted a pre-tax profit of NIS 15.3 million
        compared with NIS 38.1 million for the corresponding period last year.
        Most of this decline was due to lower investment income and an increase
        in commissions and other acquisition expenses. Profit from illness and
        hospitalization insurance fell compared with the CPLY. Profit in the long-
        term care sector increased during the Reporting Period compared with the
        corresponding period last year. Regarding developments after the balance
        sheet date in respect of long-term care for members of Maccabi
        Healthcare Services, see Note 12(d) to the Financial Statements.
     4.2.4   Insurance activity through a subsidiary in the US
             This operating segment consists of Guard, which was acquired at the end
             of May 2007. Gross premiums earned during the Reporting Period totaled
             NIS 391.4 million, and pre-tax profit was NIS 13.5 million. Guard's
             reports for the second quarter of 2008 show an impairment of value in
             securities that is not of a temporary. This impairment of value amounted
             to NIS 9.6 million before tax, so that this operating segment posted pre-tax
             profit of NIS 0.9 million for the second quarter.


     4.2.5   Financial services
             Activity in this area takes place through the Clal Finance Group. A pre-
             tax loss of NIS 65.6 million was posted in this segment for the Reporting
             Period, compared with pre-tax profit of NIS 247.8 million for the
             corresponding period last year. A one-time profit before tax of NIS 130.6
             million was recorded last year from the issue of Clal Finance. A pre-tax
             loss of NIS 52.0 million was posted in the second quarter, compared with
             a pre-tax profit of NIS 55.5 million for the corresponding quarter last year.
             Results for the Reporting Period were affected by losses in nostro
             investment activity, a decline in income from mutual funds and
             investment banking, and by an increase in financing expenses.
             During the second quarter, Clal Finance wrote down the surplus cost of
             the investment attributed to the brand acquired from Discount Bank in its
             financial statements, in the overall amount of NIS 21.6 million. This write
             down was the result of terminating the use of the brand name "Ilanot".
             See Note 12(c) to the Financial Statements.




5.   Cash flows
     Net cash flows used for on-going activity totaled NIS 518.7 million for the
     Reporting Period. Net cash flows used for investment activity totaled NIS 224.8
     million. Net cash flows stemming from financing activity totaled NIS 1,269.4
     million.
     The result of all this activity is reflected in an increase in cash balances and cash
     equivalents in the amount of NIS 525.9 million.




6.   Sources of financing
     In May 2008, a short-term loan was received from Israeli banks in the amount of
     NIS 360 million.
7.    Quality report concerning exposure to market risks and ways of
      managing them
7.1   Details concerning exposure to market risks and ways of managing them
      The Group's activity, directly and through subsidiaries, which is the subject
      of this chapter, comprises the activity of the Clal Finance Group, the
      operations of insurance companies overseas (Guard in the US, Broadgate
      and Clal Romania in Europe), credit-related activity through Clal Factoring
      and Clal Consumer Credit Insurance, as well as financial exposures (assets
      and liabilities) on a more limited scale in respect of Clal Agencies and the
      Company.
      Exposure to changes in foreign currency:
      The Group's principal foreign currency exposure in the activity discussed in this
      chapter, is to the dollar and the pound sterling. These exposures originate mainly
      with the strategic investments made by the Group in companies operating in the
      US and England: in the insurance sector, the investment in Guard (US) and in
      Broadgate (England), and in the finance sector the investment in Titanium Asset
      Management Corp. ("Titanium") (US), through Clal Finance. In respect of these
      investments, the Group is exposed to changes in foreign currency in the amount is
      has invested in them. During the Reporting Period, the dollar and pound sterling
      continued to weaken against the shekel. The changes in the exchange rates
      adversely affected the Group's business performance due to the exposure
      described above.
      The exposure to changes in the exchange rates is the outcome of the international
      distribution of the Group's activity. This exposure is reviewed by the Company's
      Board of Directors taking into account the entire spectrum of considerations and
      effects that this activity has on the Group, its business performance and overall
      exposure to the risk. During the Reporting Period, there was no change in the
      policy insofar as no protective measures are taken in respect of these exposures.
      Clal Factoring's activity also entails foreign currency, and its policy is to maintain
      currency consistency between the assets and liabilities.
      Changes in exposure during the Reporting Period:
      There were no significant changes in the Company's exposures to market risks
      and the ways of managing them (as noted in the Securities Authority directives)
      during the Reporting Period with respect to the Company's reports on this subject
      for the year ended December 31, 2007. Nevertheless, a change took place in the
      method of presenting the exposure to the dollar in respect of an investee company
      in the US, as follows:
      Exposure to the dollar:
      The Group's exposure to the dollar increased from NIS 431 million at the end of
      2007 to NIS 471 million at the reporting date. Most of the increase was due to the
      change in the exposure presented by Titanium, an investee company of Clal
      Finance, in the US. In the annual report, the exposure to this company was
      presented through its financial assets and liabilities. From the first quarter of
      2008, most of Titanium's assets are not financial but are holdings in companies
      that operate in the American market, so that the exposure to this company is
      presented as the value of Clal Finance's investment in Titanium, which resulted in
      an increase in the exposure presented. This effect on the extent of the exposure to
          the dollar was partially set off by the falling dollar exchange rate in the first half
          of 2008.



   Sensitivity tests to the dollar risk factor in NIS thousands at June 30, 2008:


                                        Dollar risk factor
           ‫מכשיר רגיש‬             Profit & loss from changes                   Profit & loss from changes
                                 10% increase in 5% increase        Fair       5% decrease 10% decrease
                                  market factor    in market        value       in market      in market
                                                     factor                       factor         factor
Maof foreign currency options        (736)           (368)          (606)          365            681
 Total instruments for hedging
  purposes not recognized for
           accounting                  (736)         (368)          (606)            365          681
Value of investment in Guard          37,260        18,630         372,595        (18,630)     (37,260)
Loan taken to finance Guard          (18,585)       (9,293)       (185,853)        9,293        18,585
Titanium's equity                     23,513        11,757         235,134        (11,757)     (23,513)
Dollar deposits                         375           188           3,751           (188)        (375)
Shares                                1,069           534          10,690           (534)       (1,069)
Future contract for bonds               (41)          (20)          (408)             20           41
Loan to associate                       773           387           7,733           (387)        (773)
Cash                                   1,075          538          10,754           (538)       (1,075)
Credit from banks                    (10,595)       (5,297)       (105,946)        5,297        10,595
 Accounts receivable – credit
financing                            10,250          5,125         102,501        (5,125)      (10,250)
 Debentures                           2,116          1,058          21,155        (1,058)       (2,116)
     Total instruments not for
         hedging purposes            47,211         23,605         472,106        (23,605)     (47,211)
 Total                               46,474         23,237         471,500        (23,240)     (46,530)



          Sensitivity tests for dollar risk factor in NIS thousands at December 31, 2007:
                                        Risk factor - dollar
     Sensitive instrument        Profit / loss from changes                    Profit / loss from changes
                                 10% increase 5% increase        Fair       5% decrease in 10% decrease in
                                   in market   in market         value       market factor  market factor
                                     factor      factor
      Shekel/dollar options         542.3         270.0         284.9          (195.4)         (191.8)
Total instruments for hedging
 purposes, not recognized for       542.3         270.0         284.9          (195.4)         (191.8)
          accounting
 Value of investment in Guard     41,914.1      20,957.1       419,141.0      (20,957.1)      (41,914.1)
Loan to finance Guard
acquisition                       (17,800)       (8,900)       (177,997)         8,900          17,800
Dollar deposits                   21,479.5      10,739.8       214,294.1      (10,739.8)      (21,479.5)
Loan to associate company          851.1          425.6         8,501.6         (425.6)         (851.1)
Commitment to acquire
securities
                                   (307.4)       (153.7)       (3,071.2)        153.7           307.4
                                                         Risk factor - dollar
               Sensitive instrument            Profit / loss from changes                           Profit / loss from changes
                                              10% increase 5% increase            Fair        5% decrease in 10% decrease in
                                                in market   in market             value        market factor  market factor
                                                  factor      factor
       Conversion option                           0.8               0.6          174.1             (0.9)               (2.1)
       Cash and accounts receivable             18,908.5           9,484.7      189,693.8         (9,484.7)          (18,969.4)
       Foreign shares                            919.9              460.0      9,199.4             (460.0)            (919.9)
       Bonds                                    2,076.8            1,038.4    20,765.3            (1,038.4)          (2,076.9)
       Loans taken                             (24,931.3)         (12,465.7) (249,184.1)          12,465.7           24,931.3
           Total instruments not for
              hedging purposes
                                                43,112.4           21,586.8     431,516.6         (21,587.1)         (43,174.5)
                         Total                  43,654.7           21,856.8     431,801.5         (21,782.5)         (43,366.3)


           Report on linkage bases at June 30, 2008
    Linkage bases of assets and liabilities in the consolidated balance sheet (in NIS thousands) at June 30,
                                                       2008
                                                                                          Other Basket Insurance
                         Israeli currency                Foreign currency                  non-    certs. companies
                                                                                         monetary Linked in Israel
                                                                                          items      to    and their
                          Non-     Index                             pound                        various subsidiarie
                         linked    linked    dollar       euro      sterling   other              indices      s                  Total
Intangible assets           -         -          -          -           -         -       1,066,359       -                      1,066,359
Deferred tax assets         -         -          -          -           -         -        20,716       674                       21,390
DAC                         -         -          -          -           -         -        63,711         -                       63,711
Fixed assets                -         -          -          -           -         -        87,744         -                       87,744
Investments in            20,000      0       8,724         -           -         -        8,849          -                       37,123
affiliates
Reinsurance assets       -        -     505,510             -        105,518 6983,494      3,545          -                       620,067
Debtors and debit
                      655,097 95,655    534,730           55,153     206,002    7,022      12,653      11,858                    1,578,167
balances
Other financial       939,085 541,064 1,945,892            7970      21,496       -        9,104      5,700,898                  9,165,509
investments
Cash & cash
equivalents pledged      -        -        -                -           -         -           -       1,230,710                  1,230,710
for holders of
basket certificates
Other cash and cash 339,927       -     383,635           21,001     62,348     15,189        -        8,075                      830,175
equivalents
Financial
investments in
                                                                                                                  46,952,058    46,952,058
subsidiary insurance
companies
 Total assets        1,954,106 636,719 3,380,041          84,124     395,364    25,705    1,272,681 6,952,215 46,952,058        61,653,013

Liabilities in respect
    of insurance
   contracts and                                                                                                               2,771,1792,63
     investment             -         -      2,320,577      -        303,236    9,411      5,894          -
                                                                                                                                   9,118
 contracts that are
  not performance
        based
Bonds                       -      425,969       -          -           -         -           -           -                       425,969
    Linkage bases of assets and liabilities in the consolidated balance sheet (in NIS thousands) at June 30,
                                                       2008
                                                                                       Other Basket Insurance
                          Israeli currency              Foreign currency                non-    certs. companies
                                                                                      monetary Linked in Israel
                                                                                       items      to    and their
                           Non-     Index                          pound                       various subsidiarie
                          linked    linked    dollar     euro     sterling   other             indices      s                Total
Commitments for
bonds in liability           -         -         -         -          -         -         -       413,247                   413,247
certificates
Commitment to
shareholders of              -         -         -         -          -         -      30,968         -                     30,968
subsidiary
Liabilities
contingent on
                             -         -       64,888      -          -         -         -           -                     64,888
acquisition of
subsidiary
Deferred tax
                             -         -         -         -          -         -       9,884      2,831                    12,715
liability
Liability due to
benefits to                21,547      -         -         -          -         -      11,271         -                     32,818
employees, net
Creditors and credit
                     813,469        130,505   234,243    5,100     17,217     2,844     766        21,499                  1,225,643
balances
Liabilities due to
                             -         -         -         -          -         -         -       138,129                   138,129
deposit certificates
Liabilities due to
liability certificates,
reverse certificates,        -         -         -         -          -         -         -       6,207,736                6,207,736
basket certs. And
complex certs.
Liabilities to banks
and other            1,202,117 307,702        441,141    56,479      801      183         -        78,002                  2,086,425
corporations
Insurance
companies                                                                                                     44,960,279   44,960,279
commitments
Total liabilities  2,037,133 864,176 3,060,849           61,579    321,254   12,438    58,783     6,861,444 44,960,279     58,237,935
Balance at June 30
                    (83,027) (227,457) 319,192           22,545    74,110    13,267   1,213,898    90,771     1,991,779    3,415,078
2008
Balance at
                    385,867 (262,551) 452,953              87      109,726   17,163   1,116,946    93,264     1,998,057    3,911,512
December 31, 2007



                       There is considerable fluctuation between quarters in the net balances in the
                       linked and non-linked sectors, particularly due to the financial activity of Clal
                       Finance, which is short-term in nature.
                       Events after the balance sheet date:
                       From June 30, 2008 and up to immediately prior to the publication of these
                       reports, the dollar exchange rate rose and the pound sterling fell slightly against
                       the shekel. The dollar exchange rate rose 6.45% and the pound sterling exchange
                       rate declined 0.1% during this period. The cumulative effect of these foreign
                       currency changes on the Group is positive on the shareholders' equity, in the
                       amount of NIS 30 million, mainly in respect of a fund for the adjustment of equity
                       stemming from the translation of the investee companies' financial reports.
          Moreover, the Company gave a letter of guarantee quoted in pounds sterling in
          the amount of £29.7 million to Lloyds in respect of the activity of Broadgate, and
          the decline in the sterling rate slightly reduced its potential commitment in respect
          of this letter of guarantee. The calculation is based on the assumption that there
          was no material change in the balance of assets and liabilities from the reporting
          date. The aforementioned figures include preliminary estimates and partial data
          that at the current date are in the Company's possession. These figures have not
          yet been processed or finally checked, and they are subject to further changes in
          the exchange rates up to the end of the quarter. Consequently, they may be
          further changes compared with the aforesaid.


8.        Report concerning critical accounting estimates
          Without reference to the insurers, including their consolidated data, the Group
          does not make use of critical accounting estimates,6 the use of which and/or a
          reasonable change therein may affect the Group's financial situation and/or
          performance, excluding the following:
          For the purpose of reviewing the need to reduce the value of the goodwill
          registered in the Group's consolidated balance sheet and that is attributed to the
          activity of Clal Finance's mutual funds, on August 11, 2008 Clal Finance received
          an independent report from an external assessor ("Assessor's Report") that was
          included in Clal Finance's financial statements as published on Magna on August
          12, 2008. To estimate the use value of the said fund management activity, the
          outside assessor estimated that the long-term rate of growth is 0% and he noted
          that this timespan represents the uncertainty regarding the behavior of the assets
          under management within the context of the activity and the rate of management
          fees to be collected in the years after 2013, the last year forecast in the work of
          the expert, on which, among other things, the Assessor's Report was based. In
          addition, as part of the Assessor's Report, the outside assessor estimates the
          discount rate used to discount the cash flows that will arise from the cash
          generating unit under examination at 10%.
          In view of the above, we wish to draw your attention to Addendum 2 – Sensitivity
          Analysis, which forms an inseparable part of the Assessor's Report, presenting the
          use value of the activity at June 30, 2008, according to various assumptions with
          respect to the long-term growth rate and the discount rate.


9.        Disclosure concerning the process of approving the Company's
          financial statements
          The Company's Board of Directors appointed the Company's Audit Committee to
          serve as the Balance Sheet Committee, which makes recommendations to the
          Board pertaining to the approval of the financial statements. The Balance Sheet
          Committee's members Mssrs. Amos Eran (Chair), Israel Brosh (outside director),
          Shula Bandel (outside director) and Josef Dauber, are considered to have financial
          accounting expertise. The Company's CPA are invited to and attend meetings of
          the Balance Sheet Committee and Board of Directors' meetings that discuss and
          approve the financial statements, and they present the principal findings, if there
6
    A critical accounting estimate as defined in the Securities Regulations
      are such, that emerged during the course of the audit or the review.             The
      Company's internal auditor also attends these meetings.
      The Balance Sheet Committee, through detailed presentations prepared by the
      Company's senior officers and other employees, including the Company's CEO
      Mr. Shai Talmon, and Mr. Uri Levy CFO, reviews the material issues in the
      financial reporting, including material transactions that are not part of the normal
      course of business, if there were such, the material assessments and critical
      estimates that were applied in the financial statements, the reasonability of the
      data, the accounting policy applied, and the changes that took place in this policy,
      as well as the implementation of the principle of fair disclosure in the financial
      statements and related information. The Balance Sheet Committee reviews
      various aspects of risk management and control, those that are reflected in the
      financial statements (such as reporting on financial risks), as well as those that
      affect the credibility of the financial statements. Where necessary, the Balance
      Sheet Committee asks for issues that it chooses to be reviewed at the meetings.
      The financial statements are submitted to members of the Balance Sheet
      Committee and Board of Directors several days before the approval date. The
      Balance Sheet Committee meets prior to the Board of Directors' meeting which
      discusses and approves the Financial Statements.
10.   Negligible transactions
      On August 5, 2008, an amendment to the Securities (Immediate and Periodic
      Reports) Regulations, 5730-1970 ("Reporting Regulations") took effect.
      Accordingly, among other things, some of the reporting obligations that apply to
      public companies in connection with transactions with a controlling shareholder
      or transactions with another person in whom the controlling shareholder has a
      personal interest ("controlling shareholder's transactions"), were expanded, as
      well as transactions that are not extraordinary transactions, as this terms is defined
      in the Companies Law, and this excluding transactions that the last financial
      statements define as negligible.
      On August 20, 2008, the Company's Board of Directors decided to adopt, for the
      first time, a negligibility threshold as noted in the Securities (Preparation of
      annual financial statements) Regulations, 5753-1993 ("Financial Statements
      Regulations"), pertaining to transactions involving a controlling shareholder.
      This threshold shall apply both to the reporting obligation and disclosure
      obligation regarding transactions involving a controlling shareholder that must
      appear in the financial statements (it should be clarified that insofar as this
      concerns the reporting of transactions involving a controlling shareholder within
      the framework of the Clal Group's insurance companies, the Company is obliged
      to report in accordance with the Control of Insurance Business (Reporting
      Details) Regulations, 5768-1968, and where the rules according to the Financial
      Statements Regulations do not apply, and accordingly regarding the reporting of
      such transactions in the financial statements, the "negligibility test" detailed
      below is irrelevant).
      It is worth noting that during its normal course of business, the Company and its
      subsidiaries perform controlling shareholder's transactions within the context of
      rendering the Company's services to the controlling shareholders and to their
      subsidiaries (for example: insurance, insurance brokerage services, other financial
      services) and/or when acquiring services and products from the controlling
      shareholders and/or their subsidiaries (for example: communications and
      telephony services, leasing services, tourism and welfare services, office
      equipment and the like) and/or with in the context of the Company's investments
      (including investments in securities, credit, real estate and funds).
      The Company's Board of Directors has established that a transaction involving a
      controlling shareholder shall be considered negligible if all the following
      conditions are met:
      it is not an extraordinary transaction (as referred to in the Companies Law);
      the relevant indices that are calculated for it in accordance with the material
      procedure adopted by the Company's Board of Directors, are lower than 1%;
      the transaction is also negligible from the quality perspective.
      Separate transactions between which there is an element of dependence, so that in
      practice they are part of the same commitment, shall be reviewed as a single
      transaction.


11.   The Company's policy in reviewing materiality with respect to the need
      to submit an immediate report by the Company in the event of an
      event/s that deviate/s from the Company's regular business
      The Company adopted a procedure that was approved by its Board of Directors
      on August 20, 2008 in which the Company established guidelines and rules for
      reviewing whether a particular event or matter of the Company and/or a
      subsidiary ("the Event") is material to the Company with respect to its obligation
      to submit an immediate report under Article 36 of the Securities (Periodic and
      Immediate Statements) Regulations, 5730-1970. These guidelines and rules were
      prescribed taking note of and consistent with the nature of the Company as a
      holding company, the main points of which are as follows:
      In principle, each instance will be reviewed in its own right, and a quantitative as
      well as a qualitative review will be performed of the relevant event, based on all
      the available information, data, facts of the case and deployment taking into
      account all the Company's relevant circumstances. Without derogating from the
      aforesaid, the quantitative review and the qualitative review shall be conducted as
      follows:
11.1 Quantitative review
      11.1.1 For any event that is to be evaluated for materiality, all the relevant
             indices shall be calculated, using the following applicable indices, with
             respect to and based on the consolidated financial statements and the data
             they contain: (a) asset ratio – the volume of assets that are the subject of
             the event (the assets acquired or sold) divided by the sum total of the
             assets; (b) profit ratio - the actual or forecast profit or loss attributed to the
             event divided by the average annual profit or loss over the last three years,
             calculated on the basis of the last 12 quarters for which reviewed or
             audited financial statements have been published; (c) shareholders' equity
             ratio – the increase or decrease in shareholders' equity divided by the
             shareholders' equity before the event; (d) liability ratio – the liability that
             is the subject of the event divided by the total liabilities before the event.
     11.1.2 Without derogating from the need to evaluate for each event whose
            materiality is to be reviewed which of the indices prescribed in par. 11.1.1
            above is relevant, the following indices shall be deemed relevant for the
            following transactions:
            •   Acquisition of an asset – asset ratio
            •   Sale of an asset – profit ratio, asset ratio
            •   Taking a loan – liabilities ratio
            •   Transaction for the rendering of services, including an insurance
                transaction – income ratio, profit ratio (according to the profit
                anticipated from the transaction).
     11.1.3 In the absence of any special quality considerations arising from the
            circumstances of the matter, an event shall be considered material if one
            of the relevant indices that is calculated in respect thereof as noted in par.
            11.1.1 above, is more than 10%.
     11.1.4 In the absence of any special quality considerations arising from
            circumstances of the matter, an event shall be considered as immaterial if
            all the relevant indices calculated in respect thereof, as noted in par. 11.1.1
            above, are less than 5%.
     11.1.5 Events that are not classified according to pars. 11.1.3 or 11.1.4 may be
            considered material and the quality considerations in respect thereof must
            be performed taking into account all the relevant information and
            circumstances.
     11.1.6 In reviewing the materiality of an event due to take place in the future, the
            probability of the event actually materializing must be reviewed, as well
            as the importance and anticipated impact of the event, should it
            materialize.
     11.1.7 If the event pertains to a subsidiary or affiliate of the Company ("investee
            company"), the repercussions of the event on the Company's relative share
            in the event must be examined, that is - relative to the Company's
            percentage holding of the investee company, at the same time applying the
            aforementioned tests of materiality.
     11.1.8 Regarding an event that is not an investment in the securities of a
            particular corporation, such as entering into a financing agreement,
            entering into agreement to receive services, and the like, the repercussions
            of the relevant event on the Company must also be examined with respect
            to other relevant accounting items pertaining to the nature of the event
            under discussion.
11.2 Quality review
     The materiality of the event shall also be reviewed, as noted, from the quality
     perspective. The quality review may contradict the presumptions arising from the
     quantitative review regarding the materiality or immateriality of the event.
     Within the framework of the quality review of the materiality of the event, the
     significance and repercussions of the event for the Company may be considered
     from one or more of the following perspectives:
     11.2.1 It entails risks or dangers and significant exposure. In reviewing this
            perspective, the issue of whether and to what extent the risks entailed in
            the event reflect the risk factors to which the Company is exposed that
            were included in its previous reports, shall be considered. The issue of
            whether the event is the materialization of a risk factor that was reported
            to the investors even before the event took place shall also be considered;
     11.2.2 Does the event entail embarking on a new, important area of activity, or
            leaving an important, existing area of activity;
     11.2.3 Disclosure that may result, with reasonable certainty and based on past
            experience, and referring to models of evaluation and reference used by
            investors and analysts, in a significant change in the price of the
            Company's securities;
     11.2.4 It may have a particular impact on the Company's financial statements (for
            example – a reclassification of certain components, on an explanation of
            the segments, and the like), or on another of the company's business
            components that plays an important role in the analysis of its business
            activity and profit;
     11.2.5 It may affect whether the Company complies with the important
            regulatory requirements, the financial criteria that may make it difficult
            for the Company, or other important contractual requirements;
     11.2.6 It may significantly affect the analysts and/or investors when analyzing
            the Company's activity and performance;
     11.2.7 It is perceived as a significant event by the Company's management and
            serves as the basis for management-related decision making. Events that
            do not receive special management attention, and particularly those that
            are not brought to the attention of the Company's management, are not
            generally considered material from the quality perspective.
11.3 Without derogating from the aforesaid:
     11.3.1 Regarding tracking reports – if a subsidiary submits an immediate report
            and its parent company submits a consecutive report, all the "interim
            companies" (companies that are controlled by the said parent company
            and that control the said subsidiary; as the term "control" is defined in the
            Securities Law) must also submit a tracking report in this matter, even if
            this does not meet the quantitative reviews noted above, and this in an
            effort to ensure that the chain of reporting by the Group is complete.
     11.3.2 Regarding legal claims (including class actions) – in a matter concerning a
            claim that was filed, including a class action, against the Company or its
            subsidiary, the significance of the event shall be reviewed as follows: (1)
            a quantitative review – shall be performed on the basis of the sum of the
            claim (or the class action) multiplied by the rate of the Company's holding
            in the respondent company if this is a subsidiary, regardless of whether it
            is an affiliate or it is consolidated. If the chances of the claim succeeding
            were estimated when the significance was reviewed, these chances shall
            be weighted and the expectation of the claim from the Company's
            perspective shall be calculated.        The relevant quantitative index for
            reviewing the significance of the claims is the profit ratio. That is – the
            weighted sum of the claim to be obtained from the said calculations shall
            be divided by the average annual profit or loss over the last three years,
            calculated on the basis of the last 12 quarters for which reviewed or
            audited reports have been published. The ratio obtained from this
            calculation shall be reviewed in the light of the ordinary quantitative
            review procedures detailed in par. 11.1 above. (2) quality review – the
            question of whether the filing of the claim or the threat of such a claim
            being filed significantly affects the range of information that serves as the
            basis for decisions made by the investing public regarding its investment
            in the Company's securities will be reviewed. For example: the claimant's
            identity, the claimant group; the respondent group; the anticipated
            repercussions if the claim is approved as a class action and if it is accepted
            by the courts; the presence of similar claims against the Company that
            address similar material and the extent to which another claim will affect
            the range of information available to the investors; the comments on the
            class action in the Company's financial statements. Notwithstanding the
            above, regarding an event concerning an insurance claim, the following
            quantitative review shall take place:
            An event the subject of which is an insurance claim shall be deemed
            significant from the quantitative perspective, if a combination of the
            following two conditions is met:
            •   The amount claimed less reinsurance (retention), interest and expenses
                is more than 1% of the shareholders' equity.
            •   The amount claimed (gross) is more than 5% of the Company's
                shareholders' equity.
     11.3.3 Regarding administrative or criminal procedures – for an event the subject
            of which is a criminal investigation that the enforcement authorities, the
            Securities Authority or any other regulatory authorities are conducting
            against the Company on a significant matter, as well as events the subject
            of which is a criminal or administrative procedure against the Company
            on a significant matter, greater weight will be given to the qualitative
            review or the significance of the event, and particular emphasis will be
            placed on the manner in which the event is likely to affect investors and/or
            analysts when they analyze the Company's activity and performance, and
            to the attitude of the investors to the manner in which the Company
            conducts its business.

The Board of Directors wishes to express its appreciation to the agents, employees
and managers of the Group's companies for their contribution to the Company's
achievements.




            A. Kaplan                                     S. Talmon
    Chairman of the Board of                                 CEO
          Directors
                             Tel Aviv, August 20, 2008
Part 2 - Consolidated, interim Financial Reports
                                                   Translated
                                                    from the
                                                 Hebrew original




      CLAL INSURANCE ENTERPRISES HOLDINGS LTD.


CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS


                  AS AT JUNE 30, 2008


                     UNAUDITED
                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

               INTERIM CONSOLIDATED FINANCIAL STATEMENTS

                                   AS AT JUNE 30, 2008

                                       UNAUDITED




                                          INDEX



                                                                     Page

Auditors’ Report to the Unaudited Condensed Interim Consolidated
 Financial Statements                                                 2

Condensed Consolidated Interim Balance Sheets                        3-4

Condensed Consolidated Interim Statements of Profit and Loss          5

Condensed Consolidated Interim Statements of Recognized Income
 and Expenses                                                         6

Consolidated Interim Statements of Cash Flows                       7 - 12

Notes to the Condensed Consolidated Interim Financial Statements   13 - 117

Schedule A – Details of Assets and Liabilities of
  Insurance Subsidiaries registered in Israel                      118 - 119

Schedule B – Designated Investees in the Finance Segment           120 - 121




                                      ------------
                                                                                                Kost Forer Gabbay &
                                                                                                Kasierer
                                                                                                3 Aminadav St.
                                                                                                Tel-Aviv 67067, Israel
         Somekh Chaikin
                                                                                                Tel: 972 (3)6232777
                                                                                                Fax: 972 (3)5633526
                                                                                                www.ey.com/il

The Board of Directors
Clal Insurance Enterprises Holdings Ltd.


Dear Sirs,

                    Re:   Condensed review of the unaudited interim consolidated financial statements
                          for the six and three months period ended June 30, 2008


      At your request, we have reviewed the condensed interim consolidated balance sheet of Clal Insurance
Enterprises Holdings Ltd. as at June 30, 2008, the condensed consolidated interim statement of profit and
loss, the condensed consolidated interim statements of recognized income and expenses and the condensed
consolidated interim statements of cash flows for the six and three months periods then ended.

     Our review was conducted in accordance with the procedures prescribed by the Institute of Certified
Public Accountants in Israel, and included, among others, reading the aforementioned financial statements,
reading the minutes of meetings of the shareholders and the Board of Directors and its committees and
making inquiries with certain officers responsible for financial and accounting matters.

      We received reports of other auditors regarding the review of the condensed interim financial statements
of subsidiaries whose assets constitute 0.6% of the total assets included in the condensed consolidated
interim balance sheet as of June 30, 2008 and whose income constitutes about 0.6% and about 0.5% of the
total income included in the condensed consolidated interim statement of profit and loss for the six and three-
months period then ended, respectively. We also received the reports of other auditors of an affiliate the
investment in which amounts to about NIS 25 million as of June 30, 2008, and the Company’s share in its
profits amounts to about NIS 0.0 and about NIS 0.2 million for the six three-months period then ended,
respectively.

     Since the review performed was limited in scope and does not constitute an audit in accordance with
generally accepted auditing standards, we do not express an opinion on the said condensed interim
consolidated financial statements.

     In the course of our review, including the reading of the review reports of other auditors as stated above,
nothing came to our attention that would indicate the necessity of making material modifications to the
financial statements referred to above in order for them to be in conformity with International Accounting
Standard (IAS) 34 - Interim Financial Reporting and the disclosure requirements as prescribed by the
Insurance Regulator under the Supervision of Financial Services (Insurance) Law 1981 and the disclosure
requirements according to Securities Regulations (Periodic and Immediate Reports), 1970, as far as the
standards apply to insurance companies.

     We draw attention to Note 11(A) to the financial statements regarding the exposure to class actions and
the approval of claims as class actions




Tel-Aviv, Israel              KOST FORER GABBAY & KASIERER                               SOMEKH CHAIKIN
August 20, 2008                  Member of Ernst & Young Global                       Member of KPMG International
                                                                        Joint auditors



                                                      -2-
                                                    CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS



                                                                          June 30,          December 31,
                                                                     2008          2007         2007
                                                                         Unaudited            Audited
                                                                             NIS in thousands

Intangible instruments                                             2,179,260       1,930,417       2,157,715 *)

Deferred tax instruments                                              30,661          48,803          56,454 *)

Deferred acquisition costs                                         1,278,619       1,164,336       1,233,222

Leasing fees and prepaid expenses                                     56,611          79,869          69,226

Fixed assets                                                         282,881         284,921         281,675) *)

Investments in affiliates                                             72,963         139,278          74,483

Investment property for yield dependent contracts                  1,009,480         698,435         838,060

Other investment property                                            437,192         323,661         375,134

Reinsurance instruments                                            2,512,375       2,681,049       2,602,518

Current tax instruments                                              272,030          75,636         259,963

Debtors and other financial balances                               2,900,881       2,775,333       2,734,548

Financial investments for yield dependent contracts               21,389,467     20,587,690      21,110,213

Other financial investments:
Quoted debt instruments                                           10,478,723      8,602,756       8,729,242
Unquoted debt instruments                                         13,633,840     13,633,109      13,350,663
Shares                                                             1,173,956      1,731,285       2,028,560
Others                                                               608,475        669,069         769,820

Total other financial investments                                 25,894,994     24,636,219      24,878,285

Cash and cash equivalents pledged for holders of
basket certificates and liabilities                                1,230,710       1,696,564       1,037,343

Cash and cash equivalents for yield dependent contracts              430,074         190,860         425,302

Other cash and cash equivalents                                    1,674,815       1,329,432       1,211,809

Total instruments                                                 61,653,013     58,642,503      59,345,950

Total instruments for yield dependent contracts in insurance
subsidiaries                                                      23,208,842     21,973,020      22,837,481


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




                                                      -3-
                                                        CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS



                                                                            June 30,          December 31,
                                                                       2008          2007         2007
                                                                           Unaudited            Audited
                                                                               NIS in thousands
Equity
Share capital                                                          140,700         140,661       140,697
Share premium                                                          714,664         711,956       712,478
Capital reserves                                                        64,807         340,078       208,800
Treasury shares                                                         (6,866)         (2,712)       (8,742)
Retained earnings                                                    2,183,272       2,598,778     2,532,445
Total equity attributed to the Company shareholders                  3,096,577       3,788,761     3,585,678
Minority interests                                                    318,501         192,885       325,834
Total equity                                                         3,415,078       3,981,646     3,911,512
Liabilities
Liabilities in respect of non-yield dependent insurance
 contracts and investment contracts                                 22,096,953      21,305,994    21,599,756
Liabilities in respect of yield dependent insurance contracts
 and investment contracts                                           22,872,993      21,690,797    22,480,477
Subordinated deeds                                                   1,057,984       1,007,792     1,028,357
Debentures                                                            425,969         252,447       431,400
Liabilities for debentures in liability certificates                  413,247         655,216       510,890 *)
Liabilities to shareholders of a subsidiary                             30,968        299,102       148,013
Contingent liabilities in acquisition of a subsidiary                   64,888         78,182         68,816
Deferred tax liability                                                245,260         261,728       319,041 *)
Liabilities for employee benefits, net                                132,341         121,698       122,461
Liabilities for current taxes                                           12,655         44,887         38,415
Creditors, payables and other financial balances                     2,452,387       2,357,462     2,026,127
Liabilities for deposit certificates                                  138,129         321,066       287,688
Liabilities for bonds, basket certificates, insufficient
 certificates and complex certificates                               6,207,736       4,611,140     4,793,868 *)
Liabilities to banking institutions and others                       2,086,425       1,653,346     1,579,129
Total liabilities                                                   58,237,935      54,660,857    55,434,438
Total equity and liabilities                                        61,653,013      58,642,503    59,345,950
*)       Reclassified.
The accompanying notes are an integral part of the condensed consolidated interim financial statements.


        August 20, 2008
     Date of approval of the                A. Kaplan                S. Talmon                    U. Levy
      financial statements             Chairman of the Board       General Manger                  CFO




                                                           - 4 -
                                                           CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF PROFIT AND LOSS


                                                                                                                  For the year
                                                     For the six months         For the three months                 ended
                                                    period ended June 30        period ended June 30              December 31
                                                     2008          2007          2008          2007                   2007
                                                                        Unaudited                                   Audited
                                                                            NIS in thousands
Gross premiums earned                               4,456,782     3,944,715       2,218,960      1,980,706           8,324,773
Premiums earned by reinsurers                         628,400       644,249         282,423        263,276           1,225,661
Premiums earned on retention                        3,828,382     3,300,466       1,936,537      1,717,430           7,099,112
Investment income, net and financing income          234,896      2,596,243       1,065,244      1,692,287           3,313,907 *)
Income from management fees
 and portfolio management                            374,856        510,505         193,055        281,346             827,799 *)
Income from commissions                              130,310        115,516          52,880         54,527             244,372
Income from other financial services                  69,278        155,963          33,491         78,397             247,021 *)
Income from realization of investments
 in investee and other companies                       1,371        157,504           1,371             970            160,210
Other income                                          18,057         13,380           8,098           6,784             29,609 *)
Total income                                        4,657,150     6,849,577       3,290,676      3,831,741          11,922,030
Payments and gross change in liabilities
 in respect of insurance contracts                  3,348,832     4,882,187       2,529,388      2,715,168           8,610,799
Reinsurer’s share in payments and in change
 in liabilities in respect of insurance contracts   (325,267)      (230,086)       (124,420)              (226)       (571,785)
Payments and change in liabilities in respect of
 insurance contracts on retention                   3,023,565     4,652,101       2,404,968      2,714,942           8,039,014
Commissions, selling, marketing and
 other acquisition expenses                          611,404        521,245         309,020        270,791           1,125,593
Operating, administrative, general
 and other expenses                                  878,552        738,729         452,161        396,952           1,614,492 *)
Financing expenses                                   140,458         68,488         100,398         37,798             183,110 *)
Total expenses                                      4,653,979     5,980,563       3,266,547      3,420,483          10,962,209
Share in results of affiliates, net                    5,252           1,172          1,277           2,267              4,210
Income before taxes on income                          8,423        870,186          25,406        413,525             964,031
Taxes on income                                       18,640        277,029          18,489        150,292             300,786
Income (loss) for the period                          (10,217)      593,157           6,917        263,233             663,245
Attributed to:
Company shareholders                                    2,004       579,578          15,671        254,520             650,692
Minority interests                                    (12,221)       13,579          (8,754)         8,713              12,553
Income (loss) for the period                          (10,217)      593,157           6,917        263,233             663,245
Earnings per share:
Earnings per share attributed to
 Company shareholders
Basic earnings per share (in NIS)                        0.05          11.01           0.29               4.87            2.26
Diluted earnings per share (in NIS)                      0.05          10.90           0.29               4.83           12.15
Number of shares used to calculate
 earnings per share
 Basic                                                52,822          52,733         52,819         52,803              52,788
 Diluted                                              52,880          53,287         52,876         53,238              53,306

*)     Reclassified.
The accompanying notes are an integral part of the condensed consolidated interim financial statements.

                                                            -5-
                                                        CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF RECOGNIZED INCOME AND
 EXPENSES



                                                                                                              For the year
                                                    For the six months         For the three months              ended
                                                   period ended June 30        period ended June 30           December 31
                                                    2008          2007          2008          2007                2007
                                                                       Unaudited                                Audited
                                                                           NIS in thousands

Foreign exchange translation differences
in respect of activities abroad                    (121,251)         30,810        (55,181)        32,562       (64,211)     *)

Effective portion of changes in fair value of
 cash flow hedges                                          -             -              -            4,381           -

Net change in fair value of available-for-sale
 financial instruments including transfer to the
 statement of profit and loss                        (78,084)        28,743          6,973         15,369       (72,627)

Actuarial profits from a defined employee
 benefit plan                                            351          7,297             83           3,950       12,574
Income tax in respect of income and expenses
 allocated directly to equity                         28,843         (9,914)         (1,246)        (7,703)      24,513

Other total income (expense) for the period, net
 of tax                                            (170,141)         56,936        (49,371)        48,559       (99,751)

Income (loss) for the period                         (10,217)       593,157          6,917        263,233       663,245

Comprehensive income (expense)
 for the period                                    (180,358)        650,093        (42,454)       311,792       563,494

Attributed to:

Company shareholders                               (141,564)        631,360        (20,032)       298,156       575,122
Minority interests                                  (38,794)         18,733        (22,422)        13,636       (11,628)     *)

Comprehensive income (expense)
 for the period                                    (180,358)        650,093        (42,454)       311,792       563,494

*)      Reclassified.




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




                                                           -6-
                                                       CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS



                                                                                                          For the year
                                                        For the six months    For the three months           ended
                                                       period ended June 30   period ended June 30        December 31
                                                         2008        2007       2008        2007              2007
                                                                        Unaudited                           Audited
                                                                            NIS in thousands
Cash flows from current activities
Before taxes on income                             a   (433,121)   (1,916,870)   136,380     776,805       (1,303,906)
Income tax paid                                         (85,625)    (221,335)    (10,101)   (121,104)        (373,875)
Net cash (used in) provided by
 current activities                                    (518,746)   (2,138,205)   126,279     655,701       (1,677,781)


Cash flows from investment activities
Proceeds from sale of fixed assets                        3,872       1,449        3,872       1,449            4,141
Proceeds from the sale of intangible assets                 114          85           69           -              102
Proceeds from sale of investments
 in investees and others                                  1,700      33,000        1,700           -           52,797
Investment in affiliates                                    (55)     (6,808)         (55)     (7,464)          65,044
Acquisition of provident fund activities                      -    (607,000)           -    (607,000)        (666,154)
Acquisition of subsidiaries consolidated
 for the first time                                b   (105,843)   (634,794)           -    (634,794)        (771,072)
Acquisition of minority interests                  c    (27,578)          -      (27,578)          -             (300)
Acquisition of fixed assets                             (26,093)    (19,703)     (15,859)    (10,486)         (45,599)
Acquisition and capitalization of costs                 (70,921)    (57,485)     (41,338)    (26,088)        (111,815)
 for intangible instruments


Effective portion of change in fair value of
 cash flow hedging for
 investment acquisition                                       -            -           -        4,381               -
Net cash used in investment activities                 (224,804)   (1,291,256)   (79,189)   (1,280,002)    (1,472,856)
Cash flows from financing activities
Proceeds from the issue of share capital
 to minority in subsidiary                                     -    285,481           -        1,504          286,139
Issue of debentures, net                                       -    251,361           -            -          407,225
Proceeds from realization of
 options into shares                                          3         211            -          98              247
Sale (acquisition) of treasury shares, net                1,876       6,737       (2,050)      1,685              707
Receipt (settlement) of loans to minority,
 net                                                       179            -         179           (64)         (1,695)
Sale of shares of a subsidiary by a
 minority to a subsidiary                                      -          -           -            -          (15,618)
Increase (decrease) in liability in respect of
 debentures of liability certificates                   (96,762)    157,217      (32,982)     65,475            5,107 *)
Net acquisition by the public due
  to liabilities in respect of bonds,
  insufficient certificates, basket certificates
  and complex certificates                             994,546     1,839,649     792,719     830,320        1,807,857 *)

Balance C/forward                                      899,842     2,540,656     757,866     899,018        2,489,969

*)     Reclassified.




                                                         -7-
                                                        CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Cont.)



                                                                                                              For the year
                                                         For the six months    For the three months              ended
                                                        period ended June 30   period ended June 30           December 31
                                                          2008        2007       2008        2007                 2007
                                                                         Unaudited                              Audited
                                                                             NIS in thousands

B/forward                                                899,842    2,540,656      757,866      899,018         2,489,969

Change in deposit certificates in a
 designated company                                     (149,256)      45,357      (10,772)        9,600           11,676 *)
Issue of insufficient certificates, complex
 certificates and liability certificates
 (net of issue expenses)                                 401,262      575,581             -     208,112           886,904 *)
Forced conversion of
 insufficient certificates                                     -      (38,551)            -      (38,551)         (38,551)
Redemption of an investment by a
 subsidiary holder                                       (42,660)            -     (42,660)               -              -
Receipt (settlement) of liabilities to banks
 and others, net                                         575,863      549,355     (121,495)    (113,772)          411,536
Interest on debentures and subordinated
 deeds, paid                                             (55,292)     (34,102)     (20,089)      (19,882)        (56,621) *)
Dividends paid                                          (360,311)      (1,595)    (360,311)         (189)         (171,165)

Net cash provided by financing activities              1,269,448    3,636,701      202,539      944,336         3,533,748

Net increase in cash and cash equivalents                525,898      207,240      249,629      320,035           383,111

Cash and cash equivalents as at
 the beginning of the period                     d     1,637,111    1,297,652    1,867,623    1,181,983         1,297,652
Effect of fluctuations in the rate
 of exchange on balances
 of cash and cash equivalents                            (58,120)      15,400      (12,363)      18,274           (43,652)

Cash and cash equivalents as at
 the end of the period                           e     2,104,889    1,520,292    2,104,889    1,520,292         1,637,111

*)     Reclassified.

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




                                                          - 8 -
                                                               CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Cont.)


                                                                                                      For the year
                                                    For the six months         For the three months      ended
                                                   period ended June 30        period ended June 30   December 31
                                                    2008          2007          2008          2007        2007
                                                                       Unaudited                        Audited
                                                                           NIS in thousands
(a) Cash flows from current activities
     before taxes on income
    Profit (loss) for the period                  (10,217)     593,157         6,917       263,233       663,245
    Adjustments
    Change in liabilities in respect of
     non-yield dependent insurance
     and investment contracts                     853,956      332,769       327,145        22,538       759,493
    Change in liabilities in respect of
     yield dependent insurance
     and investment contracts                     392,516     2,472,393      943,028     1,512,814     3,262,073
    Change in deferred acquisition costs          (54,471)      (36,698)       9,219         7,341       (42,978)
    Change in leasing fees and
     pre-paid expenses                             11,013       (6,398)       (1,665)        5,574         4,245
    Change in reinsurance instruments              (2,392)      45,835        76,509        70,692       130,949
    Deprecation                                    24,041       17,923        11,643         9,711        34,677
    Amortization of intangible instruments        115,849       63,438        66,714        32,074       145,569
    Income from sale of fixed assets                  (63)        (491)          (63)         (491)         (552)
    Income from realization of other
     investment property                                -         (630)            -          (522)         (676)
    Income from realization of
     intangible instruments                            (43)          (7)         (25)            -             (8)
    Accumulated interest and increase in
     value of subordinated deeds                   64,419       26,218        45,561        15,003        79,609     *)
    Increase in value of debentures, short
     certificates, basket certificates and
     complex certificates                          18,059      223,942         6,959       223,704        83,078     *)
    Accumulated interest and increase
     (decrease) in value of liabilities to
     banking institutions and others               25,649        (1,185)      25,649        (4,596)       51,652     *)
    Excess of equity value over
     minority interest acquisition cost             (6,557)          -        (6,557)            -              -
    Transactions with controlling shareholders           -         261             -             -            (92)
    Company’s share in results of
     affiliates, net                                (5,252)      (1,172)      (1,277)       (2,267)        (4,210)
    Income from realization of investment
     in investees and others                        (1,371)   (157,504)       (1,371)         (970)     (160,210)
    Decrease (increase) in value of
     investment in affiliates and others           18,964         (865)        7,443        (2,180)      (20,437)
    Dividend received from affiliates               4,373        2,886         2,025         1,233        10,837
    Accumulated interest and erosion
     of loans, net                                     116         (543)          44           (21)        1,100
    Balance C/forward                            1,448,589    3,573,329    1,517,898     2,152,870     4,997,364
    *) Reclassified.




                                                                 -9-
                                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Cont.)


                                                                                                              For the year
                                                      For the six months         For the three months            ended
                                                     period ended June 30        period ended June 30         December 31
                                                      2008          2007          2008          2007              2007
                                                                         Unaudited                              Audited
                                                                             NIS in thousands
    B/forward                                       1,448,589    3,573,329     1,517,898       2,152,870        4,997,364
(a) Cash flows from current activities
     before taxes on income (Cont.)
    Change in fair value of investment
     property for yield dependent contracts           (10,491)         (69)            -               -           (91,716)
    Change in fair value of other
     investment property                               (4,378)          -            119              -           (30,044)
    Share based payment transactions                   10,912       8,358          3,675          3,560            22,807
    Taxes on income                                    18,640     277,029         18,489        150,292           300,786
    Receipts (investments) from sale of
     available for sale financial instruments
     and investment property in
     insurance business **)
    Quoted debt instruments                          359,570      332,067         40,439        346,661            95,030     *)
    Unquoted debt instruments                       (268,574)      31,316        (68,661)       195,736          (348,417)
    Shares                                          (262,970)     (90,554)      (243,201)       (79,855)         (120,833)
    Others                                             47,461    (114,114)         7,745        (70,353)          (83,643)
    Investment property for yield
     dependent contracts                            (160,929)      (55,066)      (26,510)         (4,611)        (103,044)
    Other investment property                         (63,746)       7,041       (15,552)          4,260            4,048
    Changes in other balance sheet items,
    net
    Securities held for trade by companies that
     are not consolidated insurance
     companies, net                                (1,268,856)   (2,921,088)    138,391        (571,373)       (2,886,801)    *)
    Realization of (investment in) liabilities for
     derivative financial instruments                 (44,745)     15,055         33,503        (70,220)          101,810     *)
    Change in pledged cash and cash
     equivalents for holders of basket
     and liability certificates                     (193,367)    (858,552)      (309,126)       204,834          (199,331)
    Financial investments for yield
     dependent contracts                            (279,254)    (2,467,804)   (1,029,028)    (1,968,281)      (2,981,849)
    Debtors and other financial balances            (216,163)     (489,579)      211,178       (248,728)         (496,001)    *)
    Creditors, payables and other
     financial balances                              444,949      825,569       (147,982)       726,281           499,696     *)
    Liabilities for employee benefits, net             10,231      10,192          5,003          5,732            16,232
    Total cash flows from current activities
     before taxes on income                         (433,121)    (1,916,870)    136,380         776,805        (1,303,906)

   *) Reclassified.
   **) The cash flows from current activities include net acquisitions and sales of financial investments and investment property
       resulting from the activity in respect of insurance and investment contracts.
   The accompanying notes are an integral part of the condensed consolidated interim financial statements.




                                                                   - 10 -
                                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Cont.)



                                                                                                                   For the year
                                                      For the six months         For the three months                 ended
                                                     period ended June 30        period ended June 30              December 31
                                                      2008          2007          2008          2007                   2007
                                                                         Unaudited                                   Audited
                                                                             NIS in thousands
(b) Investment in subsidiaries consolidated
     for the first time

    Investments (except for cash and
     cash equivalents)                                      -     (2,366,119)              -     (2,366,119)      (2,366,119)
    Fixed assets and office buildings                    (412)       (36,873)              -        (36,873)         (36,873)
    Insurance reserves and outstanding claims               -      1,620,699               -      1,620,699        1,683,018
    Insurance companies and outstanding
     premiums                                              -        (236,422)              -       (236,422)       (236,422)
    Deferred acquisition costs                             -               -               -              -         (66,668)
    Deferred taxes                                         -               -               -              -          24,687
    Liability to shareholders’ in a subsidiary             -         262,781               -        262,781         262,781
    Debentures                                             -         132,091               -        132,091         132,091
    Other long term liability                         14,200          63,390               -         63,390          89,682
    Minority interest                                      -           3,005               -          3,005           3,005
    Contingent liability upon acquisition
     of a subsidiary                                       -          74,557               -         74,557          72,498
    Other assets                                    (114,881)       (198,257)              -       (198,257)       (376,862)
    Amounts receivable nset of other liabilities      (4,750)         46,354               -         46,354          44,110

    Total investment in subsidiaries
     consolidated for the first time                (105,843)       (634,794)              -       (634,794)       (771,072)

(c) Acquisition of minority’s share
     in subsidiaries

    Other assets                                         (870)              -           (870)                 -        (832)
    Minority interest                                 (33,265)              -        (33,265)                 -         532
    Excess of equity value over the
     cost of acquisition of
     minority’s interest                                6,557               -          6,557                  -            -

    Total acquisition of minority’s share
     in subsidiaries                                  (27,578)              -        (27,578)                 -        (300)


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




                                                                  - 11 -
                                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (Cont.)



                                                                                                                  For the year
                                                      For the six months         For the three months                ended
                                                     period ended June 30        period ended June 30             December 31
                                                      2008          2007          2008          2007                  2007
                                                                         Unaudited                                  Audited
                                                                             NIS in thousands
(d) Cash and cash equivalents as at the
     beginning of the period

   Cash and cash equivalents for
    yield dependent contracts                       425,302         233,096         517,367        167,527           233,096

   Other cash and cash equivalents                 1,211,809       1,064,556      1,350,256       1,014,456        1,064,556

   Cash and cash equivalents balance as at
    the beginning of the period                    1,637,111       1,297,652      1,867,623       1,181,983        1,297,652

(e) Cash and cash equivalents as at the
     end of the period

   Cash and cash equivalents for
    yield dependent contracts                        430,074         190,860        430,074         190,860          425,302

   Other cash and cash equivalents                 1,674,815       1,329,432      1,674,815       1,329,432        1,211,809

   Cash and cash equivalents balance as at
    the end of the period                          2,104,889       1,520,292      2,104,889       1,520,292        1,637,111

(f) Activity not involving cash flows

   Sale of fixed assets against debtors
    and receivables                                         -               -               -                 -          182
   Investment in other assets against creditors
    and payable                                             -               -               -                 -        2,367
   Goodwill recorded against issue of
    shares in a subsidiary                                  -               -               -                 -       44,962
   Investment in other assets against long
    term liabilities and current liabilities                -          2,086                -            29                -




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




                                                                  - 12 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 1:- REPORTING ENTITY

           Clal Insurance Enterprises Holdings Ltd. (hereunder - the Company) is a company domiciled in
           Israel, incorporated in Israel and its official address is Derek Menachem Begin 48 Building “C” Tel-
           Aviv 66140. The consolidated financial statements of the Company as of June 30, 2008 comprise
           the statements of the Company and its subsidiaries (hereunder – the Group) and the Group’s interest
           in affiliates and jointly controlled entities. The Company is a direct subsidiary of IDB Development
           Corporation Ltd. (hereunder - IDB Development). The shares of the Company are listed for trading
           on the Tel Aviv Stock Exchange.



NOTE 2:- BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS

           a.    Statement of compliance with International Financial Reporting Standards

                  The condensed consolidated interim financial statements have been prepared in accordance
                  with International Financial Reporting Standards (IFRS). The condensed consolidated
                  interim financial statements is prepared for part of the period covered by the first IFRS
                  annual financial statements, in which IFRS 1 – First-time Adoption of International Financial
                  Reporting Standards has been applied.

                  The condensed consolidated interim financial statements were prepared according to
                  International Accounting Standard IAS 34 – Interim Financial Reporting, and in accordance
                  with disclosure requirements prescribed by the Regulator of Insurance pursuant to the
                  Supervision of Financial Services (Insurance) Law 1981 (hereunder - “the Supervision Law”)
                  and the regulations issued thereunder and disclosure requirements in accordance with the
                  Securities Regulations (Periodic and Immediate Reports), 1970, as far as these regulations
                  apply to insurance companies.

                  The reporting structure under the Israeli Accounting Standards is different from that of the
                  present reporting structure. Note 14(f) includes details of the significant differences in
                  reporting.

                  The condensed consolidated interim financial statements do not include all the required
                  information for full annual financial statements. These statements should be read in
                  conjunction with the annual audited financial statements of the Company for the year ended
                  as at December 31, 2007.

                  The affect of the transition to IFRS on the financial position of the Company and the results
                  of its operations and its financial statements are described in the Notes to the financial
                  statements.

                  The condensed consolidated interim financial statements have been approved for publication
                  by the Group’s Board of Directors on August 20, 2008.




                                                    - 13 -
                                                   CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 2:- BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (Cont.)

           b.    Functional and presentation currency

                 These condensed financial statements are reported in NIS, which is the Company’s
                 functional currency, and are rounded to the nearest thousand. The NIS is the currency that
                 represents the Company’s main financial environment.

           c.    Basis of measurement

                 The financial statements have been prepared on the historical cost basis except for the
                 following assets and liabilities that are reported at fair value: derivative financial instruments,
                 financial instruments at fair value through profit or loss, financial instruments that are
                 classified as available-for-sale and investment property. Regarding insurance liabilities and
                 liabilities in respect of employee benefits see Notes 3 (d) and 3 (l).

                 The value of non-monetary instruments and equity items measured on the basis of historical
                 cost was adjusted to changes in the CPI up to December 31, 2003, as until that date the State
                 of Israel was considered to be a hyperinflationary economy.

           d.    Use of estimates and judgments

                 The preparation of financial statements in conformity with IFRS and the Supervision Law,
                 the directives pursuant thereto and the Regulator’s directives, requires management to make
                 judgments with respect to estimates, valuations and assumptions, including actuarial
                 estimates and assumptions that affect the application of accounting policies and the reported
                 amounts of assets, liabilities, income and expenses. Actual results may differ from these
                 estimates. The significant estimates in the financial reports are based on actuarial assessments
                 and external value assessments.


                 When forming the accounting and actuarial estimates that are used for the preparation of
                 financial statements, management is required to make assumptions regarding circumstances
                 and events involved in significant uncertainty. For setting estimates, management bases its
                 judgment on past experience, various facts, external factors and on reasonable assumptions
                 including future expectations, in accordance with the appropriate circumstances for each
                 estimate.

                 Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to
                 accounting estimates are recognized in the period in which the estimates are revised and in
                 any relevant future periods.

                 The estimates and judgments used by the management for application of the accounting policy
                 and preparation of the interim financial statements are consistent with those used to prepare
                 the consolidated financial statements as at December 31, 2007.




                                                     - 14 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 2:- BASIS OF PREPARATION OF THE FINANCIAL STATEMENTS (Cont.)

           e.    Definitions

                Following the transition to reporting according to IFRS, a number of new terms were added
                to the financial statements, as follows:

                 Insurance contracts         A contract under which one party (the insurer) accepts
                                             significant insurance risk from another party (the policyholder)
                                             by agreeing to compensate the policyholder if a specified
                                             uncertain future event (the insured event) adversely affects the
                                             policyholder.
                 Investment contracts        Policies that have a saving component of 100% the policies’
                                             savings are withdrawn as a lump sum and they do not include
                                             annexes that constitute insurance contracts.
                 Yield dependent             Insurance contracts and investment contracts in life assurance
                  contracts                  and health insurance segments, in which the liabilities are linked
                                             to the profits of the investment portfolio (policies participating
                                             in investment income).

                 Total assets for yield      The total assets against liabilities derived from profit-
                  dependent contracts        participating insurance, as described in appendix A regarding
                                             details of assets and liabilities (see Note 3n).

                 Liabilities for insurance   Insurance reserves and outstanding claims in life assurance,
                  contracts                  general insurance and health insurance segments of activity.
                 Reinsurance assets          Reinsurers' share in insurance reserves and outstanding claims.

                 Premiums                    Premiums including fees.
                 Premiums earned             Premiums relating to the reporting period.



           f.    Reporting structure

                It is not possible to clearly define the Group’s regular operational turnover, which primarily
                includes financial institutions. It generally exceeds one year, particularly for life assurance
                and long-term savings for general insurance with a long tail.

                The consolidated balance sheets, which mainly include the assets and liabilities of
                consolidated insurance companies, were presented according to liquidity, without
                differentiating between current and non-current.

                This presentation complies with the directives of the Insurance Supervisor, to provide more
                reliable and relevant information under IAS 1.

                The reporting structure under Israeli GAAP is different than the current reporting structure.
                Note 14(f) includes details of the significant differences in reporting.




                                                   - 15 -
                                                   CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    SIGNIFICANT ACCOUNTING POLICIES

            The condensed consolidated interim financial statements have been prepared in accordance with
            International Financial Reporting Standards and the clarifications thereto (hereunder – IFRS
            Standards) which were published and entered into force or are available for early adoption at the
            Group’s first IFRS annual reporting date, December 31, 2008, and that are the basis for the
            Company’s accounting policy.

            IFRS that will be effective or available for early adoption in the annual financial statements for the
            year ended as at December 31, 2008 are subject to changes and to the publication of additional
            clarifications and therefore cannot be determined with certainty. Accordingly, the accounting
            policies for this annual period that are relevant to this interim financial information will be
            determined finally only when the first IFRS financial statements are prepared on December 31,
            2008.

            The preparation of the condensed consolidated interim financial statements in accordance with
            IAS 34 resulted in changes to the accounting policies as compared with the most recent annual
            financial statements prepared under generally accepted accounting principles in Israel (Israeli
            GAAP). The accounting policies set out below have been applied consistently to all periods
            presented in these condensed consolidated interim financial statements. They also have been
            applied in preparing an opening IFRS balance sheet as at January 1, 2007 for the purposes of the
            transition to IFRS, as required by IFRS 1. The affect of the transition from Israeli GAAP to IFRS
            is explained in Note 14.

            The accounting policies according to IFRS have been applied consistently throughout the Group.

            a.   Basis of consolidation

                 (1)    Subsidiaries

                        Subsidiaries are entities controlled by the Group. Control exists when the Group has
                        the power to govern the financial and operating policies of an entity so as to obtain
                        benefits from its activities. In examining control, potential voting rights that realizable
                        immediately, are taken into account. The financial statements of subsidiaries are
                        included in the condensed consolidated financial statements from the date that control
                        commences until the date that control ceases. The accounting policies of subsidiaries
                        have been changed when necessary to align them with the accounting policies
                        adopted by the Company. The financial statements of pension funds, provident funds
                        and mutual funds were not consolidated, since the Company has no share in their assets
                        and liabilities.

                 (2)   Special purpose entities

                        The Group has established a number of special purpose entities (SPE) An SPE is
                        consolidated if, based on an evaluation of the substance of its relationship with the
                        Group and the SPE’s risks and rewards, the Group concludes that it controls the SPEs.
                        SPE controlled by the Group were established under terms that impose strict limitations
                        on the decision-making powers of the SPEs’ management and that result in the Group
                        receiving the majority of the benefits related to the SPEs’ operations and net assets. A
                        summary of the consolidated information of SPE that are consolidated in the finance
                        segment appears in Appendix B of the financial statements.




                                                     - 16 -
                                                     CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

            a.   Basis of consolidation (Cont.)

                 (3)   Jointly controlled entities

                       Jointly controlled entities are those entities over whose activities the Group has joint
                       control, established by contractual agreement and requiring joint consent for strategic
                       financial and operational decisions.

                       The jointly controlled entities are treated according to the proportionally consolidation
                       method from the date joint control commences and until the date the joint control
                       ends. The consolidated financial statements include the Group’s proportional share in
                       the assets, liabilities, income and expenses of the proportionally consolidated entities,
                       according to the percentage holding in these entities, after making adjustments to align
                       the accounting policies of the entities with the Group’s accounting policies.

                 (4)   Jointly controlled transactions

                       Jointly-controlled transactions are transactions carried out by each party using its own
                       assets in pursuit of the joint operations. The consolidated financial statements include
                       the assets of the joint operations the Company controls, the liabilities that it is exposed
                       to in the course of pursuing the joint operations, the expenses it incurs with respect to
                       the joint operations and its share of the income that it earns from the joint operation.

                 (5)   Transactions eliminated on consolidation

                       Significant intra-group balances and transaction and any unrealized income and
                       expenses arising from intra-group transactions are eliminated in preparing the
                       condensed consolidated financial statements. Unrealized gains arising from
                       transactions with affiliates and with jointly-controlled entities are eliminated against
                       the investment to the extent of the Group’s interest in these investments. Unrealized
                       losses are eliminated in the same way as unrealized gains, but only to the extent that
                       there is no evidence of impairment.

                 (6)   Minority interest

                       The minority interest represents its share in profit or loss and in net assets (of
                       subsidiaries not wholly owned) and is reported under shareholders’ equity on a
                       separate line.

                       Acquisition of minority interest is recorded against goodwill which is calculated as a
                       difference between the consideration paid and the amount acquired in the minority
                       interest on the date of acquisition, and the excess of minority interest over the
                       consideration paid is allocated to income.




                                                      - 17 -
                                                   CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

          b.     Affiliates handled according to the equity method

                 Affiliates are those entities in which the Group has significant influence, but not control, over
                 their financial and operating policy. Affiliates are accounted for using the equity method.
                 The consolidated financial statements include the Group’s share of the income and expenses
                 of held entities, accounted for using the equity method, after adjustments to align the
                 accounting policies with those of the Group, from the date that significant influence
                 commences until the date that significant influence ceases. When the Group’s share of losses
                 exceeds its interest in an equity accounted entity, the carrying amount of that interest
                 (including any long-term investments) is reduced to zero and the recognition of further losses
                 is discontinued except to the extent that the Group has an obligation to the affiliate or has
                 made payments on behalf of the affiliate.

            c.   Foreign currency

                 (1) Transactions in foreign currency

                       Transactions in foreign currencies are translated to the functional currency of the Group
                       at exchange rates on the transaction date. Monetary assets and liabilities denominated in
                       foreign currencies on the reporting date are translated to the functional currency at the
                       exchange rate on that date. The foreign currency gain or loss on monetary items is the
                       difference between amortized cost in the functional currency at the beginning of the
                       period, adjusted for effective interest and payments during the period, and the amortized
                       cost in foreign currency translated at the exchange rate at the end of the period. Non-
                       monetary assets and liabilities denominated in foreign currencies that are measured at fair
                       value are retranslated to the functional currency at the exchange rate at the date that the
                       fair value was determined. Foreign currency differences arising on retranslation are
                       recognized in profit or loss, except for differences arising on the retranslation of non-
                       monetary equity instruments classified as available-for-sale, a financial liability
                       designated as a hedge of the net investment in a foreign operation, or qualifying cash flow
                       hedges, which are recognized directly in equity.

                 (2)   Foreign operations

                       The functional currency, which is the currency that most effectively reflects the financial
                       environment in which the Company operates, is determined separately for each company
                       in the Group, including affiliates accounted for by the equity method. If the functional
                       currency of a company in the Group is not the same as the Company’s presentation
                       currency (as described in Note 2.b), this company constitutes a foreign operation and the
                       information in its financial reports is translated before consolidation in the financial
                       statements, as follows:

                       The assets and liabilities of foreign operations, including goodwill and fair value
                       adjustments arising on acquisition, are translated to shekel at exchange rates on the
                       reporting date. The income and expenses of foreign operations are translated to shekel at
                       exchange rates on the dates of the transactions, or at average exchange rates for the
                       period.




                                                     - 18 -
                                                   CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

            c.   Foreign currency

                 (2)   Foreign operations

                       Foreign currency differences are recognized directly in equity commencing January 1,
                       2007, the Group’s date of transition to IFRS. According to IFRS 1, the Group chose to
                       reset the cumulative translation differences for all foreign activities on the date of
                       transition to IFRS.

                       When a foreign operation is disposed of, in part or in full, the relevant amount in the
                       foreign currency translation reserve (FCTR) is transferred to the statement of profit and
                       loss.

                       Gains and losses arising from translation differences due to loans receivable from or
                       payable to a foreign operation, the settlement of which is neither planned nor likely in the
                       foreseeable future, are considered to form part of a net investment in a foreign operation
                       and are recognized directly in equity in the FCTR.

                 (3)    Hedge of net investment in foreign operation

                       Foreign currency differences arising on the retranslation of a financial liability designated
                       as a hedge of a net investment in a foreign operation are recognized directly in equity, in
                       the FCTR, to the extent that the hedge is effective. To the extent that the hedge is
                       ineffective, such differences are allocated to profit and loss. When the hedged part of a
                       net investment is disposed of, the associated cumulative amount in equity is transferred to
                       the cost of the investment.

           d.    Insurance contracts

                 IFRS 4 – Insurance Contracts allows an insurer to continue to apply its accounting policies
                 relating to insurance contracts.

                 As a result of this exemption, the main accounting policies and calculation methods for life
                 assurance, general insurance and health insurance operations applied in interim statements
                 prepared according to IFRS, are basically the same as those applied in the preparation of the
                 last annual financial statements, which were prepared according to Israeli GAAP, with the
                 exception of a number of changes described in clauses 1(b), 1(e) and 2(c) below. A summary of
                 the accounting policy for insurance contracts is detailed below:

                 1.    Life assurance and long-term care

                       a.     Recognition of income see paragraph n below.

                       b.     Life assurance reserves:

                               Life assurance reserves are computed according to the Regulator’s directives
                               (regulations and circulars), generally accepted accounting principles and
                               accepted actuarial methods. The reserves are computed according to the
                               relevant coverage data, such as the age of the policyholder, number of years of
                               coverage, type of insurance, sum of insurance, etc.




                                                     - 19 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           d.    Insurance contracts (Cont.)

                 1.   Life assurance and long-term care (Cont.)

                      b.     Life assurance reserves (Cont.)

                              Life assurance reserves and the reinsurers' share therein are determined on the
                              basis of annual actuarial assessments carried out by the actuaries of the
                              insurance subsidiaries, Mr. Ofer Brant, F.IL.AA, F.I.A., MBA., and Ms.
                              Nadine Bloomberg, F.IL.AA, (who replaced Ms. Michal Tamir Hait, F.IL.AA
                              from the financial statements as at June 30, 2008) who are officers in the
                              Company and in the subsidiary.

                      c.      Life assurance reserve with respect to policies that according to their terms are
                              semi-annual linked and the assets earmarked to this reserve, are adjusted on a
                              cumulative basis to the known index on the balance sheet date.

                      d.     The Regulator’s directives regarding reserves for annuities:

                              A circular issued by the Regulator in February 2007 on the method of calculating
                              the reserves for annuities in life assurance policies provides updated directives on
                              how to calculate the provisions as a result of the improvement in life expectancy
                              that requires monitoring the adequacy of the reserves in insurance policies that
                              permit the receipt of an annuity, and their proper supplementation.

                             Accordingly, the Company makes an immediate supplementation of the
                             reserve, when necessary, with respect to policies in which an annuity is
                             currently being paid or the policyholder has reached retirement age or a group
                             of non-profitable policies. With respect to other policies, which are likely to be
                             profitable, the insurer may supplement the reserves over the policy’s term,
                             parallel to the anticipated income.

                       e.    Reserve for extraordinary risks:

                              The financial statements prepared according to Israeli GAAP up to and
                              including December 31, 2006 included a reserve for extraordinary risks in life
                              assurance. This reserve was cancelled in the financial statements in accordance
                              with Israeli GAAP in 2007 and was recorded as an extraordinary item in the
                              statement of profit and loss. In accordance with a circular issued by the
                              Regulator, this reserve does not comply with IFRS 4, and therefore according
                              to IFRS the reserve was transferred to retained earnings on January 1, 2007.

                       f.    Deferred acquisition costs:

                              Deferred acquisition costs of life assurance policies (hereunder – the DAC) sold
                              as of January 1, 1999 include commissions for agents and acquisition
                              supervisors and other expenses relating to the acquisition of new policies,
                              including part of the general and administrative expenses. The DAC is
                              amortized in equal annual portions over the policy period, but not over more
                              than 15 years. The DAC in respect of cancelled policies are written-off at the
                              date of cancellation.




                                                    - 20 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           d.    Insurance contracts (Cont.)

                 1.   Life assurance and long-term care (Cont.)

                      f.     Deferred acquisition costs (Cont.)

                              Deferred acquisition costs in respect of policies that were issued up to
                              December 31, 1998 are computed according to the Zillmer deduction method
                              by the Company’s actuary, based on rates from premium or from the amount at
                              risk according to the various insurance programs.

                              Deferred acquisition costs in respect of policies that were issued up to
                              December 31, 1998 are computed according to the Zillmer deduction method
                              by the Company’s actuary, based on a percentage of the premium or of the
                              amount at risk according to the various insurance programs. The amortization
                              rate of “Adif” policies is 10% per annum and for “Traditional” policies, over
                              the term of the policy.

                       g.    Liability Adequacy

                             The appointed actuaries examine each year, that the total reserve, net of
                             deferred acquisition costs, is sufficient to cover the future anticipated cash
                             flows: claims, commissions and expenses net premiums and investment income.
                             The cash flows are examined after deduction of anticipated cancellations and
                             capitalization of non-risk real interest in respect of existing policies, under
                             reasonable assumptions. This examination is done on a number of levels, as
                             follows:

                             1.    An examination of the DAC’s recoverability - in accordance with the
                                   directives of the Regulator of Insurance, the actuaries in consolidated
                                   insurance companies in Israel, examine each year the recoverability of
                                   the DAC. This calculation examines whether the reserve net of the DAC
                                   for policies sold since the year 1999 is sufficient and if the policies are
                                   expected to create the future income which covers the DAC deduction
                                   and the insurance liabilities, the operational expenses and the
                                   commissions for those policies. The examination is prepared from a
                                   collection of all the underwriting years together.

                                   The assumptions used in the abovementioned examinations include
                                   assumptions regarding cancellations, operating expenses, rate of return
                                   on assets, mortality and morbidity rates, and they are determined by the
                                   actuary every year based on examinations of past experience and other
                                   relevant research studies. These assumptions are based on the actuary’s
                                   expectations.




                                                   - 21 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           d.    Insurance contracts (Cont.)

                 1.   Life assurance and long-term care (Cont.)

                       g.    Liability Adequacy (Cont.)

                             2.     The consolidated insurance companies prepare the examination regarding
                                    the appropriateness of the reserve. In the event that the examinations
                                    show that the received premiums are not sufficient to cover the
                                    anticipated claims, the consolidated insurance companies maintain a
                                    special provision in respect of the deficiency. The examination is done
                                    separately for individual policies and collective policies. In the case of
                                    the individual policies, the examination is prepared on the product level
                                    and in the case of the collective policies, the examination is prepared on
                                    the individual collective level.

                                    The assumptions used for the above examinations, that include
                                    assumptions regarding cancellations, operating expenses, yield from
                                    assets, mortality and morbidity, are determined by the actuary each year
                                    according to examinations of past experience and other relevant research.
                                    For collective policies the examination is prepared in accordance with the
                                    actual claims experience of the individual collective and subject to the
                                    statistical reliability of this experience.

                       h.    Outstanding claims:
                              Outstanding claims, net of the reinsurers’ share therein, are computed on an individual
                              case basis, according to the estimation of the Company’s experts, based on the
                              notifications regarding the insurance events and the sums insured.


                             The provisions for annuity payments and long-lasting payment claims with
                             respect to disability insurance and long-term care (LTC) insurance, the direct
                             and indirect expenses deriving from them, as well as the provisions for incurred
                             but not yet reported claims (IBNR) are included under liabilities for insurance
                             and investment contracts.

                       i.    Investment contracts:

                              Receipts in respect of investment contracts are not included in the item of
                              earned premiums, but are directly allocated to liabilities for insurance and
                              investment contracts. Surrenders and maturities in respect of these contracts are
                              not charged to claims, but are deducted directly from the liabilities for
                              insurance and investment contracts.

                              In respect of these contracts the statement of profit and loss includes
                              investment income, management fees collected from policyholders, change in
                              liabilities in respect of insurance and investment contracts at the rate of the
                              policyholders’ share in the investment income, commissions to agents, and
                              general and administrative expenses.




                                                     - 22 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           d.    Insurance contracts (Cont.)

                2.    General and health insurance with the exception of long-term care

                       a.    Recognition of income (see paragraph o below).

                       b.    The items of change in liabilities and payments for insurance contracts, gross and
                             on retention, include, among others, settlement and direct handling costs of
                             claims paid and outstanding claims that occurred during the reported period, as
                             well as an adjustment of the provision for outstanding claims and their direct
                             handling costs recorded in previous years.

                       c.    Provision for indirect expenses to settle outstanding claims:


                              Provisions for outstanding claims included in liabilities for insurance contracts
                              include provisions for indirect expenses to settle claims.


                       d.    Liabilities in respect of insurance contracts and deferred acquisition costs:

                              The reserve for unexpired risks and the outstanding claims included in the
                              liabilities in respect of insurance contracts, reinsurers’ share in the reserve and
                              in outstanding claims, included in the item reinsurance assets, and deferred
                              acquisition costs in general insurance, were computed in accordance with the
                              Supervision of Insurance Business Regulations (Methods of Calculating
                              Provisions for Future Claims in General Insurance),1984, amended, the
                              Regulator’s directives and generally accepted actuarial methods for computing
                              outstanding claims are applied at the actuaries’ discretion.

                             The liabilities in respect of insurance contracts were computed by the appointed
                             actuaries.

                      e.      The liabilities for insurance contracts include the following insurance liabilities:

                              1.      Unexpired risk reserve, comprised of the following:

                                      1.1 An unearned premium reserve, which is not calculated on an
                                          actuarial basis and is not dependent on any assumptions.

                                            This reserve reflects the insurance premiums in respect of the
                                            insurance period after the balance sheet date and is calculated on a
                                            daily basis.

                                       1.2 In accordance with the directives of the Regulator, the reserve on
                                           retention, in the motor casco, comprehensive residential and health
                                           branches includes, if necessary, a provision in respect of the
                                           anticipated loss (premium deficiency), which is computed on the
                                           basis of an actuarial valuation.

                                       1.3 The insurance reserves in the health branches which are computed
                                           on the basis of an actuarial valuation.


                                                    - 23 -
                                                   CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           d.    Insurance contracts (Cont.)

                 e.   The liabilities for insurance contracts include the following insurance liabilities: (Cont.)

                      2. General and health insurance with the exception of long-term care (Cont.)

                          2.     Outstanding claims that are computed according to the methods detailed below:

                                 2.1.    Outstanding claims and the reinsurers’ share thereof are recorded based
                                         on an actuarial valuation, except for the branches detailed in paragraph
                                         2.2 below.

                                         The actuarial calculation of the Company was made by the appointed
                                         actuary in general insurance, Mrs. Naama Hashmonai, F.IL.A.A., and
                                         of the subsidiary, by the subsidiary’s appointed actuary, beginning from
                                         June 2008, Ms. Nadine Bloomberg F.IL.A.A., who replaced Ms.
                                         Michal Tamir Hait, F.IL.A.A., who are officers of the Company and the
                                         subsidiary.

                                         The actuarial calculation of outstanding claims in respect of general
                                         insurance business obtained by a syndicate of Lloyds owned by a
                                         subsidiary operating in the UK was made by the actuary of the Chaucer
                                         Syndicate Group, the company managing the syndicate.

                                         The actuarial calculation of outstanding claims in respect of general
                                         insurance business obtained by insurance subsidiaries in the USA
                                         (workers compensation branch), was made by an external firm of
                                         consultant actuaries.

                                         Claims recoveries and salvage are taken into consideration in the
                                         database by which the actuarial valuations of the outstanding claims are
                                         calculated. In non-statistical branches, the claims recoveries are taken
                                         into account on a specific basis at the time of assessing the risk included
                                         in the claims.

                                 2.2     In the insurance of freight, marine hull and aircraft, sales law
                                         guarantee, financial guarantees and credit risks, and in the incoming
                                         business branch, the outstanding claims are included on the basis of
                                         an individual evaluation of each claim according to an opinion
                                         received from Company lawyers and experts who handle the claims.
                                         The evaluations include a suitable provision for settlement and
                                         handling expenses not yet paid as of the date of the financial
                                         statements.




                                                     - 24 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           d.    Insurance contracts (Cont.)

                 2.    General and health insurance with the exception of long-term care (Cont.)

                       e. The liabilities for insurance contracts are included in the following insurance
                          liabilities: (Cont.)

                          2. (Cont.)

                                2.3    Excess of income over expenses

                                        Regarding all businesses with long tail claims (branches in which the
                                        time required for issuing a notice of damage and/or determining
                                        damage and its compensation, is long and can be a number of years),
                                        such as the liability and motor vehicle property branches, the excess
                                        of income over expenses is calculated on a tri-annual cumulative
                                        basis, in the sales law guarantee branch it is calculated on a five-year
                                        cumulative basis, and in the financial guarantees branch according to
                                        the date of the end of the policy (hereunder - the excess).

                                        The excess is comprised of premiums, acquisition costs, claims and
                                        part of the investment income at an annual rate of 3%, all net of the
                                        reinsurers’ share, for each insurance branch and the respective
                                        underwriting year. The excess accumulated until its release, from the
                                        beginning of the insurance, net of the unexpired risk reserve and net
                                        of outstanding claims calculated as aforementioned (hereinafter - the
                                        accrual), is included in the outstanding claims item. If the actuary
                                        estimates that the underwriting year will end in a loss, that loss is
                                        charged to the statement of profit and loss in that same year.

                                        Up to December 31, 2006, income from actual investments is
                                        attributed to accrual in liability sectors, but no less than a real yield of
                                        3% per year.

                                        According to the instructions of Insurance Circular 1-1-2008,
                                        following the expected change in the principles relating to recognition
                                        of income from investments due to the transition to international
                                        standards, the insurance company must change the method of
                                        computing income from investments accrued to excess income over
                                        expenses to comply with a fixed rate of real 3% per year, irrespective
                                        of the yield actually achieved on the investments

                                        The outstanding claims in respect of general insurance business
                                        received by a syndicate of Lloyds owned by a subsidiary operating in
                                        the UK, include excess income over expenses calculated consistently
                                        with prior year on a two-year cumulative basis for each underwriting
                                        year for all the general insurance branches (mainly property and
                                        accident insurance).




                                                    - 25 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           d.    Insurance contracts (Cont.)

                 2.    General and health insurance with the exception of long-term care (Cont.)

                       f.    Deferred acquisition costs:

                             1.    Deferred acquisition costs in general insurance include agents’
                                   commissions and part of the general and administrative expenses related
                                   to the issuance of polices, in respect of the unearned insurance premiums
                                   on retention. The acquisition costs are calculated for each branch
                                   separately, on the basis of the actual rates of expenses or according to
                                   standard rates, as determined in the Supervision Regulations, as a
                                   percentage of the unearned premium, at the lower of the two.

                              2.   Deferred acquisition costs in health insurance include expenses arising
                                   from the issuance of new policies, including expenses of medical
                                   examination, underwriting and marketing, and general and administrative
                                   expenses.

                                   The deferred acquisition costs are amortized at equal rates over the
                                   period of the policy, but no longer than six years. Deferred acquisition
                                   costs relating to cancelled policies are written off on the cancellation
                                   date.

                             3.    In accordance with the Regulator’s directives, the subsidiary’s actuary
                                   examines each year the recoverability of the deferred acquisition costs in
                                   health insurance (hereunder – the DAC). For this calculation the
                                   examination is prepared so that the reserve net of the DAC in respect of
                                   policies sold since 2005, which the DAC calculation is sufficient, and the
                                   policies are expected to produce future income to cover the DAC deduction
                                   and the insurance liabilities, operating expenses and commissions in respect
                                   of these policies. The examination is prepared for all the underwriting years
                                   together.

                                   The assumptions used in the abovementioned examinations include
                                   assumptions regarding cancellations, operating expenses, rate of return
                                   on assets, mortality and morbidity rates, and they are determined by the
                                   actuary every year based on examinations of past experience and other
                                   relevant up-to-date research studies. These assumptions are based on the
                                   actuary’s expectations.




                                                  - 26 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           d.    Insurance contracts (Cont.)

                 2.    General and health insurance with the exception of long-term care (Cont.)

                       g.     Business received from the Israeli pool for motor vehicle property insurance of
                              the Association of Insurance Companies in Israel (the Pool), from other
                              insurance companies (including co-insurance) and from underwriting agencies,
                              is reported according to the accounts received up to the balance sheet date with
                              the addition of the relevant provisions, based on the Company’s rate of
                              participation in them.

                       h.     The insurance premiums item includes all the amounts paid by borrowers in
                              connection with property insurance policies written through a mortgage bank.
                              The amounts paid to the mortgage bank for expenses are included under the
                              commissions and other acquisition expenses item.

                        i.    Participation in income in group insurance is recorded on the basis of valid
                              agreements.

           e.    Provision for doubtful debts

                (1)   In respect of outstanding premiums, loans and other debts – the provision is determined
                      in a specific manner in respect of the debts which in the opinion of management their
                      collection is doubtful.

                (2)   Reinsurers’ liabilities towards the consolidated insurance companies does not release
                      the consolidated insurance companies from their liabilities towards the policyholders
                      according to the insurance policies. A reinsurer who does not comply with his
                      liabilities in accordance with the reinsurance contracts, is liable to cause the
                      consolidated insurance companies losses.

                      The subsidiaries set up provisions for doubtful debts in respect of reinsurers’ debts
                      whose collection is doubtful on the basis of individual risk estimates.

                      In addition, for determining the reinsurers' share in outstanding claims and insurance
                      reserves, the insurance subsidiaries take into account, among other things, an
                      assessment of the likelihood of collection from the reinsurers, while the reinsurers’
                      share, as mentioned, is computed on an actuarial basis. The share of those reinsurers
                      who are having financial difficulties is computed according to the actuary’s
                      recommendation, which takes all the risk factors into account. When reinsurers are
                      facing difficulties, they may raise various arguments related to recognition of the debt.
                      In such cases, the insurance subsidiaries take into account, when preparing the
                      provisions, the reinsurers’ willingness to make cut off agreements.




                                                   - 27 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           f.    Financial instruments

                 (1)   Non-derivative financial instruments

                       Non-derivative financial instruments include investments in equity and debt
                       securities, trade and other receivables, cash and cash equivalents, loans and
                       borrowings received and suppliers’ credit and other payables.

                       Non-derivative financial instruments are recognized initially at fair value plus, for
                       instruments not at fair value through profit or loss, any directly attributable
                       transaction costs. Subsequent to initial recognition, non-derivative financial
                       instruments are measured as described below.

                       A financial instrument is recognized when the Group accepts the contractual terms of
                       the instrument. A financial asset is derecognized when the Group’s contractual rights
                       to receive the cash flows deriving from the financial asset expire, or the Group
                       transfers the financial asset to others without maintaining control of the asset, or
                       transfers all the risks and rewards deriving from the asset. Regular acquisition and
                       sale of financial assets are recognized on the transaction date, meaning on the date the
                       Group undertook to purchase or sell the asset. A financial liability is derecognized
                       when the Group's obligation specified in the contract is discharged, cancelled or
                       expired.

                       Cash and cash equivalents

                       Cash includes cash balances and deposits that can be utilized on demand. Cash
                       equivalents include highly liquid shore term investments that are easily convertible
                       into known cash amounts and are exposed to immaterial riks of changes in value and
                       are not bound by any pledge.

                       Held-to-maturity investments

                       If the Group has the explicit intent and ability to hold debt instruments to maturity,
                       they are classified as held-to-maturity. Held-to-maturity investments are measured at
                       amortized cost using the effective interest method (taking into consideration
                       transaction costs), less any impairment losses

                       Financial instruments available for sale

                       Subsequent to initial recognition, these investments are measured at fair value, and
                       changes therein, other than impairment losses, and gains and losses from changes in
                       the CPI and in foreign exchange rates and accruals of effective interest on available-
                       for-sale monetary items are recognized directly in equity. A dividend that is received
                       in respect of financial instruments available for sale is allocated to the statement of
                       profit and loss on the date of eligibility for payment. When an investment is
                       derecognized, the cumulative gain or loss in equity is recognized in profit and loss.




                                                   - 28 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           f.    Financial instruments

                (1)    Non-derivative financial instruments (Cont.)

                       Investments measured at fair value through profit or loss

                       A financial instrument is classified at fair value through profit or loss if it is held for
                       trading or is designated as such upon initial recognition. Financial instruments are
                       designated at fair value through profit or loss if the Group manages such investments
                       and makes purchase and sale decisions based on their fair value in accordance with the
                       Company’s documented risk management or investment strategy. Upon initial
                       recognition, attributable transaction costs are recognized in profit or loss when
                       incurred. These financial instruments are measured at fair value, and changes therein
                       are allocated to profit or loss.

                       Loans and receivables

                       Loans and receivables are non-derivative financial instruments of fixed payments or
                       definable payments, that are not traded in an active market. Subsequent to initial
                       recognition, the loans and receivables are measured at an amortized cost using the
                       effective interest method, while taking the transaction costs net of provisions for
                       impairment, into account.

                 (2)   Derivative financial instruments

                       The Group holds derivative financial instruments to hedge its foreign currency and
                       index risks. Embedded derivatives are separated from the host contract and accounted
                       separately if: (a) the economic characteristics and risks of the host contract are not
                       closely related to those of the embedded derivative; (b) a separate instrument with the
                       same terms as the embedded derivative would meet the definition of the derivative;
                       (c) the hybrid instrument is not measured at fair value through profit and loss.

                       The Group carries out contracts with derivative financial instruments such as forward
                       exchange contracts and interest rate swap transactions (IRS) to hedge its exposure to
                       fluctuations in interest rates and currency exchange rates.

                       Financial derivatives are recognized initially at fair value. Attributable transaction
                       costs are recognized in profit and loss as incurred. Subsequent to initial recognition,
                       the financial derivatives are measured at fair value. Derivatives are recognized in the
                       balance sheet as assets when their fair value is positive and as liabilities when their
                       fair value is negative.




                                                    - 29 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           f.    Financial instruments (Cont.)

                 (2)   Derivative financial instruments (Cont.)

                       Profits or losses deriving from changes in the fair value of derivatives that are not
                       used for accounting hedging are immediately recognized in the statement of profit and
                       loss.

                       The fair value of forward currency exchange contracts is based on the exchange rates
                       for contracts with similar maturity dates. The fair value of IRS contracts is based on
                       the market prices of similar instruments.

                       Cash flow hedges

                       Changes in the fair value of the derivative hedging instrument designated as a cash
                       flow hedge are recognized directly in equity to the extent that the hedge is effective.
                       To the extent that the hedge is ineffective, changes in fair value are recognized in
                       profit or loss. If the hedging instrument no longer meets the criteria for hedge
                       accounting, expires or is sold, terminated or exercised, then hedge accounting is
                       discontinued prospectively. The cumulative gain or loss previously recognized in
                       equity remains there until the forecast transaction occurs. When the hedged item is a
                       non-financial asset, the amount recognized in equity is transferred to the book value
                       of the asset when it is recognized. In other cases, the amount recognized in equity is
                       transferred to profit or loss in the same period that the hedged item affects profit or
                       loss.

                 (3)   Financial liabilities measured at fair value through profit and loss

                       Financial liabilities measured at fair value through profit and loss include financial
                       liabilities that are held for trading and any financial liability that is designated on
                       initial recognition as one to be measured at fair value with fair value changes
                       allocated to the statement of profit and loss.

                       Financial liabilities are classified as held for trading if they were acquired principally
                       for the purpose of selling in the short term. Profit or loss for liabilities held for trading
                       is allocated to the statement of profit and loss.

                       Derivatives, including embedded derivatives that were separated, are classified as
                       held for trading unless they are intended for use as instruments for effective hedging.
                       If a contract has one or more embedded derivatives, the hybrid contract could be
                       designated as a financial liability measured at fair value through profit or loss, with
                       the exception of an embedded derivative that does not cause material change in cash
                       flows or when it is clear that separation of the embedded derivative is not permitted.




                                                    - 30 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           f.    Financial instruments (Cont.)

                 (4)   Share capital

                       Ordinary shares
                       Incremental costs directly attributable to the issue of ordinary shares and share
                       options are recognized as a deduction from equity.

                       Treasury shares
                       The Company’s shares held by the Company and/or subsidiaries are stated at the cost
                       offset from the Company’s equity. The profit or loss from acquisition, sale, issue or
                       cancellation of treasury shares is recognized directly in shareholders’ equity.

                 (5)   Issue of a block of securities

                       (a)    When offering a block of securities, the proceeds of the offering are attributed
                              first to a financial liability measured on the date of first recognition only at fair
                              value, and the value attributed to the share component is deemed an equity
                              instrument calculated as retention value.

                       (b)    Direct issuance costs are attributed to the specific securities. Shared issuance
                              costs are attributed proportionally to the securities based on the attribution of
                              the proceeds from issuing the block, as stated in subclause (a) above.

                 (6)   The Group has made decisions to designate the financial instruments as follows

                       Assets included in the investment portfolios of policies participating in investment
                       income

                       These assets, which include negotiable and non-negotiable financial instruments, are
                       recognized at fair value through profit or loss, for the following reasons: These are
                       portfolios under management, separate and identified, whose statement at fair value
                       significantly reduces an accounting distortion of a financial asset-financial liability
                       mismatch. Furthermore, the management is based on fair value and the portfolio's
                       performance is measured at fair value, in accordance with a documented risk
                       management strategy. The information about the financial instruments is reported to
                       the management (the relevant investments committee) internally at fair value.


                       Unquoted assets not included in investment portfolios held against profit- participating
                       policies (Nostro) -

                       Assets meeting the criteria of the loans and receivables group, which include
                       designated bonds (Hetz life linked bonds) other unquoted bonds, commercial
                       certifications, deposits with banks and loans and receivables, were classified to this
                       group and Included in the balance sheet under unquoted debt instruments.

                       Unquoted shares were classified as available-for-sale financial instruments




                                                    - 31 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           f.    Financial instruments (Cont.)

                (6)    The Group has made decisions to designate the financial instruments as follows
                       (Cont.)

                       Regarding derivatives or embedded derivatives – see below.

                       Quoted assets which are not included in investment portfolios against profit-
                       participating policies (Nostro), that do not include embedded derivatives or do not
                       constitute derivatives (including investment funds)

                       These assets are classified as financial instruments available for sale (mainly in
                       consolidated insurance companies), or which were designated to the fair value group
                       through profit and loss (mainly Nostro portfolios in the Clal Finance Group).

                       Derivatives and financial instruments that include embedded derivatives requiring
                       separation

                       These quoted and unquoted assets will be assigned to the fair value group through
                       profit or loss commencing on the transition date (excluding derivatives designated as
                       effective hedging derivatives).

                       Quoted assets and liabilities of special purpose companies (basket certificates, short
                       certificate, complex certificates and certain liability certificates) (hereunder - the
                       certificates)

                       According to IAS 39 – Financial Instruments: Recognition and Measurement
                       (hereunder – International Accounting Standard (IAS) 39), the Group chose to
                       designate the quoted securities used as back-up assets to fair value group through
                       profit or loss. Liabilities in respect of teh certificates are a complex financial
                       instrument comprising a host contract and an embedded derivative. Under IAS 39, the
                       accounting treatment of the host contract (certificates which are a zero coupon loan) is
                       separated from that of the embedded derivative (a forward transaction on the CPI to
                       which the index certificate is linked), and each of them is measured separately. The
                       host contract within the certificate is measured at amortized cost on each reporting
                       date, net of the balance of the issuance expenses not yet amortized. IAS 39 does not
                       require separate presentation of each of the components of the complex instrument. In
                       the opinion of the Group, presentation of the components of the certificate together
                       more properly reflects the economic nature of the liability in respect of the
                       certificates.

                       Under IAS 39, when a complex financial instrument includes an embedded derivative,
                       the embedded derivative is stated at fair value. Changes in the fair value throughout the
                       certificates’ term are charged to profit or loss. The fair value of the embedded derivative
                       at the issuance date of the certificates is almost zero. Accordingly, the issuance costs of
                       the certificates are attributed proportionately between the embedded derivative and the
                       host contract. Since the value of the embedded derivative is negligible, most of the
                       issuance expenses are attributed to the host contract (zero coupon loan).




                                                    - 32 -
                                                   CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           f.    Financial instruments (Cont.)

                (6)    The Group has made decisions to designate the financial instruments as follows
                       (Cont.)

                       Financial assets and liabilities of certain liability certificates

                       Quoted and unquoted financial assets and liabilities of liability certificates included in
                       a portfolio measured as a whole by the Company at fair value are stated at fair value.

                       CPI-linked assets and liabilities not measured at fair value

                       The value of CPI linked assets and liabilities, that are not measured at fair value, is
                       revaluated during each period according to the actual increase in the CPI.

                (7)    Put options granted to minority shareholders

                       In accordance with the alternative chosen for application of IFRS 3, when the Group
                       grants minority interests in subsidiaries put options for all or part of their holdings in
                       the subsidiaries, the financial statements of the subsidiaries are fully consolidated and
                       no provision is made for the minority. Concurrently, a financial liability is recognized
                       at the fair value of the put option. Changes in the fair value of the put option in the
                       subsequent periods are allocated to goodwill.

                (8)    Determination of fair value

                       The fair value of the investments traded actively in organized financial markets is
                       determined by the market prices on the date of the balance sheet. For investments that
                       do not have an active market, the fair value is determined by using an evaluation
                       method. These methods include the basis of transactions recently made in market
                       conditions, reference to the present market value of another similar instrument,
                       capitalization of cash flows or other evaluation methods. The fair value of unquoted
                       bonds, loans and deposits included in financial investments of yield dependent
                       contracts, is calculated using the discounted cash flow model. The interest rates for
                       discounting are determined by a company that issues interest quotes for the different
                       risk ratings.

           g.    Fixed assets

                 (1)   Recognition and measurement

                       Fixed asset items are measured at cost less accumulated depreciation and impairment
                       loss.

                       The cost includes expenses that can be attributed directly to the acquisition of the
                       asset. The cost of self-constructed assets includes the cost of materials, direct labor
                       and financing costs as well as additional cost that can be attributed directly to
                       bringing the asset to the position and situation whereby it can be operated according
                       to the management’s intentions, and the costs of dismantling and removing the items
                       and restoring the site on which they are located. Purchased software that is integral to
                       the functionality of the related equipment is capitalized as part of that equipment.




                                                     - 33 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           g.    Fixed assets (Cont.)

                 (1)   Recognition and measurement (Cont.)

                       A fixed asset item acquired in return for another non-monetary item in a commercial
                       transaction is measured at fair value.

                       When parts of a significant fixed asset item (including material costs of periodic tests)
                       have a different useful life, these components are accounted for as separate items
                       (material components) of the fixed asset.

                 (2)   Reclassification of investment property

                       Property that is being constructed or developed for future use as investment property
                       and is measured at fair value, is classified as fixed assets until construction or
                       development is complete, at which time it is revalued at fair value and classified as
                       investment property. Any gain or loss deriving from the revaluation is allocated to
                       profit or loss. The real estate on which the property is constructed is classified as
                       investment property from the date of its acquisition and is reported from this date at
                       fair value.

                       When the use of property charges from use by the owners to investment property,
                       which is measured at fair value, the asset is revalued at fair value and classified as
                       investment property. Any gain deriving from the revaluation is charged directly to
                       equity. Any loss is charged directly to profit or loss.

                 (3)   Subsequent costs

                       The cost of replacing part of an item of fixed assets is recognized when that cost is
                       incurred if it is probable that the future economic benefits embodied within the item
                       will flow to the Group and the cost of the item can be measured reliably. The book
                       value of the replaced part is derecognized. Ongoing maintenance costs are allocated to
                       profit or loss as incurred.

                 (4)   Depreciation

                       Depreciation is allocated to the statement of profit and loss on a straight-line basis
                       over the estimated useful lives of each part of the fixed assets items. Leased assets are
                       depreciated over the shorter of the lease term or their useful lives. Land is not
                       depreciated.




                                                   - 34 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           g.    Fixed assets (Cont.)

                 (4)   Depreciation (Cont.)

                       Depreciation rates based on the estimated useful lives for the current and comparative
                       periods are as follows:

                        Buildings                                                               2% - 4%
                        Office furniture and equipment                                          6%- 20%
                        Vehicles                                                                  15%
                        Computers and peripheral device                                        20% -33%
                        Leasehold improvements                                                 10% - 25%

                        Leasehold improvements are depreciated on a straight line basis over the lease term
                        (including the period of the extension option that the Group intends to exercise) or
                        according to the estimated useful life of the asset, whichever is shorter.

                       Estimates regarding depreciation methods, useful lives and residual values are
                       re-examined at least at the end of each reporting year.

           h.    Intangible assets

                 (1)   Goodwill

                        Goodwill (negative goodwill) created as a result of acquisition of subsidiaries
                        (including minority acquisition), affiliates (including acquisition of additional
                        interests in affiliates) and joint ventures, and acquired business operations.

                        Acquisitions prior to January 1, 2007
                        Acquisitions occurring prior to January 1, 2007 reflect the goodwill recognized by the
                        Group under Israeli GAAP. Regarding these acquisitions, accounting classification
                        and treatment were not adjusted to IFRS for the preparation of the Group’s opening
                        balance sheet.

                        Acquisitions after January 1, 2007
                        For acquisitions on or after January 1, 2007, goodwill represents the excess of the cost
                        of the acquisition over the Group’s interest in the net fair value of the identifiable
                        assets, liabilities and contingent liabilities of the acquiree. When the excess is
                        negative (negative goodwill), it is recognized immediately in profit or loss.

                        Acquisitions of minority interests
                        Goodwill arising on the acquisition of a minority interest in a subsidiary represents the
                        excess of the cost of the additional investment over the carrying amount of the net
                        assets acquired on the date of acquisition.

                        Subsequent measurement
                        Goodwill is measured at cost less accumulated impairment losses. Goodwill in respect
                        of investments, handled according to the equity value method, is included in the book
                        value of the investment.




                                                    - 35 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           h.    Intangible assets (Cont.)

                 (2)   Software including software development costs

                       Group assets include computer systems composed of hardware and software. Software
                       that constitutes an integral part of the related hardware and the hardware cannot be
                       operated without the software is classified as fixed assets. However, licenses for
                       stand-alone software which adds functionality to the hardware are classified as
                       intangible assets.

                       Expenses in respect of software development are recognized as an intangible asset only
                       when: The development costs can be measured reliably, the technical and economic
                       feasibility of the project can be demonstrated, there is future financial reward from the
                       product and the Group has the intention and ability to complete the development and
                       use the asset. The capitalized costs include the cost of materials, direct salaries and
                       overheads that are directly attributable to preparation of the asset for its intended use.
                       Other software development costs are charged to profit or loss as incurred.

                       Software development costs recognized as an intangible assets are measured at cost
                       less accumulated amortization and impairment losses.

                 (3)   Other intangible assets

                       Other intangible assets that are acquired by the Group, which have finite useful lives,
                       are measured at cost less accumulated amortization and accumulated impairment
                       losses.

                 (4)   Subsequent costs

                       Subsequent expenditure is recognized as an intangible asset only when it increases the
                       future economic benefits embodied in the specific asset to which it relates. All other
                       expenditure, including expenditure on internally generated goodwill and brands, is
                       allocated to the statement of profit and loss as incurred.

                 (5)   Amortization

                       Amortization is allocated to the statement of profit and loss on a straight-line basis
                       over the estimated useful lives of intangible assets, other than goodwill and intangible
                       assets with an undefined useful life, from the date that they are available for use.




                                                   - 36 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           h.    Intangible assets (Cont.)

                 (5)   Amortization (Cont.)

                       The estimated useful lives for the current and comparative periods are as follows:

                       Cooperation for development and promotion of the
                         Company’s business                                                       10 years

                       Software                                                                   3-7 years

                       Projected income from pension management fees                              30 years

                       Assets recognized in acquisition of provident
                         management interests                                                    7-18 years

                       Other assets recognized in acquisition of subsidiaries
                         and operations                                                          5-20 years

                       Estimates regarding the depreciation methods and useful lives are reviewed at least at
                       the end of each reporting year.

                       The Group reviews the estimated useful life of an intangible asset that is not amortized
                       every period so as to determine whether the events and circumstances continue to
                       support the determination that the intangible asset has an undefined useful life.

           i.    Investment property

                 Investment property is property (land or building – or a part of a building– or both) held (by
                 the Group as owners or in finance leasing) either to earn rental income or for capital
                 appreciation or for both, but not for sale in the ordinary course of business.

                 In addition, property assets leased by the Group through an operating lease are classified and
                 accounted for as investment property.

                 Investment property is first measured at cost with the addition of transaction costs. In the
                 subsequent periods, investment property is measured at fair value, and the changes in fair
                 value are allocated to the statement of profit and loss.


                 When the use of a property changes such that it is reclassified as property, plant and
                 equipment (property used by the owners), its fair value at the date of reclassification becomes
                 its cost for subsequent accounting.




                                                   - 37 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           j.    Leased assets

                 Leases in terms of which the Group assumes substantially all the risks and rewards of
                 ownership are classified as finance leases. Upon initial recognition the leased asset is
                 measured at an amount equal to the lower of its fair value and the present value of the
                 minimum lease payments. Subsequent to initial recognition, the asset is accounted for in
                 accordance with the accounting policy applicable to that asset.

                 Other leases are operating leases and, except for investment property, the leased assets are
                 not recognized on the Group’s balance sheet. Investment property held under an operating
                 lease is recognized in the Group’s balance sheet at its fair value and the lease is accounted
                 for as a finance lease.

                 Leases of land from the Israel Land Administration (“the Administration) that are not
                 accounted for as investment property are operating leases. Rent paid in advance to the
                 Administration is recorded in the balance sheet and allocated to the statement of profit and
                 loss over the lease term.

                 The Group implements IFRIC 4 – Determining Whether an Arrangement Contains a Lease,
                 which defines criteria for definition at the outset of the arrangements, whether the right to
                 use the asset constitutes a lease arrangement. In addition, it defines when the arrangement
                 should be re-examined. The Group implemented the relief determined in IFRS 1 according
                 to which the test of whether the arrangement includes a lease is based on the facts and
                 circumstances prevailing on January 1, 2007 (the transition date to IFRS).

           k.    Impairment

                 (1)   Financial assets

                       A financial asset is considered to be impaired if objective evidence indicates that one
                       or more events have had a negative effect on the estimated future cash flows of that
                       asset.

                       An impairment loss in respect of a financial asset measured at amortized cost is
                       calculated as the difference between its carrying amount, and the present value of the
                       estimated future cash flows discounted at the original effective interest rate. An
                       impairment loss in respect of an available-for-sale financial asset is calculated by
                       reference to its fair value.

                       Individually significant financial assets are tested for impairment on an individual
                       basis. The remaining financial assets are assessed collectively in groups that share
                       similar credit risk characteristics.

                       All impairment losses are allocated to profit and loss. Any cumulative loss in respect
                       of an available-for-sale financial asset recognized previously in equity is transferred to
                       profit and loss when the impairment occurs.

                       An impairment loss is reversed if the reversal can be related objectively to an event
                       occurring after the impairment loss was recognized. For financial assets measured at
                       amortized cost and available-for-sale financial assets that are debt securities, the
                       reversal is recognized in profit or loss. For available-for-sale financial assets that are
                       equity securities, the reversal is recognized directly in equity.




                                                   - 38 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           k.    Impairment (Cont.)

                 (2)   Non-financial assets

                       The book value of the Group’s non-financial assets, other than deferred acquisition
                       costs, investment property and deferred tax assets, are reviewed at each reporting date
                       to determine whether there is any indication of impairment. If any such indication
                       exists, the asset’s recoverable amount is estimated. On January 1, 2007, the transition
                       date to IFRS, the Group reviewed the impairment of goodwill and investments in
                       affiliates where goodwill was recognized in the investment account. In the subsequent
                       periods, the Group assesses annually the recoverable amount of goodwill and
                       intangible assets with an undefined useful life or that are not available for use.

                       The recoverable amount of an asset or cash-generating unit is the greater of its value
                       in use and its fair value less costs to sell. In assessing value in use, the estimated future
                       cash flows are discounted to their present value, using a pre-tax discount rate that
                       reflects current market assessments of the time value of money and the risks specific
                       to the asset. For the purpose of impairment testing, assets are grouped together into the
                       smallest group of assets that generates cash inflows from continuing use that are
                       largely independent of the cash inflows of other assets or groups of assets (the “cash-
                       generating unit”). The goodwill acquired in a business combination, for the purpose of
                       impairment testing, is allocated to cash-generating units that are expected to benefit
                       from the synergies of the combination.

                       An impairment loss is recognized if the carrying amount of an asset or its cash-
                       generating unit exceeds its recoverable amount and is allocated to profit and loss.
                       Impairment losses are recognized in profit or loss. Impairment losses recognized in
                       respect of cash-generating units are allocated first to reduce the carrying amount of
                       any goodwill allocated to these units and then to reduce the carrying amount of the
                       other assets in the cash generating unit on a pro rata basis.

                       Losses due to impairment of goodwill are not written-off. In respect of other assets,
                       impairment losses recognized in prior periods are assessed at each reporting date for
                       any indications that the loss has decreased or no longer exists. An impairment loss is
                       reversed if there has been a change in the estimates used to determine the recoverable
                       amount. An impairment loss is reversed only to the extent that the asset’s carrying
                       amount does not exceed the carrying amount that would have been determined, net of
                       depreciation or amortization, if no impairment loss had been recognized.

                 (3)   Affiliates

                       After implementing the equity accounting method, the Company determines whether
                       it is necessary to recognize further loss for impairment of the investment in an
                       affiliate. At every balance sheet date, the Company determines whether there is
                       objective evidence of impairment in the investment in an affiliate. If necessary, the
                       impairment loss is recognized in the amount of the difference between the fair value
                       of the investment in the affiliate and its book value. The impairment loss is allocated
                       to the statement of profit and loss under the Group's share in the profits (losses) of
                       affiliates, net.




                                                    - 39 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)
           l.    Employee benefits
                The Group has a number of severance benefit plans. The plans are usually financed by
                deposits in insurance companies and pension funds, and are classified as defined deposit
                plans and defined benefit plans.
                 (1)   Defined deposit plans
                        The Group’s obligations for deposits to defined deposit plans are recognized as an
                        employee benefit expense in profit or loss as incurred.


                 (2)   Defined benefit plans
                       The Group’s net obligation in respect of defined benefit pension plans is calculated
                       separately for each plan by estimating the amount of future benefit that employees have
                       earned in return for their service in the current and prior periods. This benefit is
                       recorded at its present value less the fair value of any plan assets. The discount rate is
                       the yield at the reporting date for government bonds that have maturity dates
                       approximating the terms of the Group’s obligations and that are denominated in the
                       same currency in which the benefits are expected to be paid. The calculations are
                       performed by a qualified actuary using the projected unit credit method.
                       Regarding the use of a discount rate derived from Israeli government bonds, to the
                       Company’s knowledge, the issue of the discount rate for the purpose of actuarial
                       calculations is under examination, and it might eventually be decided that in Israel, the
                       appropriate discount interest is one based on a corporate debenture. If this is decided,
                       the data included in the financial statements will change, the actuarial liability will
                       decrease and current financing costs with respect to the liability will increase.


                       When the calculation results in a benefit to the Group, the recognized asset is limited to
                       the net total of any unrecognized past service costs and the present value of any future
                       refunds from the plan or reductions in future contributions to the plan. Economic
                       benefit in the form of refunds or reduction in future payments are considered as
                       available when it can be exercised during the life of the plan or after removal of the
                       liability.
                       If there is a liability, as part of a requirement for a minimum deposit, for payment of
                       additional amounts for past services, the Company recognizes the additional liability
                       (increase of the net liability or reduction of the net asset) if the amounts are not
                       available as a financial benefit in the form of a refund from the plan or reduction in
                       future payments.
                       When the benefits of a plan are improved, the portion of the increased benefit relating
                       to past service by employees is recognized in profit or loss on a straight-line basis over
                       the average period until the benefits become vested. To the extent that the benefits vest
                       immediately, the expense is recognized immediately in profit or loss.
                       The Group recognizes all actuarial gains and losses arising from defined benefit plans
                       directly in equity immediately.
                       Insurance policies for severance pay, issued by a subsidiary, Clal Insurance, do not
                       constitute plan assets and are presented as a reduction of liabilities for insurance
                       contracts.



                                                    - 40 -
                                                           CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008

NOTE 3:    ACCOUNTING POLICIES (Cont.)
           l.    Employee benefits (Cont.)
                 (3)   Other long-term employee benefits
                       The Group’s net obligation in respect of long-term employee benefits other than pension plans
                       is the amount of future benefit that employees have earned in return for their service in the
                       current and prior periods. That benefit is discounted to determine its present value, and the fair
                       value of any related assets is deducted. The discount rate is the yield at the reporting date for
                       government bonds that have maturity dates approximating the terms of the Group’s obligations
                       and that are denominated in the same currency in which the benefits are expected to be paid.
                       The calculation is performed using the projected unit credit method. Any actuarial gains or
                       losses are recognized in profit or loss as incurred.
                 (4)   Severance pay
                       Severance pay to employees is recognized as an expense when the Group is demonstrably
                       committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate
                       employment before the normal retirement date. Retirement benefits for voluntary redundancies
                       are recognized as an expense if the Group has made an offer encouraging voluntary redundancy,
                       it is probable that the offer will be accepted, and the number of acceptances can be estimated
                       reliably.

                 (5)    Short-term benefits
                       Short-term employee benefit liabilities including salaries, vacation leave, sick leave,
                       convalescence pay and National Insurance payments are measured on an undiscounted basis
                       and are expensed as the related service is provided.
                        A provision in respect of short term employee benefits for a cash bonus or a profit
                        participating plan, is recognized when the Group has a present legal or constructive obligation
                        to pay this amount as a result of past service provided by the employee and the obligation can
                        be estimated reliably.
                 (6)    Share-based payment transactions

                        The grant date fair value of options granted to employees is recognized as a salary expense,
                        with a corresponding increase in retained earnings, over the period that the employees become
                        entitled to the options. The fair value is determined by the Black & Scholes option pricing
                        model.
                        The cost of equity-settled transactions is recognized in profit and loss together with a
                        corresponding increase in equity, over the period the performance conditions and /or the
                        service take place and ends when the relevant employees are entitled to the benefits
                        (hereunder – the vesting period). The accumulated expense that is recognized in respect of
                        equity-settled transactions on each reporting date until the vesting date, reflects the time that
                        had passed since the vesting period and the Group’s best estimate with respect to the number
                        of capital instruments that will eventually vest. The charge or the credit in the statement of
                        profit and loss reflects the change in the accrued expense that was recognized as at the
                        beginning and end of the reported period.
                        An expense due to grants that ultimately will not vest, is not recognized, except for grants
                        whose vesting depends on market conditions that are handled as grants that have vested,
                        regardless of compliance with market conditions, under the assumption that all the
                        performance conditions were met.
                        In transactions in which the parent company grants the employees of investees rights in its
                        equity financial instruments, the investees account for the grant as an equity-settled share-
                        based payment. In other words, the fair value of the grant is recognized directly in equity, as
                        aforementioned, less indemnification paid to the Company for allotment of options to the
                        investees’ employees.



                                                         - 41 -
                                                     CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           m.    Provisions
                 (1)    A provision is recognized if, as a result of a past event, the Group has a present legal or
                        constructive obligation that can be estimated reliably, and it is probable that a transfer
                        of economic benefits will be required to settle the obligation. Provisions are
                        determined by capitalizing the expected future cash flow at a pre-tax rate that reflects
                        current market assessments of the time value of money and the risks specific to the
                        liability.
                 (2)    Legal claims

                        A provision for claims is recognized if the Group has a present legal obligation or
                        aconstructive obligation as a result of a past event, it is more likely than not that the
                        Group’s economic resources will be required in order to settle the obligation and the
                        obligation can be estimated reliably. When the effect of the time value is material, the
                        provision is measured at its present value.

           n.    Details of assets and liabilities
                 The assets and liabilities of insurance subsidiaries in Israel included in the details of assets
                 and liabilities, reflect the report thereof to the Regulator of Insurance, drawn up in
                 accordance with the Ways of Investments Regulations.
                 Under the Insurance Business Supervision Law and the Insurance Business Supervision
                 Regulations (Ways of Separating Accounts and Assets of an Insurer in Life Assurance) 1984
                 (the Separation of Accounts Regulations), an insurer shall hold separately its assets in life
                 assurance, and keep a separate accounts system for its assets and liabilities in life assurance.
                 The assets and liabilities in life assurance are included in details of assets and liabilities,
                 based on the separate accounts system that is managed by the companies in accordance with
                 the Separation of Accounts Regulations.
                 In contrast, an insurer is not obligated to hold separately assets that match its liabilities in
                 general insurance from those matching its shareholders’ equity and its other liabilities, and it
                 is not obligated to manage for them separate accounting systems.
                 The Investment Regulations prescribe limitations about the ratio between the insurer’s
                 certain assets and liabilities (including its shareholders’ equity). However there are no rules
                 for attributing an insurer’s assets against its insurance liabilities in general insurance and
                 against its shareholders’ equity and its other liabilities, so long as its total investments are
                 within the framework of the regulations, as aforementioned.




                                                      - 42 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           o.    Recognition of income

                 1.    Premiums

                       a. Life assurance and long term care premiums, including savings and excluding
                          receipts in respect of investment contracts are mainly accounted for as income
                          when due.

                            Cancellations are recorded upon receipt of notice from the policyholder or
                            initiated by the Company due to arrears in payments, subject to legal provisions.

                            Participation in profits for policyholders is deducted from the premiums.

                       b. General insurance and health premiums, excluding long term care, are accounted
                          for as income based on new business monthly reports. Insurance premiums
                          usually refer to an insurance period of one year. Gross income from premiums and
                          changes in unearned premium are accounted for under gross earned premiums.

                            Some premiums in health insurance and travel abroad are accounted for on a
                            monthly or daily basis.

                            Since in the motor act branch of insurance, the insurance comes into effect only
                            after payment of the insurance premium, the premium is accounted for on the date
                            of payment.

                            Insurance premiums in respect of policies that come into effect after balance sheet
                            date or premiums in respect of policies for a period exceeding one year are
                            recorded as a prepaid premium.

                            Income included in the financial statements is after cancellations requested by
                            policyholders and after cancellations and provisions due to non-payment of the
                            premiums, subject to legal provisions.

                            Participation in profits in group insurance is deducted from the premium.


                 2.    Management fees, commission and other financial services

                       a.     Management fees in respect of yield dependent policies:

                             Management fees are calculated in accordance with the Regulator’s directives on
                             the basis of the yield and the accumulated savings of policyholders in the profit-
                             participating portfolio.

                             Management fees include the following components:

                             For policies sold as from January 1, 2004 – Fixed management fees only.
                             For policies sold up to December 31, 2003 – Fixed and variable management
                             fees.




                                                    - 43 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

            o. Revenue recognition (Cont.)

                 2.    Management fees, commission and other financial services (Cont.)

                      a.     Management fees in respect of yield dependent policies: (Cont.)

                             The fixed management fees are computed at fixed percentages of the
                             accumulated saving and are recorded on a cumulative basis.

                             The variable management fees are computed as a percentage of the annual real
                             profit (from January 1 to December 31) attributed to the policy, less the fixed
                             management fees collected from that policy. Only positive variable
                             management fees can be collected, and net of negative amounts accumulated in
                             the preceding years.

                             During the year, the variable management fees are recorded on a cumulative
                             basis in accordance with the real monthly yield if it is positive. In months when
                             the real yield is negative, the variable management fees are reduced to the
                             amount of the cumulative variable management fees collected since the
                             beginning of the year. Negative yield, for which a reduction of the management
                             fees was not made during a current year, will be deducted for the purpose of
                             computing the management fees from the positive yield in the subsequent
                             periods (see also Note 12(g)).

                      b.     Recognition of income in non-insurance subsidiaries

                             Income from the management of pension funds and provident funds is
                             recognized on the basis of the managed asset balance and on the accrual basis.

                             Income from stock exchange services, management fees from mutual funds,
                             management commissions of client portfolios, consultation income, and
                             distribution income are recorded on the accrual basis, according to the date the
                             service was rendered or the activity was performed.

                             Income from underwriting and management commissions, which are subject to
                             the actual performance of the issuance, are recognized in profit or loss only
                             after the issuance of the securities and the issuer has received the issuance
                             proceeds, and at the same time the expenses in their respect are recognized.

                             Income from financial transactions that derive from interest margins, net of
                             expenses related to the execution of the transactions, is allocated to the
                             statement of profit and loss over the transaction period.

                             Income from distribution commissions received from special purpose
                             companies is recognized in profit or loss according to the life of the exchange-
                             traded funds and/or the liabilities for which they were paid.




                                                  - 44 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

            o. Revenue recognition (Cont.)

                 2.    Management fees, commission and other financial services (Cont.)

                       b.    Recognition of income in non-insurance subsidiaries (Cont.)

                              Income from services is recognized in profit or loss when they can be measured
                              reliably, it is probable that there will be an inflow of financial benefits to the
                              Company, and the costs that were or will be generated from the transaction can
                              be measured reliably.

                              Income from credit sales that include a finance transaction is recognized at their
                              present value and the difference between the fair value of the transaction and
                              the par value of the consideration is recognized in the statement of profit and
                              loss as finance income using the effective interest method.

                              Income from general insurance commission in insurance agencies is recognized
                              as incurred.

                              Income from life assurance commission is recognized when the commission is
                              due for payment according to the agreements with the insurance companies,
                              less provisions for commission refunds due to anticipated cancellations of
                              insurance policies.

           p.    Net gains (losses) from investments and finance income and expenses

                Net gains (losses) from income and finance income include interest income on funds invested
                (including available-for-sale financial assets), dividend income, net gains (losses) on the sale
                of available-for-sale financial assets, changes in the fair value of financial assets through
                profit or loss, net gains (losses) from foreign currency and net gains (losses) on hedging
                instruments recognized in profit and loss. Gains and losses from the sale of investments are
                calculated as the difference between the proceeds from the sale, net, and the initial or
                amortized cost and are recognized at the time of the sale.

                Interest income is recognized as it accrues, using the effective interest method.

                Dividend income is recognized on the date that the Group’s right to receive payment is
                established which in the case of quoted securities is the ex-dividend date.

                Finance expenses comprise interest expense on borrowings, interest on reinsurer deposits,
                and changes in the time value in respect of provisions. Undiscounted borrowing is recognized
                in profit or loss using the effective interest method.

                Foreign currency gains and losses and changes in the fair value of investments are reported
                on a net basis.




                                                    - 45 -
                                                    CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           q.    Administrative and general income and expenses

                Administrative and general costs include operating and service costs and administrative and
                general expenses.

                According to Regulator of Insurance Circular 2008-1-2, which addresses directives for
                adopting IFRS, insurance companies are required to classify indirect expenses for settling
                claims under "Increase (decrease) of liabilities and payments for insurance contracts" and
                classify general and administrative expenses in respect of acquisition costs under
                "Commissions and other acquisition expenses". This classification will be implemented no
                later than the 2008 annual financial statements, including comparative information. The
                Group has not yet implemented this classification.

           r.    Income tax expenses

                 Income tax expenses include current and deferred taxes. Income tax expenses are charged to
                 the statement of profit and loss unless the tax derives from a transaction or event that is
                 recognized directly in shareholders’ equity. In these cases, the tax expense is charged to
                 shareholders’ equity.

                 The current tax is the amount of tax expected to be paid on the taxable income for the year,
                 calculated according to the tax rates under the law applicable or effectively applicable on the
                 date of the balance sheet, including changes in tax payments attributable to prior years.

                 Deferred taxes are recognized according to the equity method, in relation to temporary
                 differences between the book value of the assets and liabilities for financial reporting and
                 their value for tax purposes.

                 The Company does not recognize deferred taxes for the following temporary differences:
                 Initial recognition of goodwill, initial recognition of assets and liabilities in a transaction that
                 does not constitute a business combination and that does not affect the accounting income
                 and the income for tax purposes, and provisions deriving from investment in subsidiaries,
                 jointly-controlled entities and affiliates, if it is not expected that they will change in the
                 foreseeable future. Also, deferred taxes are not provided in the event of distribution of profits
                 of investee companies as dividends when the dividend distribution does not result in an
                 additional tax liability, or when it is Company policy not to initiate a dividend distribution
                 that would result in an additional tax liability.

                Deferred taxes are measured according to the tax rates that are expected to apply to the
                temporary differences on the date they are realized, based on the laws applicable or
                effectively applicable on the balance sheet date.

                 The Company offsets deferred tax assets and liabilities if there is a legal enforceable right
                 that permits offsetting a current tax asset and liability and they relate to the same taxable
                 income taxed by the same tax authority and in respect of the same assessed company, or in
                 various companies, when they intend to dispose of current tax assets and liabilities on a net
                 basis or if the tax assets and liabilities are settled simultaneously.




                                                      - 46 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           r.    Taxes on income (Cont.)

                 A deferred tax asset is recognized in the books when future taxable income is expected,
                 against which the temporary differences can be offset. The deferred tax assets are reviewed
                 at every balance sheet date, and if it is not expected that the attributed tax benefits will be
                 realized, they are reduced.

                 Taxes on additional income, deriving from the distribution of dividends, are paid when the
                 liability for payment of the dividend is recognized.

           s.    Earnings per share

                 The Group presents basic and diluted earnings per share data with respect to its ordinary
                 shares.

                 Basic earnings per share are calculated by dividing the profit or loss attributable to the
                 ordinary shareholders of the Group by the weighted average number of ordinary shares
                 outstanding during the period.

                The calculation of the diluted earnings per share is made by adjusting the earnings or loss
                attributable to the ordinary shareholders, and the weighted average number of outstanding
                ordinary shares, in respect of the effects of all the dilutive potential ordinary shares (reduction
                of earnings per share or increase of losses per share) including options allotted to employees.

                In addition, convertible securities that were converted into shares during the period are
                included in diluted earnings per share only until the conversion date and thereafter they are
                included in basic earnings per share. The calculation of the Company’s share in the earnings
                of investees is based on its share in the earnings per share of the investees multiplied by the
                number of shares held by the Company.

           t.    Transactions with the controlling shareholder

                Assets and liabilities in a transaction with the controlling shareholder are measured at fair
                value on the transaction date.

                As this is a capital transaction, the Company charges the difference between the fair value
                and the proceeds from the transaction to shareholders’ equity.

           u.    New standards and interpretations yet to be adopted

                 1.    IAS 23 (revised) – Borrowing Costs

                        Under IAS 23 (revised), an entity is required to capitalize borrowing costs that are
                        directly attributable to the acquisition, construction or production of a qualifying
                        asset. A qualifying asset is an asset that takes a substantial period of time to prepare
                        for its intended use or sale. This includes fixed assets, investment property and
                        inventory that require a substantial period to prepare them for sale. The option of
                        immediately recognizing these costs as an expense was removed.

                        The revised standard is effective for annual periods beginning on or after January 1,
                        2009. Early adoption is permitted.




                                                     - 47 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           u.    New standards and interpretations yet to be adopted (Cont.)

                 2.    IAS 1 – Presentation of Financial Statements (revised)

                       According to revised IAS 1, a separate statement is required for comprehensive
                       income. This statement includes the net profit taken from the statement of profit and
                       loss, all items charged directly to equity in the reporting period and are not a result of
                       transactions with shareholders as shareholders (other comprehensive income) such as
                       adjustment for translation of financial statements of a foreign operation, adjustment
                       for fair value of available-for-sale financial assets, adjustments for the revaluation of
                       fixed assets and the effect of tax on these items, which is also charged directly to
                       equity, with suitable attribution between the Company and the non-controlling
                       interests. Alternately, the other comprehensive income items can be stated with the
                       items in the statement of profit and loss in one statement that will be called the
                       statement of comprehensive income, which will replace the statement of profit and
                       loss, with suitable attribution between the Company and the non-controlling interests.
                       Only items charged to shareholders’ equity, which are a result of transactions with
                       shareholders as shareholders (such as raising capital and distributing a dividend) are
                       presented in the statement of changes in equity. The last row is also transferred from
                       the statement of comprehensive income, with suitable attribution between the
                       Company and the minority interests.

                       In addition, the revision determines that if there is a change in comparative
                       information as a result of a change in accounting policy applied retrospectively,
                       restatement or reclassification, a balance sheet is also required at the beginning of the
                       period of the comparative information in which the change was made.

                       IAS 1 (revised) is effective for annual periods beginning on or after January 1, 2009,
                       with restatement for comparative information. Early adoption is permitted.

                 3.    IFRS 3 (revised) – Business Combinations and IAS 27 (revised) – Consolidated and
                       Separate Financial Statements

                       Revised IFRS 3 and IAS 17 (hereunder - the Standards) are effective for annual
                       financial statements for periods beginning on or after January 1, 2009. Early adoption
                       of both standards together is permitted for the annual period beginning on or after
                       January 1, 2008.

                       The main changes expected following application of the Standards are described
                       below:

                       -      Under IFRS 3, goodwill, unlike the other identified assets and liabilities of the
                              acquiring company, represents the difference between the cost of the
                              acquisition and the fair value of the net identifiable assets acquired. Under the
                              standards, for each business combination the company can elect to measure the
                              goodwill on the basis of its full fair value and not only according to the
                              proportionate share of the acquired asset.




                                                   - 48 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           u.    New standards not yet adopted (Cont.)

                 3.    IFRS 3 (revised) – Business Combinations and IAS 27 (revised) – Consolidated and
                       Separate Financial Statements (Cont.)

                       -     Contingent consideration in business combinations is measured at fair value.
                             Changes in fair value of the contingent consideration, which do not constitute
                             adjustments to cost of acquisition in the measuring period, are not recognized as
                             goodwill adjustment. Contingent consideration is usually considered as a
                             financial derivative under IAS 39, recorded at fair value with changes in profit
                             and loss.

                       -     Direct acquisition costs attributed to a business combination are recognized in
                             profit or loss as incurred. The requirement to charge it as part of the business
                             combination consideration cost is removed.

                       -     A transaction with a minority, whether a sale or an acquisition, is accounted for
                             as a capital transaction and therefore is not recognized in profit or loss or does
                             not affect the amount of goodwill, respectively.

                       -     The losses of a subsidiary, even if they result in a deficit in the shareholders’
                             equity of the subsidiary, are allocated between the parent company and the non-
                             controlling interests, even if the minority is not a guarantor or does not have a
                             contractual liability to support the subsidiary or to make further investment.

                       -     At the date of the loss of control in a subsidiary, the balance of the holding, if
                             any, is revalued at fair value against profit or loss from the sale. This fair value
                             will serve as the basis for its cost for subsequent accounting.

                       The Standards will be applied prospectively and will affect the future acquisitions and
                       transactions with the minority.

                4.     IFRS 2 (revised) – Share based payment

                       Under revised IFRS 2 (the Revised Standard), definition of the vesting conditions
                       include service conditions and performance conditions only. Removal of a grant that
                       includes conditions other than vesting conditions, by the Company or by another
                       party, will be accounted for by accelerating the vesting period and not by forfeiture.
                       The standard is effective retrospectively for annual periods beginning on or after
                       January 1, 2009. Early adoption is permitted.

                       Vesting conditions include service conditions, which require the other party to
                       complete a defined service period, and performance conditions, which require
                       compliance with defined performance goals. Conditions that are not service
                       conditions or performance conditions will be accounted for as conditions that are not
                       vesting conditions and therefore they are reflected in the fair value estimate of the
                       grant at the grant date. After the grant date the Company will not modify the fair
                       value for these conditions. In addition, the standard determines the accounting for
                       conditions that are not vesting conditions.

                       The Company is examining the impact of the new standard on the financial
                       statements, however at this stage it is unable to assess its results.




                                                   - 49 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 3:    ACCOUNTING POLICIES (Cont.)

           u.    New standards not yet adopted (Cont.)

                 5.    IAS 32 – Financial instruments and IAS 1 – Financial Statement Presentation
                       (Revised) (hereunder “the Standards”)

                       Under these standards, certain financial instruments which can be realized (puttable)
                       and liabilities created as a result of liquidation and meet certain criteria, should be
                       classified as capital. In addition, appropriate disclosure is required with respect to
                       realizable instruments that are classified as capital. The new Standards are effective
                       for annual periods beginning on or after January 1, 2009. Early adoption is permitted.

                 6.    IAS 27 Consolidated and Separate Financial Statements and IFRS 1, Initial Adoption
                       of International Financial Reporting Standards, Revised (hereunder – “the Standards”

                       Under the Standards after their revision, a company that elects the cost method for
                       measuring its investment in subsidiaries, jointly controlled companies and affiliates, in
                       the separate financial statements, can measured the said investment at the time of
                       transition to IFRS, at fair value, pursuant to IFRS 39, or at their book value according
                       to previous generally accepted accounting principles. In addition, any dividend
                       received from subsidiaries, jointly controlled companies and affiliates will be
                       recognized as an income in the separate statements of the holding company. It was
                       also determined that a receipt of a dividend forms, in certain cases, a sign for an
                       impairment in the value of the investee.

                       The new Standards will apply to the annual periods commencing on or after January 1,
                       2009. Early implementation is permitted, for each standard separately, while
                       providing a disclosure. The changes attributed to IAS 27 will be applied
                       prospectively.

                 7.    Under the Improvements to IFRSs Project, the IASB published and approved, in May
                       2008, 35 improvements to various IFRSs, in a large variety of accounting issues. The
                       improvements are divided into two: (1) improvements with respect to the issues of
                       presentation, recognition and measurement, which change the existing accounting
                       principles; and (2) improvements that relate to the terminology and preparation of the
                       International Accounting Standards, which are expected to have a minimal affect, if
                       any, on the accounting principles.

                       Most of the improvements will be applied during the periods commencing on or after
                       January 1, 2009. Early adoption is permitted, subject to the conditions detailed for
                       each improvement and subject to the transition directives that relate to the initial
                       adoption of IFRS.

                8.    IFRIC 16, Hedging of Net Investment in Foreign Activities (hereunder – “the
                      Interpretation”). The Interpretation relates to cases in which there is an investment in
                      foreign activity and provides directives with respect to hedging of the said investment.
                      Among others, the Interpretation relates to the nature of the hedged risk and the sum of
                      the hedged item for which there will be hedging relations, the location of the hedging
                      item in a group of companies and the treatment of the capital reserve when the foreign
                      activity is closed-out.

                      The interpretation will be applied during annual periods commencing on or after
                      October 1, 2008. Early adoption is permitted, together with providing a disclosure.



                                                   - 50 -
                                                        CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008

NOTE 4:    CHANGES IN THE CPI AND U.S. DOLLAR AND POUND STERLING EXCHANGE
           RATES
                                               Consumer Price Index             U.S. dollar       Pound Sterling
                                                             Latest           representative      representative
                                              Index for    published            exchange            exchange
                                             the month       index                 rate                rate
                                                 %             %                    %                   %
                For the period of six
                  months ended as at:
                June 30,2008                      2.3              2.8              (12.8)              (13.5)
                June 30,2007                      1.0              0.3                0.6                 2.6
                For the period of three
                  months ended as at:
                June 30,2008                      2.2              2.4              (5.7)                (5.5)
                June 30,2007                      1.2              0.7               2.3                  4.7
                For the year ended as at
                  December 31, 2007               3.4              2.8              (9.0)                (7.0)

NOTE 5:    SEGMENT REPORTING
           a.       The Group chose early adoption of IFRS 8 - Operating Segments hereunder – “the Standard”.
                    The Standard prescribes that reporting of the segment activity will be in accordance with “the
                    management’s approach”, in other words, according to the internal reporting format of the
                    entity’s decision makers in order to assess each segment’s performance and in order to make
                    decisions regarding the allocation of resources to that segment.
           b.       The Group operates in the following segments: long-term savings (including life assurance
                    and accompanying insurance and pension and provident management), health insurance
                    through a subsidiary (Clal Health), general insurance in Israel and Europe, general insurance
                    through a subsidiary in the USA, finance and others (operating segments that do not meet the
                    threshold numbers for reporting). In accordance with the directives of the Regulator, results
                    of motor casco and motor act insurance in Israel and other insurance branches are recorded
                    under general insurance.
           c.       Segment results, assets and liabilities include items attributed directly to the segment and
                    items that can be attributed on a reasonable basis. Unallocated items are primarily comprised
                    of investments (with the exception of investment property) and attributed income, loans and
                    credit and attributed expenses, the corporation’s assets (primarily for Company
                    headquarters), and general and administrative costs as well as tax assets and liabilities on tax
                    income and expenses.
                    Capital expenses of the sector are the total costs that were capitalized in the period for
                    acquisition of property, plant and equipment and non-goodwill intangible assets.
                    Income (loss) from net investments, financing income and financing expenses that are non-
                    specific to a segment and that derive from companies whose operations include a number of
                    operational segments, are attributed to the operating segment according to the investments
                    held against the liabilities and against the capital, capital surplus and other liabilities.
                    General and administrative costs and expenses referring to companies with a number of
                    operating segments are attributed to the operating segments according to a distribution
                    method based on specific attribution of direct expenses and allocation of the other expenses.
                    This is based mainly on the proportionate distribution of salary and office areas. Expenses are
                    divided among the general insurance branches according to a model that takes into account
                    output and claims pursuant to the directives of the Regulator.



                                                         - 51 -
                                                                                                                         CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008

NOTE 5:       SEGMENT REPORTING (Cont.)
                                                                                             Six months ended as at June 30, 2008
                                                                                                                General
                                                         Health                                                insurance                            Offset of      Not
                                                       insurance                                               through a                             activity   allocated
                                             Long term through a                                               subsidiary                            between      to the
                                             savings * subsidiary   General insurance in Israel and Europe       in USA     Finances      Other     segments    segments      Total
                                                                              Motor
                                                                  Motor act    casco
                                                                  in Israel  in Israel    Other       Total
                                                                                                         Unaudited
                                                                                                      NIS in thousands
Gross premiums earned                        2,056,410   298,325   310,456    363,026 1,040,182 1,713,664        391,447          -            -      (3,064)          -    4,456,782
Premiums earned by reinsurers                   92,035    18,366      6,143    15,281     468,453    489,877       28,122         -            -           -           -      628,400
Premiums earned on retention                 1,964,375   279,959   304,313    347,745     571,729 1,223,787      363,325          -            -      (3,064)          -    3,828,382
Net investment income (loss)
 and financing income                          (18,333)    21,184     69,738     10,456       62,470     142,664     37,111     18,808     39,392    (20,627)     14,697     234,896
Income from management fees and
 portfolio management                         255,030           -         -           -            -           -          -    119,326      6,099     (5,608)          9     374,856
Income from commissions                        38,227       1,643         -         448       65,063      65,511      2,368          -     61,208    (38,647)          -     130,310
Income from other financial services                -           -         -           -            -           -          -     69,278          -          -           -      69,278
Profit from realization of investments
 in investees and other companies                    -          -          -          -            -            -         -          -      1,371          -           -        1,371
Other income                                       124          -          -          -            -            -         -       (121)    17,866          -         188       18,057
Total income                                 2,239,423    302,786    374,051    358,649      699,262    1,431,962   402,804    207,291    125,936    (67,946)     14,894    4,657,150
Payments and change in liabilities in
 respect of gross insurance contracts        1,750,731    201,291    304,574    252,593      569,142    1,126,309   270,501         -          -           -           -    3,348,832
Reinsurers’ share in change of liabilities
 payments for insurance contracts              (50,000)    (9,568)     4,024    (10,681)    (240,847)   (247,504)   (18,195)        -          -           -           -    (325,267)
Payments and change in liabilities in
 respect of insurance contracts on           1,700,731    191,723    308,598    241,912      328,295     878,805    252,306         -          -           -           -    3,023,565
Commissions, selling, marketing and
 acquisition expenses                         252,995      55,451     12,985     52,399      182,664     248,048     41,639          -     51,918    (38,647)          -     611,404
Administrative, general and other
 expenses                                      262,866     39,944     43,399     43,882      140,580      227,861    83,011    219,908     39,099    (10,566)     16,429   878,552
Financing expenses                                  13        319          -        101        1,292        1,393    12,376     57,805     25,731    (18,733)     61,554   140,458
Total expenses                               2,216,605    287,437    364,982    338,294      652,831    1,356,107   389,332    277,713    116,748    (67,946)     77,983 4,653,979
Share in results of affiliates, net                  -          -          -          -            -            -         -      4,842        412          -          (2)    5,252
Income (loss) before income tax                 22,818     15,349      9,069     20,355       46,431       75,855    13,472    (65,580)     9,600           -    (63,091)    8,423
*     Regarding additional information in respect of provident funds and pension lines included in the long term savings segment, see sub-clause i below.
                                                                                           - 52 -
                                                                                                                         CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008

 NOTE 5:       SEGMENT REPORTING (Cont.)
                                                                                              Six months ended as at June 30, 2007
                                                                                                                  General
                                                         Health                                                  insurance                          Offset of      Not
                                                       insurance                                                 through a                           activity   allocated
                                             Long term through a                                                 subsidiary                          between      to the
                                             savings * subsidiary   General insurance in Israel and Europe         in USA     Finances     Other    segments    segments      Total
                                                                  Motor act Motor casco
                                                                  in Israel   in Israel    Other       Total
                                                                                                          Unaudited
                                                                                                       NIS in thousands
Gross premiums earned                        1,869,486   280,726   320,893    356,265     1,058,845 1,736,003        62,410         -          -      (3,910)          -    3,944,715
Premiums earned by reinsurers                   81,201    19,919      6,226     10,937      518,337    535,500        7,629         -          -           -           -      644,249
Premiums earned on retention                 1,788,285   260,807   314,667    345,328       540,508 1,200,503        54,781         -          -      (3,910)          -    3,300,466
Net investment income (loss)
 and financing income                        2,212,556     32,343    100,608     17,276        88,734     206,618     8,909     56,376     17,229    (12,221)     74,433    2,596,243
Income from management fees and
 portfolio management                         330,710           -          -          -             -           -        -     178,889      9,009     (8,113)         10     510,505
Income from commissions                        17,948       1,648          -      1,764        74,138      75,902      640           -     58,699    (39,321)          -     115,516
Income from other financial services                -           -          -          -              -          -        -     155,963          -          -           -     155,963
Profit from realization of investments
 in investees and other companies                    -          -          -          -             -            -        -    130,609 *      970          -      25,925      157,504
Other income                                        79          -          -          -             -            -        -          -     13,301          -           -       13,380
Total income                                 4,349,578    294,798    415,275    364,368       703,380    1,483,023   64,330    521,837     99,208    (63,565)    100,368    6,849,577
Payments and change in liabilities in
 respect of gross insurance contracts        3,678,321    183,828    247,170    254,541       473,138     974,849    45,189          -         -           -           -    4,882,187
Reinsurers’ share in change of liabilities
 and payments for insurance contracts          (58,389)   (12,215)     4,699      (5,203)    (154,520)   (155,024)   (4,458)         -         -           -           -    (230,086)
Payments and change in liabilities in
 respect of insurance contracts on           3,619,932    171,613    251,869    249,338       318,618     819,825    40,731          -         -           -           -    4,652,101
Commissions, selling, marketing and
 acquisition expenses                         226,374      46,371      8,273     56,986       182,647     247,906    (8,068)         -     49,193    (40,531)          -     521,245
Administrative, general and other
 expenses                                      184,037     38,598     47,159     36,484       142,398      226,041   14,434    244,464     27,363    (14,429)     18,221   738,729
Financing expenses                               1,682         75          -         74         1,522        1,596    2,451     32,165      8,991     (8,605)     30,133    68,488
Total expenses                               4,032,025    256,657    307,301    342,882       645,185    1,295,368   49,548    276,629     85,547    (63,565)     48,354 5,980,563
Share in results of affiliates, net                  -          -           -         -             -            -        -      2,549        770          -      (2,147)    1,172
Income before income tax                       317,553     38,141    107,974     21,486        58,195      187,655   14,782    247,757     14,431          -      49,867   870,186
 *       Clal Finance’s issuance profits.
 **     Regarding additional information in respect of provident funds and pension lines included in the long term savings segment, see sub-clause i below.
                                                                                            - 53 -
                                                                                                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008

NOTE 5:          SEGMENT REPORTING (Cont.)
                                                                                                Three months ended as at June 30, 2008
                                                                                                                      General
                                                             Health                                                  insurance                                  Offset of       Not
                                                           insurance                                                 through a                                    activity   allocated
                                                 Long term through a                                                 subsidiary                                  between       to the
                                                 savings * subsidiary    General insurance in Israel and Europe        in USA   Finances             Other      segments     segments      Total
                                                                      Motor act Motor casco
                                                                      in Israel   in Israel    Other       Total
                                                                                                              Unaudited
                                                                                                           NIS in thousands
Gross premiums earned                            1,043,928   155,209   159,975    182,630       494,051    836,656     184,793         -                   -       (1,626)          -    2,218,960
Premiums earned by reinsurers                       47,953     9,002      2,997      7,205      201,500    211,702       13,766        -                   -            -           -      282,423
Premiums earned on retention                       995,975   146,207   156,978    175,425       292,551    624,954     171,027         -                   -       (1,626)          -    1,936,537
Net investment income (loss)
 and financing income                             881,926      14,548     51,198      7,458        44,583     103,239       21,991       18,367       24,048     (13,196)      14,321    1,065,244
Income from management fees and
 portfolio management                             133,334          -          -           -             -            -            -      59,520        3,000      (2,808)           9     193,055
Income from commissions                            18,890        823          -         464        19,860       20,324        1,180           -       30,207     (18,544)           -      52,880
Income from other financial services                    -          -          -           -             -            -            -      33,491            -           -            -      33,491
Profit from realization of investments
 in investees and other companies                        -          -          -          -             -           -            -            -        1,371           -            -        1,371
Other income                                           124          -          -          -           (50)        (50)           -       (1,124)       8,960           -          188        8,098
Total income                                     2,030,249    161,578    208,176    183,347       356,944     748,467      194,198      110,254       67,586     (36,174)      14,518    3,290,676
Payments and change in liabilities in
 respect of gross insurance contracts            1,740,204    106,178    181,465    120,787       250,312     552,564      130,442            -            -            -           -    2,529,388
Reinsurers’ share in change of liabilities and
 payments for insurance contracts                  (23,425)    (6,962)    (1,160)    (6,459)      (76,872)     (84,491)      (9,542)          -            -            -           -    (124,420)
Payments and change in liabilities in
 respect of insurance contracts on retention     1,716,779     99,216    180,305    114,328       173,440     468,073      120,900            -            -            -           -    2,404,968
Commissions, selling, marketing and other
 acquisition expenses                             122,074      29,916      9,526     32,736        85,232     127,494       22,413            -       25,667     (18,544)           -     309,020
Administrative, general and other operating
 expenses                                         136,689      20,482     21,586     19,563        67,111     108,260       37,596      121,895       21,271      (4,557)      10,525     452,161
Financing expenses                                    854         241          -        101           442         543       12,376       41,900       15,866     (13,073)      43,399     100,398
Total expenses                                   1,974,688    149,855    211,417    166,728       326,225     704,370      193,285      163,795       62,804     (36,174)      53,924    3,266,547
Share in results of affiliates, net                     -          -          -           -              -           -            -       1,538           52            -         313       1,277
Income (loss) before income tax                55,561       11,723        3,241      16,619         30,719       44,097         913      (52,003)       4,834           -      39,719      25,406
*        Regarding additional information in respect of provident funds and pension lines included in the long term savings segment, see sub-clause i below.
                                                                                                - 54 -
                                                                                                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008

NOTE 5:        SEGMENT REPORTING (Cont.)
                                                                                                  Three months ended as at June 30, 2007
                                                                                                                       General
                                                             Health                                                   insurance                                Offset of       Not
                                                           insurance                                                  through a                                  activity   allocated
                                                 Long term through a                                                  subsidiary                                between       to the
                                                 savings * subsidiary      General insurance in Israel and Europe       in USA   Finances           Other      segments     segments      Total
                                                                                     Motor
                                                                         Motor act    casco
                                                                         in Israel  in Israel    Other       Total
                                                                                                                Unaudited
                                                                                                             NIS in thousands
Gross premiums earned                             945,484     139,071     161,514    178,821     495,266    835,601       62,410         -                -       (1,860)          -    1,980,706
Premiums earned by reinsurers                      40,489       9,667        3,085      6,485    195,921    205,491        7,629         -                -            -           -      263,276
Premiums earned on retention                      904,995     129,404     158,429    172,336     299,345    630,110       54,781         -                -       (1,860)          -    1,717,430
Net investment income (loss)
 and financing income                            1,444,581     22,541      66,363     11,430        56,450   134,243        8,909       33,547        8,669       (7,382)     47,179    1,692,287
Income from management fees and
 portfolio management                             188,801          -            -          -             -         -            -       92,420        4,466      (4,351)          10     281,346
Income from commissions                             8,561        372            -        815        34,009    34,824          640            -       29,635     (19,505)           -      54,527
Income from other financial services                    -          -            -          -             -         -            -       78,397            -           -            -      78,397
Profit from realization of investments
 in investees and other companies                        -          -           -          -             -         -            -            -          970           -            -          970
Other income                                            42          -           -          -             -         -            -            -        6,742           -            -        6,784
Total income                                     2,546,980    152,317     224,792    184,581       389,804   799,177       64,330      204,364       50,482     (33,098)      47,189    3,831,741
Payments and change in liabilities in
 respect of gross insurance contracts            2,191,421     89,051     119,620    111,793       158,094   389,507       45,189            -            -            -           -    2,715,168
Reinsurers’ share in change of liabilities and
 payments for insurance contracts                  (30,721)    (8,245)      6,923      (1,372)      37,647    43,198        (4,458)          -            -            -           -        (226)
Payments and change in liabilities in
 respect of insurance contracts on retention     2,160,700     80,806     126,543    110,421       195,741   432,705       40,731            -            -            -           -    2,714,942
Commissions, selling, marketing and other
 acquisition expenses                             118,153      25,329      10,938     32,036        86,388   129,362        (8,068)          -       26,730     (20,715)           -     270,791
Administrative, general and other operating
 expenses                                       96,178       17,429      23,257       18,564       73,852      115,673      14,434     136,778        11,316     (7,902)      13,046      396,952
Financing expenses                               1,531            75          -            74         716          790       2,451       13,883        4,710     (4,481)      18,839       37,798
 Total expenses                              2,376,562      123,639     160,738      161,095     356,697       678,530      49,548     150,661        42,756    (33,098)      31,885    3,420,483
 Share in results of affiliates, net                 -             -          -             -            -           -           -        1,839          335          -           93        2,267
 Income before income tax                      170,418       28,678      64,054       23,486       33,107      120,647      14,782       55,542        8,061          -       15,397      413,525
*       Regarding additional information in respect of provident funds and pension lines included in the long term savings segment, see sub-clause i below.

                                                                                                 - 55 -
                                                                                                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008
NOTE 5: SEGMENT REPORTING (Cont.)
                                                                                Year ended as at December 31, 2007
                                                                                                                        General
                                                         Health                                                        insurance                               Offset of       Not
                                                       insurance                                                       through a                                 activity   allocated
                                             Long term through a                                                       subsidiary                               between       to the
                                             savings * subsidiary       General insurance in Israel and Europe           in USA Finances            Other      segments     segments      Total
                                                                     Motor act Motor casco
                                                                     in Israel   in Israel    Other       Total
                                                                                                              Unaudited
                                                                                                           NIS in thousands
Gross premiums earned                        3,822,758    610,494     645,017    715,861     2,031,706 3,392,584     505,070               -              -       (6,133)          -    8,324,773
Premiums earned by reinsurers                  186,437     40,076      16,644      26,627      908,632    951,903      47,245              -              -            -           -    1,225,661
Premiums earned on retention                 3,636,321    570,418     628,373    689,234     1,123,074 2,440,681     457,825               -              -       (6,133)          -    7,099,112
Net investment income (loss)
 and financing income                        2,664,276     48,994     184,322      31,446      181,368     397,136       68,660       78,779 *       45,564     (26,660)      37,158    3,313,907
Income from management fees and
 portfolio management                         477,186           -           -           -            -           -             -     348,757 *      17,977      (16,121)           -     827,799
Income from commissions                        46,593       9,844           -       4,169      140,756     144,925         2,229           -       120,174      (79,393)           -     244,372
Income from other financial services                -           -           -           -            -           -             -     247,021 *           -            -            -     247,021
Profit from realization of investments                                                                                         -
 in investees and other companies                    -          -           -           -            -            -            -     132,499         1,786            -       25,925   160,210
Other income                                       167          -           -           -            -            -                        -        29,442            -            -    29,609
Total income                                 6,824,543    629,256     812,695     724,849    1,445,198    2,982,742     528,714      807,056       214,943     (128,307)      63,083 11,922,030
Payments and change in liabilities in
 respect of gross insurance contracts        5,698,121    381,793     591,999     504,459    1,097,855    2,194,313     336,572            -              -            -           -    8,610,799
Reinsurers’ share in change of liabilities
 payments for insurance contracts             (112,992)   (26,054)     (14,130)   (17,603)    (377,406)    (409,139)    (23,600)            -             -            -           -    (571,785)
Payments and change in liabilities in
 respect of insurance contracts
 on retention                                5,585,129    355,739     577,869     486,856      720,449    1,785,174     312,972            -              -            -           -    8,039,014
Commissions, selling, marketing and
 other acquisition expenses                   467,814     112,786      30,370     120,038      342,414     492,822       32,572            -         98,992     (79,393)           -    1,125,593
Administrative, general and other
 operating expenses                         423,082       85,263       87,810     77,571        283,163      448,544     105,101      479,513 *       67,389    (25,115)      30,715 1,614,492
Financing expenses                             4,895         290            -         138          3,059        3,197      14,372      74,722 *       28,503    (23,799)      80,930   183,110
 Total expenses                           6,480,920      554,078     696,049     684,603      1,349,085 2,729,737        465,017      554,235        194,884   (128,307)     111,645 10,962,209
 Share in results of affiliates, net               -           -            -            -             -            -           -       5,559          1,193          -       (2,542)    4,210
 Income (loss) before income tax            343,623       75,178     116,646      40,246         96,113      253,005       63,697     258,380         21,252          -      (51,104) 964,031
*       Regarding additional information in respect of provident funds and pension lines included in the long term savings segment, see sub-clause i below.
                                                                                              - 56 -
                                                                                                                         CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 5:    SEGMENT REPORTING (Cont.)

           i.     Additional information regarding provident and pension funds included in long term savings segment:

                                                                        Six months ended June 30                         Three months ended June 30              Year ended
                                                                       2008                 2007                         2008                 2007            December 31, 2007
                                                                Pension Provident Pension Provident               Pension Provident Pension Provident         Pension Provident
                                                                               Unaudited                                         Unaudited                         Audited
                                                                                                                   NIS in thousands

                  Investment income, net                             469         142         2,634         67           672        50      (411)       35       3,033       152

                  Income from management fees                     52,863     131,263       47,543      14,490      27,166      70,185     26,007    7,376      93,322    117,110

                  Other income                                        97          27             79          -           97        27        42          -       167           -

                  Marketing expenses                             (13,217)     (6,116)     (12,274)     (3,485)     (7,290)      (3,146)   (6,860)   (1,444)   (25,227)    (7,892)

                  Administrative, general and
                  other operating expenses                       (24,085)    (66,799)     (18,332)     (9,189)    (12,330)     (34,788)   (8,754)   (4,759)   (41,730)   (59,595)

                  Financing expenses                                  (2)        (11)             -        (1)           (2)       (11)        -        (1)        -         (15)

                  Total income before taxes                       16,125      58,506       19,650       1,882       8,313      32,317     10,024    1,207      29,565     49,760




                                                                                        - 57 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 6:   TAXES ON INCOME

          On February 26, 2008, the Knesset passed the Income Tax (Inflationary Adjustments) (Amendment No.
          20) (Limitation of Effective Period) Law, 2008 (hereunder - the Amendment). According to the
          Amendment, the applicability of the Adjustments Law will end in the 2007 tax year, and in the 2008 tax
          year, the provisions of the law shall no longer be applicable, with the exception of the transitional
          provisions which were for the purpose of preventing distortion of the tax calculations.

          According to the Amendment, commencing from the 2008 tax year and onwards, the calculation of
          income for tax purposes shall no longer be adjusted to a real measuring base. Similarly, CPI linkage of
          depreciation on fixed assets and of losses carried forward for tax purposes will be discontinued such that
          these amounts will be adjusted to the CPI at the end of the 2007 tax year and their linkage to the index
          will be discontinued from that date onwards.



NOTE 7:   CAPITAL MANAGEMENT AND REQUIREMENTS

          a.      Management policy is to establish a sound capital base so as to maintain the Company's ability to
                  continue its operations and generate profits for its shareholders, to maintain good relations with
                  other entities such as suppliers, insurance agents and the Group’s employees, and to support
                  business development. The Board of Directors oversees the capital returns defined by the Group
                  as income (loss) for the period attributed to the Company’s shareholders divided in equity. The
                  board of directors decides on the amount of the dividend paid to the shareholders. The Company
                  and some of its subsidiaries are subject to external capital requirements, as specified in section b
                  below.

          b.     The table below describes the capital requirements according to the Supervision of Insurance
                 Business Regulations (Minimum Solvency Margin Required from an Insurer) - 1998 and its
                 amendments (the Equity Regulations) applicable for insurance subsidiaries in Israel.

                                                                      Consolidated insurance subsidiaries
                                                                                                      Clal
                                                                     Clal            Clal            Credit
           As at June 30, 2008                                    Insurance         Health         Insurance
                                                                              NIS in thousands
          Minimum shareholders’ equity:
          Amount required per regulations * 3, 4                    3,104,116           250,024              26,314
          Amount computed per regulations 1                         3,238,503           304,606              47,688
          Surplus 2                                                   134,387            54,582              21,374
          Additional surplus not included in the
           calculation of shareholders’ equity                               -            41,830              9,289
          Primary capital:
          Minimum amount required per regulations                      78,913            78,913              26,301
          Amount computed per regulations                           2,277,428           346,438              56,977
          Surplus                                                   2,198,515           267,525              30,676
          * The required amount includes, among others,
                 capital requirements in respect of:
          Deferred acquisition costs in life assurance, long
           term care, health insurance and insurance
           portfolio acquisition expenses                            809,606            106,579                    -
          Special risks in life assurance                            317,323                  -                    -
          Non-allowed assets as defined in the Capital
           Regulations (mainly loans and advances to agents)          273,921            45,545                    -
                                                                    1,400,850           152,124                    -



                                                      - 58 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 7:   CAPITAL MANAGEMENT AND REQUIREMENTS (Cont.)

          (1)   Including subordinated deeds in the amount of NIS 961 million constituting subordinated
                capital for purposes of the Capital Regulations.

          (2)   The distribution of a dividend from capital surpluses is subject to liquidity requirements
                and compliance with Investment Regulations.

          (3)   In February 2007, the Regulator published a circular determining that beginning from the
                first quarter of 2007 the provision for reserves for extraordinary risks in life assurance in
                the financial statements of insurance companies will be cancelled.
                Concurrently, capital requirement of 0.17% of the retained sum at risk was defined. It
                was also defined that the solvency margin for the amount at risk will not fall below the
                requirement on the day of transfer.

          (4)    a.    In October 2007 and April 2008 a draft amendment to the Supervision of Financial
                       Services Regulations (Minimum Solvency Margin Required from an Insurer
                       (Revised), 2007, was published (hereunder – the draft).

                       Under the draft it is proposed to add to the existing capital requirements, capital
                       requirements regarding the following categories:

                       1)     Yield guaranteeing plans in life assurance which do not grant the right for
                              designated bonds in their respect, or in respect of some of them.

                       2)    Longevity risks in annuity policies in which the annuity coefficients embed
                             a life span guarantee.

                       3)    Operating risks.

                       4)      Credit risks at a percentage of the risk rate which characterizes the various
                       assets.

                       5)    Catastrophic risks in general insurance

                              According to the draft regulations, the insurance companies are required to
                              increase their capital by the end of 2010 in three equal annual portions.
                              Capital requirements are expected to materially increase the minimum
                              solvency margin. However it is not possible to assess the effect until the
                              final draft of the regulations.

                b.    In May 2008, in a letter to the Regulator of Insurance sent to the managers of
                      insurance companies, he informed them that due to the expected increase in the
                      capital requirements from insurance companies and as a result of the business results
                      in the last quarter, up to the date the relevant Regulations will enter into force, the
                      insurance companies are instructed not to distribute dividends at an amount that will
                      exceed half of the profits from ordinary operations from the beginning of 2008,
                      unless they obtain an approval from the Regulator.




                                                  - 59 -
                                              CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 7:   CAPITAL MANAGEMENT AND REQUIREMENTS (Cont.)

          (4)   (Cont.)

                c.     In June 2008, a circular was published with respect to the mode of application of the
                       principles of measurement and presentation under IFRS, for the calculation of the
                       required capital and the admissible capital of insurance companies, beginning from
                       the financial statements in respect of the second quarter of the year 2008. The
                       purpose of the circular is to set directives regarding the mode of application of the
                       capital regulations with respect to investments in investees (including insurance
                       companies and managing companies controlled by insurance companies).
                       According to the circular the capital requirements pursuant to the capital regulations
                       will continue to be based on separate financial statements. In order to calculate the
                       admissible capital according to the capital regulations, the investment of an
                       insurance company in another insurance company or in a controlled managed
                       company, as well as in other investees, will be calculated on an equity basis along
                       the chain of control.

                 d.    In July 2008, a circular was published with respect to the preparations for
                       Solvency II. The circular was published following the adoption of of the proposed
                       version of the Solvency II Directive (hereunder – the proposed Directive) by the
                       European Union. The proposed Directive forms a fundamental and comprehensive
                       change in the Regulations relating to guaranteeing the redemption ability and the
                       capital appropriateness of the insurance companies who are members of the
                       European Union and it aims at improving the protection of the policyholders’
                       monies, to deepen the integration between markets and to enhance the competition
                       in this area of activity. According to a circular that was published by the
                       Regulator of Insurance, he intends to apply the provisions of the proposed
                       Directive with respect to insurance companies in Israel when this Directive is
                       applied in the countries who are members the European Union, which is expected
                       to be in the second half of the year 2012. The proposed Directive is based on three
                       levels: quantitative requirements, qualitative requirements and disclosure
                       requirements.

          (5)   The Company undertook to complement the capital required from Clal Insurance,
                according to the Capital Regulations, for up to 50% of the equity. This undertaking will be
                exercised only when there is a capital deficiency and it will be valid as long as the
                Company is the controlling shareholder of Clal Insurance.

          (6)   Pursuant to the approval, effective May 2003, which was granted by the Regulator to the
                controlling shareholders of IDB Holding Ltd. (IDB Holdings), and the amendment to the
                permit terms of December 21, 2005, in the framework of the Regulator’s approval for
                establishment of a special purpose company for Clal Insurance, IDB Holdings is obligated
                to meet the Company's commitment, as described in section 5 above. In addition, the
                controlling shareholders are required to maintain the capital requirements, amongst others,
                of the Company, as long as there is a pledge on their controlling holdings in IDB
                Holdings. According to the approval, the Company's shareholders' equity will not be
                lower, at any time, than (120%) of the minimum solvency margin required from Clal
                Insurance as of September 30, 2005, linked to the CPI of September 2005. As of balance
                sheet date the Company’s shareholders’ equity is higher than the amount required.

          (7)   Clal Insurance undertook to complement the shareholders’ equity required from Clal
                Credit in accordance with the capital regulations for up to 50% of the equity. This
                undertaking will be exercised only when there is a capital deficiency and it will be valid as
                long as Clal Insurance is the controlling shareholder of Clal Credit.


                                                  - 60 -
                                               CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 7:    CAPITAL MANAGEMENT AND REQUIREMENTS (Cont.)

           (8)   The Company undertook to complement, at any time, the shareholders’ equity of Meitavit
                 Pension Fund Management Company Ltd. (Meitavit) to the amount determined in the
                 Income Tax Regulations (Regulations for Approval and Management of Provident Funds)
                 -1964. The undertaking will be valid as long as the Company controls Meitavit, directly or
                 indirectly.

           (9)   The Company undertook to complement, at any given time, the shareholders’ equity of a
                 subsidiary - C.P.Y. The Israeli Company for Managing the Rights of Electricity
                 Company’s Employees Ltd. (C.P.Y.) to the amount determined in the Income Tax
                 Regulations (Principles for Approval and Management of Pension Funds) -1964. The
                 undertaking will be valid as long as the Company controls C.P.Y., directly or indirectly.

           (10) Clal Insurance provided a guarantee to complement capital in an amount not to exceed
                NIS 500 million, for Clal Finance Batucha Investments Management Ltd. (Batucha)
                which is a subsubsidiary of the Company, in order to comply with the minimum solvency
                margin required from a primary market maker as prescribed in the document Conditions
                for Appointment of a Primary Market Maker in Government Bonds and Conditions for its
                Activities.

                 In order to provide the guarantee, approval was received from the Supervisor determining
                 that in any case the amount of the guarantee is not to exceed 15% of the shareholders’
                 equity of Clal Insurance (including secondary capital), and that Clal Insurance is required
                 to provide against the guarantee, shareholders equity, as defined in the Capital
                 Regulations, in an amount equal to 7.5% of the amount of the guarantee actually provided.
                 In consideration for providing the guarantee, Batucha will pay the Company a guarantee
                 commission, at market terms. Batucha’s operations as a primary market maker
                 commenced in September 2006.

                 The approval of the Regulator for the incorporation of a special purpose subsidiary and
                 provision of the loan provided that the total amount of the loans to Clal Finance, a
                 subsidiary of the Company, and to Batucha including guarantees, is not to exceed 15% of
                 the shareholders’ equity of the Company and that the guarantee the Company had
                 provided for Batucha would be reduced to an amount not exceeding the lower of the
                 capitalized interest, which is not recognized as capital in accordance with Standard 22 of
                 the Israel Accounting Standards Board (which was replaced by IAS 32), of a perpetual
                 capital note that was granted to Batucha by Clal Finance, and NIS 100 million.

                 As of the date of the financial statements, the capital of Batucha exceeded NIS 500
                 million.



NOTE 8 - CAPITAL AND FUNDS

          Dividends

          On March 20, 2008 the Company’s Board of Directors decided to distribute a dividend of NIS
          360,000 thousand, constituting NIS 6.8 per ordinary share, which was paid on May 15, 2008.




                                                  - 61 -
                                                                                                                            CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008

NOTE 8 – CAPITAL AND FUNDS (Cont.)
Additional changes in shareholders’ equity
                                                                                                                                                                 Minority      Total
                                                                            Attributed to the Company’s shareholders                                             interest     capital
                                                                                                   Capital
                                                                                                  reserve in
                                                                                                  respect of
                                                           Share          Share     Translation available for   Capital     Treasury   Retained
                                                           capital       premium        fund      sale assets   reserve      shares    earnings      Total
                                                                                                                NIS in thousands
For the year ended December 31, 2007
(audited)
Balance as of January 1, 2007 (audited)                    140,450        710,193           -        138,843     151,548      (9,449) 2,010,518 3,142,103          19,929    3,162,032
Realization of option warrants by officers                     247          2,285           -              -           -           -     (2,285)      247               -          247
Issuance of share capital (net of issue expenses)                -              -           -              -           -           -          -         -         153,647      153,647
Share-based payments                                             -              -           -              -           -           -     15,234    15,234           7,573       22,807
Transactions with controlling shareholders                           -          -           -              -        (384)          -          -      (384)            292          (92)
Tax benefits for equity instruments granted to employees             -          -           -              -       2,649           -          -     2,649               -        2,649
Dividend                                                             -          -           -              -           -           -   (150,000) (150,000)         (5,115)    (155,115)
Sale (acquisition) of treasury shares, net                           -          -           -              -           -         707          -       707               -          707
Acquisitions of minority interests                                   -          -           -              -           -           -          -              -    144,808 *) 144,808
Sale of minority interests in a subsidiary                           -          -           -              -           -           -          -              -     18,023       18,023
Erosion of loans to a minority                                       -          -           -              -           -           -          -              -     (1,695)      (1,695)
Comprehensive income (expenses) for the period                                  -     (39,792)       (44,064)          -           -    658,978      575,122      (11,628) *) 563,494
Balance as of December 31, 2007 (audited)                  140,697        712,478     (39,792)        94,779     153,813      (8,742) 2,532,445    3,585,678      325,834    3,911,512
For the six months ended
 June 30, 2008 (unaudited):
Realization of option warrants by officers                       3          2,186           -              -           -           -     (2,186)          3             -            3
Share-based payments                                                 -          -           -              -                             10,584      10,584           328       10,912
Dividends                                                            -          -           -              -           -           -   (360,000)   (360,000)         (311)    (360,311)
Sale (acquisition) of treasury shares, net                           -          -           -              -           -       1,876          -       1,876             -        1,876
Acquisition of minority interest                                     -          -           -              -           -           -          -              -    (26,520)     (26,520)
Change in classification conditions of
 liabilities to a foreign shareholder (see Note 12.B.)               -          -           -              -           -           -          -              -     58,272       58,272
Erosion of loans to a minority, net                                  -          -           -              -           -           -          -              -       (308)        (308)
Comprehensive income (expenses) for the period                       -          -     (94,691)       (49,302)          -           -      2,429    (141,564)      (38,794)    (180,358)
Total income for the period
Balance as of June 30, 2008 (unaudited)                    140,700        714,664    (134,483)        45,477     153,813      (6,866) 2,183,272    3,096,577      318,501    3,415,078
*        Reclassified.

                                                                                            - 62 -
                                                                                                                          CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 8 – CAPITAL AND FUNDS (Cont.)

Additional changes in shareholders’ equity (Cont.)
                                                                                                                                                              Minority      Total
                                                                            Attributed to the Company’s shareholders                                          interest     capital
                                                                                                   Capital
                                                                                                  reserve in
                                                                                                  respect of
                                                           Share          Share     Translation available for Capital     Treasury    Retained
                                                           capital       premium        fund      sale assets   reserve    shares     earnings      Total
                                                                                                               NIS in thousands

For the six months ended June 30, 2007
(Unaudited)
Balance as of January 1, 2007 (Audited)                    140,450        710,193           -        138,843    151,548     (9,449) 2,010,518     3,142,103     19,929    3,162,032

Realization of option warrants by officers                     211          1,763           -              -          -           -     (1,763)        211           -         211
Issue of share capital (net of issue expenses)                   -              -          -               -          -           -          -           -     153,647     153,647
Share-based payments                                             -              -          -               -          -           -      5,818       5,818       2,540       8,358
Transactions with controlling shareholders                       -              -          -               -          -           -          -           -         262         262
Tax benefits for equity instruments granted to employees         -              -          -               -      2,532           -          -       2,532           -       2,532
Dividends                                                        -              -          -               -          -          -           -           -        (545)       (545)
Sale (acquisition) of treasury shares, net                       -              -          -               -          -      6,737           -       6,737           -       6,737
Acquisitions of minority interests                               -              -          -               -          -          -           -           -      (1,283)     (1,283)
Erosion of loans to a minority                                   -              -          -               -          -          -           -           -        (398)       (398)
Comprehensive income for the period                                  -          -     26,105          21,050          -           -    584,205     631,360      18,733     650,093

Balance as of June 30, 2007 (unaudited)                    140,661        711,956     26,105         159,893    154,080     (2,712) 2,598,778     3,788,761    192,885    3,981,646




                                                                                            - 63 -
                                                                                                                         CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 8 – CAPITAL AND FUNDS (Cont.)
Additional changes in shareholders’ equity
                                                                                                                                                               Minority      Total
                                                                                       Attributed to the Company’s shareholders                                interest     capital
                                                                                                   Capital
                                                                                                  reserve in
                                                                                                  respect of
                                                          Share          Share     Translation available for Capital      Treasury   Retained
                                                          capital       premium       fund       sale assets   reserve     shares    earnings      Total
                                                                                                              NIS in thousands
For the three months ended June 30, 2008
(unaudited)
Balance as of April 1, 2008 (unaudited)                   140,700        714,664    (93,098)        40,107     153,813      (4,816) 2,161,842    3,113,212      369,917    3,483,129
Share-based payments                                            -              -          -              -           -           -      5,447        5,447       (1,772)       3,675
Dividends                                                       -              -          -              -           -           -          -            -         (311)        (311)
Sale (acquisition) of treasury shares, net                      -              -          -              -           -      (2,050)         -       (2,050)           -       (2,050)
Acquisitions of minority interests                              -              -          -              -           -           -          -            -      (26,520)     (26,520)
Erosion of loans to a minority                                  -              -          -              -           -           -          -            -         (391)        (391)
Comprehensive income (expenses) for the period                  -              -    (41,385)         5,370           -           -     15,983      (20,032)     (22,422)     (42,454)
Balance as of June 30, 2008 (audited)                     140,700        714,664   (134,483)        45,477     153,813      (6,866) 2,183,272    3,096,577      318,501    3,415,078
For the three months ended
June 30, 2007 (unaudited):
Balance as of April 1, 2007 (Audited)                     140,563        710,721     (1,752)       150,894    148,869      (4,397) 2,340,472     3,485,370      179,218    3,664,588

Realization of option warrants by officers                     98          1,235          -              -           -           -     (1,235)          98            -          98
Share-based payments                                                -          -          -              -           -           -      2,622        2,622          950       3,572
Tax benefit for equity instruments granted to employees             -          -          -              -        830            -          -          830            -         830
Dividends                                                           -          -          -              -           -          -           -            -         (189)       (189)
Sale (acquisition) of treasury shares, net                          -          -          -              -           -      1,685           -        1,685            -       1,685
Acquisition of minority interest                                    -          -          -              -           -           -          -              -       (539)       (539)
Erosion of loans to a minority                                      -          -          -              -           -           -          -           -          (191)       (191)
Comprehensive income for the period                                 -          -     27,857          8,999      4,381            -    256,919     298,156        13,636     311,791
Balance as of June 30, 2007 (unaudited)                   140,661        711,956     26,105        159,893     154,080      (2,712) 2,598,778    3,788,761      192,885    3,981,646




                                                                                          - 64 -
                                                                                                                             CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 9:   SHARE BASED PAYMENT

          a. The outline plan for employee and officer benefits for 2007 expired on March 22, 2008, the publication date of the Company’s 2007 Periodic Report (hereunder
             –2007 Plan). The Company published an additional outline according to the Board's decision on April 16, 2008 to allocate the balance of the option warrants
             remaining in the reserve from the 2007 plan (up to 215,000 option warrants) and to allocate any option warrants returned to the reserve (if returned) that can be
             allocated according to the 2007 plan.

                                                                          Vesting                                                 Fair value calculation parameters
                                                        Number            date of         Fair value
                                                          of               first         as at date of       Non-risk       Anticipated         Average                       Realization
                       Date            Details          options           portion         allotment        interest rate    fluctuation         term *)         Share price   increment
                                                                                            NIS in
                                                                                          thousands             %                %               Years                 NIS       NIS
                     31/12/07         Balance         1,830,000
                      7/2/08         Allotment           60,000            7/2/10          981               2.66              27.35              4               84.5          99.45
                      5/6/08         Allotment           60,000            1/2/10        1,081               2.3               28.36              3.66            71            69.83
                      5/6/08         Allotment           30,000            5/6/10          566               2.3               28.36              4               71            69.83
                                     Forfeiture        (105,000)
                      30/6/08         Balance         1,875,000
                                      Balance
                                     Allotment          125,000
                                       Total
                                    according to
                                        plan          2,000,000
                                    Allotment to
                                         the
                                    Company’s
                      21/2/08         CEO**)            360,000            1/2/09        6,757               2.49              27.34              3.95            85.61         93.05


                *)       Based on the assumption that realization of options will be performed during the period between the provision date and the expiration date.

                **)      The allotment to the Company’s CEO is done on the basis of the 2007 plan.



                                                                                           - 65 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 9:   SHARE BASED PAYMENT (Cont.)

          a.    (Cont.)

                Each option warrant is realizable into an ordinary shares of NIS 1 par value, in three equal
                annual portions. The realization price for each option according to the plan is the average
                closing price of the Company’s shares on the Stock Exchange during the 30 trading days
                prior to the date of allotment of the option warrants, linked to the CPI (the known index on
                the date of allotment up to the known index on the date of realization). The plan determines
                adjustment instructions of the realization price in respect of dividends distributed by the
                Company and adjustment of options in the event of distribution of bonus shares.

                The expenses that will be recorded in the companies’ books in respect of the option
                allotment to offerees will be the fair value amount on the date of allotment, and the fair value
                of each portion will be spread over the period of vesting.

                It should be noted that the offerees who will not realize the option warrants will not receive
                an allotment of the total shares that are derived from them, but only the amount of shares
                reflecting the amount of the bonus that is embedded in the option warrants, in other words,
                the difference between the rate of the Company’s ordinary share at the time of realization
                and the price of realization of the option.

          b.     On June 30, 2008 Clal Finance published an outline securities proposal for officeholders
                 and employees in accordance with Section 15b(1)(a) to the Securities Law, 1968 and the
                 Securities Regulations (Outline Details of Securities Proposal to Employees), 2000, of up to
                 295,000 unquoted option, realizable into ordinary shares of NIS 0.1 par value each, of Clal
                 Finance, in accordance with the bonus value embedded in the option warrants on the date of
                 realization, which are proposed, at no consideration, to the employees and officeholders of
                 the Company and/or companies it controls (including options allotted to offerees in the past
                 and returned to the option repository) and options that were allotted in the past to
                 employees and officeholders of the Company and/or companies in its control and which
                 will be returned (if and insofar as they are returned) to the option repository that can be re-
                 granted according to the conditions of the plan. As at the reporting date Clal Finance
                 allotted to officeholders and employees, as mentioned, 5,340,000 option warrants realizable
                 into its shares, according to the Company’s existing option plan and the outline. As at the
                 reporting date, Clal Finance is entitled to allot another 160,000 options warrants according
                 to the outline conditions.



NOTE 10: VERIFICATION OF FINANICAL INFORMATION

          For raising credit from a banking institution, the subsidiary Clal Finance and Credit committed,
          that credit given each of its individual clients, from time to time, will not be over the total amount
          of NIS 75 million without the consent of the banking institutions.

          Clal Finance and Credit subsidiaries undertook to provide verification of financial information to
          banking institutions and other credit providers. This verification of financial information relates
          mainly to the provision of minimum capital and keeping the ration of minimum capital to the
          balance sheet sum.




                                                    - 66 -
                                                  CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES

          The following claims are stated at amounts as of the date of their filing, unless specified otherwise.

          a.     Class actions and significant petitions to certify class actions

                 1.    Below is a summary description of a class action and of significant petitions to certify
                       class actions against the Company, which are described in Note 35A to the
                       Company’s 2007 financial statements, on which no material changes have occurred up
                       until the date of signature of the financial statements:

                       a.     A claim filed in the Tel Aviv District Court against a subsidiary, Clal Insurance,
                              as well as a petition to certify it as a class action on behalf of the policyholders
                              who purchased general insurance policies from Clal Insurance as of August 5,
                              1997 and for which Stamp Duty was paid. According to the plaintiff, Stamp
                              Duty was unlawfully collected by Clal Insurance, and a misrepresentation was
                              made, according to which the policyholders are liable for Stamp Duty (whereas
                              according to the plaintiff the liability to pay Stamp Duty falls on the Insurer)
                              and that collection of the sums for Stamp Duty from the policyholders was
                              done under compulsion and misrepresentation, without any authority and while
                              enriching itself at the expense of its policyholders. The plaintiff claims that the
                              estimated damage caused to the represented group is about NIS 199.3 million.

                       b.     In April 2006, a subsidiary, Clal Insurance, received a financial claim filed
                              against it with the District Court in Tel Aviv, as well as a petition to certify the
                              claim as a class action in the name of a private client who purchased disability
                              policies from Clal Insurance. The claim and the petition include additional
                              claimants and additional respondents that are insurance companies. The claim is
                              that Clal Insurance also collects a premium from the policyholders during the
                              period of the last three months before the termination of the policy, although if the
                              insured event should occur during this period, according to the policy the
                              policyholder will not be entitled to receive insurance benefits, because of the
                              waiting period set forth in the policy. According to the plaintiff they all suffered
                              actual losses at the hands of the respondents, which are estimated by them in a
                              preliminary sum of NIS 47.61 million for the years 1998-2004 (of which NIS
                              13.33 million is the share of Clal Insurance).

                       c.     A subsidiary, Clal Insurance, received a claim that was filed against it with the
                              District Court in Tel Aviv – Jaffa, as well as a petition to certify the claim as a
                              class action on behalf of policyholders who purchased comprehensive car
                              insurance policies from Clal Insurance and who, in the period of 7 years prior
                              to filing the claim, paid and/or were charged insurance fees for the purpose of
                              restoring the value of the policy to its previous value. The grounds of the claim
                              are, according to the plaintiff, the unlawful collection of insurance fees, without
                              receiving approval from the Insurance Supervisor for the collection of
                              insurance fees and for their rates. Alternatively, the plaintiff claims that an
                              approval from the Supervisor, if it was given, was given while overstepping his
                              authority, and is therefore null and void. The plaintiff alleged that the estimated
                              damage to the represented group stands at about NIS 100 million, or
                              alternatively at NIS 32 million. In July 2007, the court certified the claim as a
                              class action and ruled that Clal Insurance collected reinstatement fees without a
                              permit in writing from the Supervisor of Insurance. Clal Insurance has filed a
                              request to the High Court for leave to appeal the ruling.




                                                    - 67 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                1.    (cont.)

                      d.    A subsidiary, Clal Insurance, received a claim that was filed against it, as well
                            as a request to approve the claim as a class action. The claim and the request
                            were also filed against Migdal Insurance Co. Ltd on behalf of the entire
                            borrowing public – those who have taken out mortgages - who insured their
                            lives in the framework of mortgage loans received from one of the mortgage
                            banks, through Clal Insurance or Migdal, as applicable. According to the
                            plaintiffs, they were obliged to pay large premiums that included a commission
                            element paid by the respondents to the mortgage banks. The plaintiffs estimate
                            the amount of the class action in hundreds of millions of shekels.

                      e.    A subsidiary, Clal Insurance, received a claim that was filed against it, as well
                            as a request to approve the claim as a class action. The claim and the request
                            include additional defendants, all of whom are insurance companies. The
                            plaintiffs contend that Clal Insurance continues to charge its customers who have
                            executive insurance policies, even after they have reached the age of retirement
                            (65), a premium in respect of the risk component of the policy, which they contend
                            is expensive and unnecessary, instead of transferring the premium it to the savings
                            component of the policy. The amount claimed from all the respondents is about
                            NIS 900.4 million, of which the amount attributed to Clal Insurance is not
                            specified.

                      f.    A subsidiary, Clal Insurance, received a claim filed with the Tel Aviv-Jaffa
                            District Court in respect of business transferred to a subsidiary, Clal Health, and
                            against additional insurance companies, and a petition to approve the claim as a
                            class action. The Claim involves the payment of insurance benefits after the
                            occurrence of an insurance event in accordance with the Mashlim Legimlay
                            nursing care policy, which is a joint policy of all the respondents (Clal Health’s
                            share in the liability under this policy is 20%). The plaintiff is demanding a
                            refund of the insurance premiums he paid, as aforementioned, after the
                            occurrence of the insurance event. The plaintiff estimates the amount of the
                            overall Claim against all of the respondents at about NIS 166 million.

                      g.    Two claims on the same subject were filed in the Haifa District Court against a
                            subsidiary, Clal Insurance, as well as a petition to have the claims certified as a
                            class action. The issue of the claim is, as claimed by the plaintiff, the method of
                            calculating the monthly insurance benefits paid to the insured beneficiaries,
                            who are entitled to linkage of the monthly amount paid them under the policy
                            that includes participation in profits. The court has brought together the claims
                            that had been filed separately. The plaintiff claims in the first claim that damage
                            to all members of the group is about NIS 74.25 million (after deducting
                            management fees), and alternatively, about NIS 95.44 million (before deduction
                            of management fees). In the second claim, the plaintiff estimates the damage
                            claimed to all members of the group at NIS 75 million, or alternatively NIS
                            37.5 million, or alternatively NIS 32.3 million.




                                                  - 68 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                1.    (cont.)

                      h.    A subsidiary, Clal Insurance, received a claim and a petition to certify the claim
                            as a class action that were filed against it with the Tel Aviv District Court. The
                            claim was filed by a person insured under a life assurance policy, claiming that
                            he paid excess insurance fees as of the first day of the month in which he and
                            Clal Insurance entered into an agreement, whereas only later that month were
                            the policy itself issued and the insurance coverage provided. The plaintiff
                            believes the claim in respect of the entire group he wishes to represent amounts
                            to about NIS 29.25 million.

                      i.    A claim and petition to certify it as a class action were filed with the Tel Aviv
                            District Court against Clal Finance Batucha, a subsidiary of a subsidiary, Clal
                            Finance, as well as against a list of other organizations. The issues behind the
                            claim and the motion to certify are brokerage commissions, which the plaintiffs
                            claim Clal Finance Batucha, as manager of the Ilanot Discount trust fund,
                            generally pays Israel Discount Bank Ltd. (hereinafter – Discount Bank) for
                            purchase and sales transactions of securities and/or foreign currency, which
                            Discount Bank conducts on its behalf as it is a member of the stock exchange.
                            The plaintiffs contend that some of the respondents unlawfully collected
                            commissions from the trust funds previously managed by their subsidiaries that
                            were higher than those collected from their other clients that have lower
                            volumes of activity than that of the said funds. The amount of damages
                            claimed as estimated by the plaintiffs for the period beginning January 1, 2004,
                            with respect to all of the plaintiffs against all of the respondents, is estimated at
                            NIS 386.15 million. Of this amount Batucha is liable for NIS 50.3 million, with
                            part of the amount being claimed from it severally and another part being
                            claimed jointly and severally with Discount Bank, from which Clal Finance
                            Batucha purchased Ilanot Discount.

                      j.    A claim was filed in the Tel Aviv District Court against Dikla Insurance Co.
                            Ltd as well as a request to have it approved as a class action, in respect of the
                            Mashlim Legimlay nursing care policy, which is a joint policy of Dikla
                            Insurance Co. Ltd, Harel Insurance Company Ltd. and Migdal Insurance
                            Company Ltd. and a subsidiary, Clal Health (Clal Health’s share in the liability
                            under this policy is 20%). The plaintiffs claim the premium that was charged in
                            respect of the aforementioned insurance policy is higher than the rate allowed
                            by the Supervisor of Insurance, and changes that were made in the policy were
                            not brought to the attention of the policyholders as required by the Supervisor.
                            The claim is for about NIS 115 million. Clal Health is not a party to the
                            proceedings.




                                                  - 69 -
                                                   CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008

NOTE 11 - CONTINGENT LIABILITIES (Cont.)
          a.    Class actions and significant petitions to certify class actions (cont.)
                1.    (cont.)
                      k.    A subsidiary, Clal Insurance, received a claim filed with the Tel Aviv-Jaffa
                            District Court in respect of business transferred to a subsidiary, Clal Health, and
                            a petition to certify the claim as a class action. The claim was also filed against
                            other insurance companies. The claim is about being charged insurance fees
                            during the waiting period in health insurance and/or surgery policies. The
                            plaintiff contends that he was charged insurance fees in respect of the entire
                            waiting period, but was not provided any product/service or any insurance
                            coverage during the waiting period. The total amount claimed against all the
                            respondents is about NIS 731 million and the plaintiff does not specify the part
                            of this amount that is attributed to Clal Health. Nevertheless, on the basis of the
                            plaintiff’s allegations in this claim, it can be presumed that the amount claimed
                            from Clal Health is about NIS 191 million.
                2.    Petitions for certifications of class actions to which occurred material changes
                      between the date of publication of the Company’s 2007 financial statements and the
                      date of approval of these financial statements, and requests for approval of significant
                      class actions filed following the date of publication of the Company’s 2007 financial
                      statements and until the date of approval of these financial statements:
                      a.    In October 2000, a subsidiary, Clal Insurance, received a claim and an
                            application for a declaratory order, which were filed against the Company,
                            Cellcom Israel Ltd. (hereinafter - Cellcom) and Sahar Insurance Company Ltd.
                            (at present – Harel Insurance Company Ltd.), with the Tel Aviv - Jaffa District
                            Court (hereinafter - the Claim) as well as a petition to approve the claim as a
                            class action on behalf of all of Cellcom’s customers who acquired insurance for
                            their cellular phones beginning in 1994 (hereinafter - the Petition). Clal
                            Insurance insured the cellular phones in 1999 and 2000 against loss and theft
                            (Risk). The subject of the claim is the unlawful collection of Value Added Tax
                            on the insurance premium component, and the rendering of illegal insurance
                            services contrary to the provisions of the Supervision of Financial Services
                            (Insurance) Law, -1981.
                                The sum of the claim was not specified separately. The sum specified in the
                                petition, as estimated by the plaintiffs is about NIS 402.4 million, of which the
                                sum that was claimed as being collected in respect of insurance of loss and risk
                                for the period 1999-2000 (in which, as aforesaid, the insurance was made
                                through Clal Insurance) is NIS 57.1 million

                                In February 2006 the Company received the Tel Aviv - Jaffa District Court’s
                                ruling regarding the rejection in limine of the request to certify the claim as a
                                class action, while ordering the plaintiff to pay the legal expenses.

                                In April 2006 the plaintiffs filed an appeal to the Supreme Court against the
                                ruling to dismiss the claim.

                                In March 2008, a settlement was submitted to the Supreme Court, for receipt of
                                validity of a court ruling, between the appellants and Clal Insurance, in which
                                it was agreed to dismiss the appeal against Clal Insurance without ordering the
                                payment the legal expenses. The Supreme Court supported this agreement such
                                that the appeal and class action against Clal Insurance were dismissed.




                                                     - 70 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)
          a.    Class actions and significant petitions to certify class actions (cont.)
                2.    (Cont.)

                      b.    In June 2006 the subsidiaries Clal Insurance and Clal Health received a claim
                            that was filed against them and the State of Israel (Execution of Court Orders
                            Department), other insurance companies, banks and provident funds
                            (hereinafter – the Respondents and the Claim, respectively) as well as a petition
                            to certify the claim as a class action (hereinafter – the Petition).

                             The principal allegation of the claim is that the defendants allegedly mislead the
                             winners of court execution cases that request service from them and that they
                             provide to them partial, misleading information and/or do not provide them
                             information in respect of money and/or rights of debtors held by them.

                             This was in connection with the collection of a fee in accordance with Execution
                             of Court Orders Regulations (Levies, Fees and Expenses) – 1968, in respect of
                             services for which, given the aforementioned allegations, the plaintiffs contend the
                             respondents are not permitted to charge payment.

                             The request to certify the claim as a class action was filed according to the
                             Class Actions Law -2006.

                             The grounds for the claim are, inter alia, prohibited misleading in violation of the
                             Consumer Protection Law, breach of the Supervision of Financial Services
                             (Insurance) Law -1981, breach of fiduciary and good faith duties and unjust
                             enrichment.

                             The group in the name of which the claim was filed includes any winner of a
                             claim who conducted and/or is conducting a case for the collection of debts
                             through the Execution of Court Orders Department and who paid for electronic
                             media third party foreclosures between July 11, 2002 and the filing of the
                             claim.

                             The plaintiffs estimated the amount of their personal damages to be NIS 2,956.

                             The relief requested by the plaintiffs includes, inter alia, to return to the
                             winners of claims the fees that were collected by the respondents between July
                             11, 2002 and June 1, 2006, which the plaintiffs estimate amount to NIS 233
                             million for all the respondents (including interest and linkage differences), of
                             which according to a calculation the plaintiffs contend is based on data of the
                             Execution of Court Orders Department, the amount of NIS 17 million (not
                             adjusted) is attributed to all the respondents that are insurers. Furthermore, the
                             court was requested to order the respondents to prepare immediately to provide
                             real, correct and timely answers to magnetic media foreclosure requests.

                             In October 2006 the subsidiaries together with the other insurance companies
                             filed a preliminary request to dismiss the petition before the filing of a
                             response.

                             In February 2008 the court handed down a ruling accepting the preliminary
                             petition and rejecting in limine the petition against the insurance companies,
                             including Clal Insurance and Clal Health. Since the date for filing the appeal
                             has passed, the proceedings of the claim and request thereby ended.



                                                   - 71 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                2.    (Cont.)

                      c.    In March 2007 a subsidiary, Clal Insurance, received a monetary claim
                            (hereinafter – the claim) and a request to certify the claim as a class action
                            (hereinafter – the request) that were filed in the name of a group of
                            customers/policyholders of Clal Insurance who purchased riders, as defined
                            hereunder, whose insurance policies (third party or comprehensive motor
                            vehicle) were cancelled due to total loss or theft, and did not receive a refund of
                            the relative part of their advance payment on account of the riders according to
                            the proportion between the full insurance period and the remaining insurance
                            period, all in the seven year period prior to the filing of the claim.

                             The claim relates to a number of related products that are sold to a customer
                             who purchases third party or comprehensive motor vehicle insurance policies,
                             as follows: towing services, auto glass insurance and substitute car insurance
                             (hereinafter – the riders). The plaintiffs contend that when an insurance event
                             occurs in which the motor vehicles suffers total loss following an accident or
                             theft, the insurance company has to return to the customer the relative part of
                             the payment for the riders that were not used by them (meaning the portion of
                             the payment that relates to the period from the occurrence of the insurance
                             event until the end of the insurance period). Regardless of this, the plaintiffs,
                             each of whom has allegedly purchased the said three riders, contend that after
                             their motor vehicle suffered a total loss they were not returned the relative part
                             of the payment for the riders that they did not use. It is noted that they made
                             no claim in respect of the riders that they did use.

                             The plaintiffs contend that in not returning the relative part of the payment for
                             the riders, Clal Insurance has seemingly violated Section 16 of the Insurance
                             Contract Law – 1981; has become unlawfully enriched on account of the
                             plaintiffs; has misled the plaintiffs contrary to the Consumer Protection Law –
                             1981; has been negligent and has breached a statutory duty. The plaintiffs also
                             contend that Clal Insurance committed these violations also with respect to the
                             other members included in the represented group.

                             The amount of the claim is NIS 292. The amount of NIS 11.5 million is stated
                             as being the amount of the claim if it is certified as a class action.

                             Clal Insurance submitted its reply to the petition in June 2007. The plaintiffs
                             submitted their reply to the reply of Clal Insurance in October 2007. In a pre-
                             trial hearing that was held in October 2007 it was decided that the plaintiffs
                             would withdraw an allegation that was raised for the first time in their reply to
                             the reply of Clal Insurance. The Court also decided that the allegation sheets
                             would be transferred, inter alia, to the Supervisor of Insurance who will
                             provide an opinion on the dispute between the parties within 45 days if
                             possible. The Court also decided, as agreed between the parties, that the
                             providers of affidavits in this case would not be questioned, and that after the
                             Supervisor of Insurance provides his opinion the parties will submit their
                             closing statements on the request.




                                                  - 72 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                2.    (Cont.)

                     c.      (Cont.)

                             Prior to filing of the petition, several petitions, dealing with a similar issue to
                             the subject of the petition, were filed to the District Court in Tel Aviv (not
                             against Clal Insurance) to certify claims as class actions (hereinafter - Parallel
                             Petitions). The hearings in the parallel petitions were consolidated and in
                             February 2008, Clal Insurance's request to also consolidate the hearing in the
                             petition together with the hearing in the parallel petitions was accepted.

                             In April 2008 the plaintiff requested to withdraw from the petition and a ruling
                             was handed down that the request was annulled and the claim rejected.

                      d.    In January 2008, a subsidiary, Clal Insurance, received a claim that was filed
                            with the Petach Tikva District Court (hereinafter – claim) as well as a petition
                            to certify the claim as a class action (hereinafter – petition).

                             The plaintiff maintains that Clal Insurance collected a premium derived from
                             the list price of the vehicle for a comprehensive vehicle property insurance
                             policy (hereinafter – the policy), while in any case of an insurance event, as
                             defined in the policy, the policyholder will be paid a benefit representing the
                             lower value of his vehicle, in accordance with the “weighted price” of the
                             vehicle, which is influenced by various parameters that affect the price of the
                             vehicle. According to the plaintiff, Clal Insurance charged an exaggerated
                             price for the policy that is not derived from the true and correct price of the
                             vehicle. As the plaintiff maintains, when the insurance contract is executed, the
                             respondent does not reveal the difference and the discrepancy between the
                             value of the vehicle for payment of the premium and its value for payment by
                             the insurance company upon the occurrence of an insurance event.

                             The plaintiff is asking the court to order Clal Insurance to refund monies paid
                             to it, which he claims (as described above), in excess. Additionally the
                             plaintiff is petitioning the court to receive declaratory relief that prevents and
                             prohibits Clal Insurance from continuing to collect from the plaintiff the
                             surplus premium amounts with respect to the insurance policy subject of the
                             claim.

                             The causes specified in the claim are, inter alia: violation of the duty of good
                             faith and disclosure requirement, misleading and/or negligent
                             misrepresentation, abuse of the plaintiff’s power with respect to its customers,
                             discriminatory terms in a standard contract, unjust enrichment, claim that the
                             sections of the policy conflict with public policy, violation of the provisions of
                             the Supervision of Financial Services Law (Insurance) 1981, violation of the
                             provisions of the Insurance Contract Law 1981 and violation of a legislated
                             obligation.




                                                  - 73 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                2.    (Cont.)

                     d.      (Cont.)

                             The group the plaintiff wishes to represent is any person or corporation that
                             meets the criteria and/or cumulative requirements, as follows: 1. Purchased a
                             policy as defined above from the respondent, in accordance with the Insurance
                             Business Supervision Regulations (Terms of Contract for Private Vehicle
                             Insurance) during the three years preceding the filing of the statement of claim.
                             2. He is the first owner of a private vehicle, and the term of ownership exceeds
                             12 months from the date on which the vehicle was purchased. 3. Average
                             annual travel of his vehicle (kilometrage) exceeds the average annual travel of
                             a private vehicle in Israel (in accordance with the criteria specified in the
                             statement of claim and the petition). 4. As of the date on which the subject
                             claim was filed, no claims on the aforementioned matters and with the causes
                             mentioned in the subject claim have been filed with the court.

                             The plaintiff believes the estimated amount of the claim with respect to all
                             members of the group, which he wishes to represent, is NIS 73.06 million. The
                             amount of the plaintiff’s personal claim is NIS 4,351.

                             Clal has responded to the petition in July 2008. A date for the hearing has been
                             set for September 2008.

                             In the opinion of the management of Clal Insurance, which is based on the
                             opinion of its legal advisors, Clal Insurance has sound arguments against the
                             request and the claim. Accordingly, the Management of Clal Insurance
                             believes, based on the opinion of its legal advisors, it is unlikely (in other
                             words, the probability is lower than 50%) that the court will accept the petition
                             and that the plaintiffs will succeed in the petition. Therefore, no provision was
                             made in the financial statements

                             Nevertheless, should the claim be certified as a class action, in the opinion of
                             the Clal Insurance management, based on the estimate of its legal advisors, it is
                             not possible, at this early stage, to estimate the prospects of the class action
                             and the scope of the financial obligation that Clal Insurance will be committed
                             to if it is recognized as a class action. This, inter alia, due to the reason that the
                             scope and the contents of the hearing of the claim itself, after it is certified as a
                             class action, will be affected by the court’s decision regarding the approval of
                             the petition for certification as a class action, which relates, generally, to the
                             grounds for the claim that were approved and those that were not approved, the
                             remedies that were approved and those that were not approved, etc.




                                                   - 74 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                2.    (Cont.)

                      e.    In February 2008, a subsidiary, Clal Insurance, received a claim that was filed
                            with the Tel Aviv-Jaffa District Court (hereinafter – claim) as well as a petition
                            to certify the claim as a class action (hereinafter – petition). The claim was also
                            filed against additional respondents, all of which are insurance companies
                            (hereinafter – the respondents).

                             The plaintiffs claim that the respondents collected a premium in respect of
                             additional insurance coverage (rider) for the theft and/or replacement of a built-
                             in audio system, as part of a comprehensive vehicle insurance policy. The
                             plaintiffs claim that payment of said premium is clearly unreasonable, as they
                             claim an original built-in audio system cannot be stolen and/or the theft of said
                             system is so extraordinary and rare that it should be seen as a case where the
                             risk of its being stolen is virtually nil (hereinafter – built-in audio system), and
                             accordingly it is unfitting to charge any amount whatsoever for its insurance
                             and/or an insurance amount equal to that collected from someone who does not
                             have an integral audio system installed in his vehicle.

                             The plaintiffs are asking the court to issue a mandatory injunction ordering the
                             respondents to refund the monies paid to them, which they claim to have been
                             for naught, as the result of the collection of the premium for insurance
                             coverage for the built-in audio system in the amount of NIS 50 for each policy
                             holder for each insurance year. Furthermore, the court was asked to issue a
                             mandatory injunction ordering the respondents to provide the plaintiffs with
                             copies of documents to assess and quantify the damage claimed and precise
                             identification of the group. Alternatively, should it be too difficult to estimate
                             the personal damage of each applicant, the court is requested to order the issue
                             of any other relief to the benefit of the group.

                             The group the plaintiffs wish to represent is any policyholder who purchased a
                             comprehensive insurance policy (an/or subscription for insurance coverage of a
                             specific package) from the respondents and who over the past seven years has
                             paid as part of the comprehensive vehicle insurance, premiums and/or
                             subscription fee for insurance coverage of the vehicle audio system, and the
                             specific model of the vehicle in respect of which the policyholder paid said
                             premium has a built-in audio system installed.

                             The causes specified in the claim are, inter alia: cancellation of provisions of
                             the policies regarding insurance of the audio system in accordance with the
                             Insurance Contract Law, 1981, and refund of the premium in accordance with
                             the Contract Law (General Part) 1973, misleading and performance of an act
                             that involves taking advantage of the distress of a consumer under the
                             Supervision of Financial Services Law (Insurance) 1981, and the Consumer
                             Protection Law, 1981 (Consumer Protection Law), violation of the duty of
                             disclosure under the Consumer Protection Law, violation of the Sales Law,
                             1968, negligence and violation of a legislated obligation, lack of good faith and
                             unjust enrichment.




                                                   - 75 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                2.    (Cont.)

                      e.    (Cont.)

                             The plaintiffs did not estimate the total amount of the claim for the entire group
                             represented, although they did note that it is reasonable to assume that it is in
                             the many tens of millions of shekels. Furthermore, the plaintiffs do not note
                             their estimation of Clal Insurance’s share in the overall amount of the claim.

                             Clal has not yet responded to the petition.       Clal’s reply is expected to be
                             submitted in the next few days.

                             Management of Clal Insurance believes, based on the opinion of its legal
                             advisors, it is unlikely (in other words, the probability is lower than 50%) that
                             the court will accept the petition and that the plaintiffs will succeed in the
                             petition. Therefore, no provision was made in the financial statements

                             Nevertheless, should the claim be approved as a class action, in the opinion of
                             the Clal Insurance management, based on the estimate of its legal counsel, it is
                             not possible, at this early stage, to estimate the prospects of the class action and
                             the scope of the financial obligation that Clal Insurance will be committed to if
                             it is recognized as a class action. (This, among other things, for reasons
                             stipulated at the end of Note 11 (a)(2)(d).

                      f.    In March 2008, a subsidiary, Clal Insurance, received a claim that was filed
                            with the Tel Aviv-Jaffa District Court (hereinafter – claim) as well as a petition
                            to certify the claim as a class action (hereinafter – petition).

                             According to the plaintiff, when a third party vehicle is damaged by a vehicle
                             insured by Clal Insurance, and the damaged party elects not to repair the
                             vehicle and claims from Clal Insurance compensation for his damage, Clal
                             Insurance requires proofs from the third party that he repaired his vehicle and
                             if it does not receive such proofs, it refrains from paying the full insurance
                             proceeds that it would have paid the third party, while signing the third party
                             on a statement of payment where only part of the insurance proceeds have been
                             paid.

                             According to the plaintiff, this practice of Clal Insurance is in contravention of
                             the provisions of sections 65, 67, 56 (a), 56 (c) of the Insurance Contracts Law,
                             1981, and section 12(a) of the addition to the Regulations Concerning
                             Insurance Transactions (Contractual Conditions for Insuring a Private
                             Vehicle), 1986.

                             The main arguments are: violation of legislated obligations, as stated above,
                             and on account of the Unjust Enrichment Law, 1979.




                                                   - 76 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                2.    (Cont.)

                      f.    (Cont.)

                             The group the plaintiff wishes to represent is: any person and/or other legal
                             entity that was entitled to have received from Clal Insurance as a third party
                             monies and/or insurance proceeds for damage to a vehicle, in the three years
                             prior to filing of this claim and Clal Insurance failed to transfer to him/her/it
                             the full monies and/or insurance proceedings to which entitled, because of not
                             having proven to Clal Insurance that the damage had been repaired. The
                             plaintiff notes that in this claim it will be possible to identify those entitled to
                             compensation from the information available to Clal Insurance.

                             The personal amount of the plaintiff’s claim is NIS 2,780. The plaintiff
                             estimates the amount of damage to the entire group at about NIS 225 million.
                             The plaintiff notes that the correct information for assessing the size of the
                             group and the scale of damage to the group is held by Clal Insurance.

                             The amount of the claim for the entire group is the amount of damage claimed
                             as stated, with in addition special compensation to the plaintiff and its legal
                             fees.

                             Management of Clal Insurance believes, based on the opinion of its legal
                             advisors, that Clal Insurance has good defense arguments against the request.
                             Therefore, the management of Clal Insurance believes, based on the opinion of
                             its legal advisors, it is unlikely (in other words, the probability is lower than
                             50%) that the court will accept the petition and that the plaintiffs will succeed
                             in the petition. Therefore, no provision was made in the financial statements

                             Nevertheless, should the claim be approved as a class action, in the opinion of
                             the Clal Insurance management, based on the estimate of its legal counsel, it is
                             not possible, at this early stage, to estimate the prospects of the class action and
                             the scope of the financial obligation that Clal Insurance will be committed to if
                             it is recognized as a class action. (This, among other things, for reasons
                             stipulated at the end of Note 11 (a)(2)(d).

                      g.    In March 2008, a subsidiary, Clal Insurance, received a claim that was filed
                            with the Tel Aviv-Jaffa District Court (hereinafter – claim) as well as a petition
                            to certify the claim as a class action (hereinafter – petition).

                             According to the plaintiff, Clal Insurance acted in contravention of the
                             provisions of section 28(a) of the Insurance Contracts Law, 1981, and of
                             Regulation 27(g) of the Addition to the Regulations Concerning Insurance
                             Transactions (Contractual Conditions for Insuring a Private Vehicle), 1986,
                             according to which, where a claim is filed for insurance proceeds, and the
                             money is paid to the claimant 30 days after presentation of the claim, the
                             insurer must add to the insurance proceeds annual interest of 4%, for the period
                             that commenced 30 days after filing of the claim until date of actual payment.




                                                   - 77 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                2.    (Cont.)

                      g.    (Cont.)

                             According to the plaintiff, Clal Insurance pays the money 30 days after filing
                             the claim while refraining from adding interest and signs the plaintiffs on
                             statements of payment. According to the plaintiffs, through said non-payment
                             of interest, Clal Insurance is enriching itself at the expense of the plaintiffs.

                             The main arguments are: violation of legislated obligations, as stated above,
                             and on account of the Unjust Enrichment Law, 1979.

                             The group the plaintiff wishes to represent is: any person who in the 7 years
                             prior to filing this claim, received from the respondent insurance proceeds for
                             damage to a private vehicle, whether insured by Clal Insurance with
                             comprehensive insurance or received insurance proceeds as a third party,
                             where insurance proceeds were paid to this person 30 days and more after
                             submitting a claim to Clal Insurance, without having added to the insurance
                             proceeds money annual interest of 4% as required by law. The plaintiff notes
                             that it will be possible to identify those entitled to compensation from the
                             information held by Clal Insurance.

                             The personal amount of the plaintiff’s claim is NIS 10. The plaintiff estimates
                             the amount of damage to the entire group at about NIS 28.7 million. The
                             plaintiff notes that the correct information for assessing the size of the group
                             and the scale of damage to the group is held by Clal Insurance.

                             The amount of the claim for the entire group is the amount of damage claimed
                             as stated, with in addition special compensation to the plaintiff and legal fees.

                             Management of Clal Insurance believes, based on the opinion of its legal
                             advisors, that Clal Insurance has good defense arguments against the request.
                             Therefore, the management of Clal Insurance believes, based on the opinion of
                             its legal advisors, it is unlikely (in other words, the probability is lower than
                             50%) that the court will accept the petition and that the plaintiffs will succeed
                             in the petition. Therefore, no provision was made in the financial statements

                             Nevertheless, should the claim be approved as a class action, in the opinion of
                             the Clal Insurance management, based on the estimate of its legal counsel, it is
                             not possible, at this early stage, to estimate the prospects of the class action and
                             the scope of the financial obligation that Clal Insurance will be committed to if
                             it is recognized as a class action. (This, among other things, for reasons
                             stipulated at the end of Note 11 (a)(2)(d).




                                                   - 78 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                h.    In April 2008, a subsidiary, Clal Insurance, received a claim that was filed with the
                      Jerusalem Labor Court (hereinafter – claim) as well as a petition to certify the claim as
                      a class action (hereinafter – petition).

                      According to the plaintiff, Clal Insurance determined in an “Executive Pension Plan”
                      insurance policy that the pension coefficient according to which insured women will
                      be paid the insurance proceeds, when they reach retirement age, will be lower than
                      that of insured men, because of the longer life expectancy of women. And yet the
                      respondent collected and continues to collect from insured women risk premiums
                      identical to those it charges men, notwithstanding the fact that the women’s mortality
                      rates are much lower than those of men. According to the plaintiff in 2001 or close
                      thereto the respondent modified the policies, but only in respect of new policies.

                      The principal relief sought from the court is to rule
                           that:

                      1)    The discrimination practiced by the respondent is in contravention of the law
                            and any provision and/or action based on this discrimination be declared null
                            and void.

                      2)    The plaintiff and the other members of the group it seeks to represent (‘the
                            Group”) is entitled to select between the following alternatives: (1) To equalize
                            the pension coefficient for an insured woman and an insured man and to rule
                            that in the event of a one-time payment instead of a pension, the one-time
                            payment shall be increased to the insured woman, in the ratio of the pension
                            coefficient of an insured man to the pension coefficient of an insured woman at
                            the relevant age. (2) To reduce both retroactively and prospectively the amounts
                            for risk charged to the plaintiff and to set them at appropriate risk amounts,
                            according to the plaintiff, for an insured woman, whereby the reduced amounts
                            shall be added to the accumulated amount of savings.

                     3)      To issue similar rulings in respect of the other members of the group who have
                             not been located or have not exercised their right to select between these
                             choices.

                     The reasons argued in this claim are, inter alia, violation of the principle of equality
                     and discriminatory behavior, discriminatory terms in a standard contract, lack of good
                     faith and unjust enrichment.

                     The group the plaintiff seeks to represent is all women who purchased from the
                     respondent “Executive Pension Plan” insurance policies wherein are made distinctions
                     between men and women in respect of pension payments, whereas no distinctions are
                     made between the sexes in respect of the risk premium.

                     The plaintiff does not stipulate the amount of damage caused her and in the absence of
                     the required data to assess the exact monetary amount, she estimates the overall
                     amount of damage to the members of the group at millions of shekels.




                                                  - 79 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                h.    (Cont.)

                      Management of Clal Insurance believes, based on the opinion of its legal advisors,
                      that Clal Insurance has good defense arguments against the request. Therefore, the
                      management of Clal Insurance believes, based on the opinion of its legal advisors, it
                      is unlikely (in other words, the probability is lower than 50%) that the court will
                      accept the petition and that the plaintiffs will succeed in the petition. Therefore, no
                      provision was made in the financial statements

                      Nevertheless, should the claim be approved as a class action, in the opinion of the
                      Clal Insurance management, based on the estimate of its legal counsel, it is not
                      possible, at this early stage, to estimate the prospects of the class action and the scope
                      of the financial obligation that Clal Insurance will be committed to if it is recognized
                      as a class action. (This, among other things, for reasons stipulated at the end of Note
                      11 (a)(2)(d).


                i.    In April 2008, a subsidiary, Clal Insurance, received a claim that was filed with the
                      Petach Tikva District Court (hereinafter – claim) as well as a petition to certify the
                      claim as a class action (hereinafter – petition).

                      According to the plaintiff, in risk policies sold by it until the end of 1998, and in
                      combined policies that combine risk and savings that were sold by it until the end of
                      1999, Clal Insurance used outdated mortality tables that had been drawn up in the
                      1950s, for the purpose of calculating the premium for the risk element in the
                      insurance policies sold by it for decades thereafter, when there already existed more
                      updated tables.

                      The main reasons advanced for the claim are inter alia: violation of the obligation of
                      trust, deception, violation of the obligation of full disclosure, lack of good faith,
                      discriminatory condition under the Law of Standard Contracts, and unjust
                      enrichment.

                      The group the plaintiff seeks to represent is all policyholders of Clal Insurance who
                      took out a life insurance, executive pension or personal insurance contract from
                      July 31, 1998 and whose policies include risk cover, provided up to the age of 65 or
                      over and for the purposes of their insurance use was made of mortality tables A49-52
                      and those derived from them.

                      The plaintiff states that he does not have precise knowledge of the estimated,
                      maximum number of members of the group, and estimates the maximum number of
                      group members is likely to reach tens of thousands and even hundreds of thousands.




                                                  - 80 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                i.    (Cont.)

                     The plaintiff states that the damage caused to him and to the others in the group is
                     equivalent to the amount by which the premium collected in practice was greater than
                     the correct premium that should have been set had use been made of an updated and
                     applicable mortality table, plus the cost load element.

                     The plaintiff seeks, inter alia, that the court shall hand down declarative relief in
                     respect of the discrimination and/or injustices caused by Clal Insurance, as described
                     above.

                     Further, the plaintiff seeks that the court declare that the correct mortality tables for
                     calculating the premium are other tables offered by it and that the court order Clal
                     Insurance to make a repayment for the excess premium charged.

                     At this early stage it is not yet possible to assess the chances of the claim and the
                     request. No provision has been made for this claim in the financial statements.

                j.   In May 2008, a claim that was filed with the Tel Aviv Jaffa District Court against the
                     Company (hereunder – the claim) was received at the offices of the subsidiary – Clal
                     Insurance. The claims was filed together with a request to approve the claims as a
                     class action (hereunder – the request).

                     The claim and the request relate to a health insurance plan which includes, among
                     others, a coverage for pregnancy tests. The plaintiffs, who are a father and his
                     daughter who is a minor, joined the insurance in 2006, contend that the plaintiff will
                     never be able to realize the above coverage and his daughter will not need it at least till
                     she reaches adulthood. Therefore, there is no point in providing them and all the other
                     relevant policyholders with this insurance coverage. The plaintiffs contend that this is
                     an unnecessary payment of premium in respect of a risk that they will never realize.

                     The plaintiffs request to approve the claim as a class action in the name of a group that
                     includes policyholders of Clal Health who are men or women (including minors) who
                     are not at the age of fertility and they were charged for premiums in respect of
                     pregnancy tests.

                     The plaintiffs demand that the Court will declare that Clal Health is not entitled to
                     collect premiums from men or women who are not at the age of fertility, for pregnancy
                     tests, that it will issues an injunction that prohibits Clal Health to collect premiums
                     from men or women who are not at the age of fertility, for pregnancy tests and that the
                     Court will rule that Clal Health will refund the policyholders who are the group
                     members for all the sums of money that were collected in excess with respect to
                     pregnancy tests during the seven years prior to filing the claim, plus linkage
                     differences and interest from the date of charge.




                                                   - 81 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                j.    (Cont.)

                     The claim was filed pursuant to the Class Actions Law, 2006. The grounds for the
                     claim are, among others, a breach of contract, mala fides with respect to fulfilling a
                     contract, oppression pursuant to the Civil Wrongs Law, unlawful enrichment, deceit
                     pursuant to the Civil Wrongs Law, mala fides under negotiations for signing an
                     agreement and breaching the Supervision of Financial Services (Insurance) Law, 1981.

                     The amount of the plaintiffs’ personal claim is NIS 148 (one hundred and forty eight).
                     The plaintiffs contend that the proportional part of this insurance coverage, out of the
                     total premium they had paid the company amounts to NIS 120 for two years (with
                     respect to the plaintiff) and NIS 28 for two years (with respect to the other plaintiff
                     who is his minor daughter). The total amount of the plaintiffs’ personal claim is NIS
                     148 (for two years). The amount of the claim, if it will be approved as a class action, is
                     NIS 50,000,000 (fifty million). The plaintiffs reserve their right to increase this
                     amount according to information and details that they will receive from Clal Health
                     with respect to the rate of the average premium, the rate of the premium relevant to the
                     pregnancy test, the number of insurances and a breakdown of the relevant group.

                     Management of Clal Insurance believes, based on the opinion of its legal advisors, it is
                     unlikely (in other words, the probability is lower than 50%) that the court will accept
                     the petition and that the plaintiffs will succeed in the petition. Therefore, no provision
                     was made in the financial statements

                     Nevertheless, should the claim be approved as a class action, in the opinion of the Clal
                     Insurance management, based on the estimate of its legal counsel, it is not possible, at
                     this early stage, to estimate the prospects of the class action and the scope of the
                     financial obligation that Clal Insurance will be committed to if it is recognized as a
                     class action. [This, among other things, for reasons stipulated at the end of Note 11
                     (a)(2)(d)].

                k.   In January 2008, a subsidiary, Clal Insurance received a claim that was filed against it
                     with the Tel Aviv Jaffa District Court (hereunder – the claim), together with a request
                     to approve the claim as a class action (hereunder – the request). The claim was filed by
                     several plaintiffs and against other respondents, all of which are insurance companies.

                     The claim involves management fees collected by the respondents for a profit-
                     participating life assurance policy (hereunder – the policy). The plaintiffs’ allegation
                     against Clal Insurance is that between 1992 and 2003, Clal Insurance collected from
                     him for the policy, fixed management fees at a rate that was higher than the maximum
                     allowed, which he claims is based on the revaluated value of Clal Insurance’s
                     investment portfolio, which is in contradiction with the Supervision of Insurance
                     Business Regulations (Conditions of Insurance Contracts), 1981 and in the amendment
                     to the Supervision of Insurance Business Regulations (Conditions of Insurance
                     Contracts) (amendment), 1995 (hereunder – the Regulations). The plaintiff further
                     claims that Clal Insurance collected variable management fees, based on Clal
                     Insurance’s return, in real terms, from the investment portfolio, net of the fixed
                     management fees, each month and not at the end of the year, thus preventing the
                     plaintiff from earning the return on the management fees collected during the year.



                                                  - 82 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                k.    (Cont.)

                     Accordingly, the plaintiff claims against Clal Insurance that by doing so Clal Insurance
                     breached the provisions of the Supervision of Financial Services (Insurance) Law,
                     1981 and the Regulations pursuant thereto, it breached the circulars of the Supervision
                     of Insurance, it misled its policyholders, it misused its position as a monopole in the
                     insurance market, it unlawfully enriched, mala fides protection, breached the
                     provisions of the policy and held depriving conditions in a policy which forms a
                     standard contract.

                     The requested remedies are the refund of all the amounts that were collected illegally
                     by the respondents, as well as a mandatory injunction instructing the respondents to
                     change their manner of operation with respect to the issues detailed in the claim.

                     In the event that the claim will be approved as a class action, the amount claimed from
                     all of the respondents is estimated by the plaintiffs at about NIS 244 million, of which
                     the amount claimed from Clal Insurance is NIS 56 million.

                     Management of Clal Insurance believes, based on the opinion of its legal advisors, it is
                     unlikely (in other words, the probability is lower than 50%) that the court will accept
                     the petition and that the plaintiffs will succeed in the petition. Therefore, no provision
                     was made in the financial statements

                     Nevertheless, should the claim be approved as a class action, in the opinion of the Clal
                     Insurance management, based on the estimate of its legal counsel, it is not possible, at
                     this early stage, to estimate the prospects of the class action and the scope of the
                     financial obligation that Clal Insurance will be committed to if it is recognized as a
                     class action. (This, among other things, for reasons stipulated at the end of Note 11
                     (a)(2)(d).

                l.   In January 2008, a subsidiary, Clal Insurance received a claim that was filed against it
                     with the Tel Aviv Jaffa District Court (hereunder – the claim), together with a request
                     to approve the claim as a class action (hereunder – the request). The claim was filed by
                     several plaintiffs and against other respondents, all of which are insurance companies.

                     The claim involves a payment referred to as “sub-annual”, which is a payment
                     collected in insurance policies in which the insurance rate is fixed in an annual amount,
                     while payment is made in several installments (hereunder – sub-annual). The plaintiff
                     argues against Clal Insurance, stating that Clal Insurance collects sub-annual payment
                     in an amount that exceeds the amount allowed. The plaintiff contends this was done in
                     several ways: collection of sub-annual with respect to the “policy factor”, collection of
                     sub-annual at a rate that is higher than the permitted rate according to the Supervision
                     of Insurance’s circulars, collection of sub-annual with respect to the savings component
                     in life insurance policies and collection of sub-annuals with respect to policies that are
                     not life insurance policies.




                                                  - 83 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                l.    (Cont.)

                     Accordingly, the plaintiff claims against Clal Insurance that by doing so Clal Insurance
                     breached the provisions of the Supervision of Financial Services (Insurance) Law,
                     1981 and the Regulations pursuant thereto, it breached the circulars of the Supervision
                     of Insurance, it misled its policyholders, it misused its position as a monopole in the
                     insurance market, it unlawfully enriched, its conduct was in mala fides, breached the
                     provisions of the policy and held depriving conditions in a policy which forms a
                     standard contract.

                     The requested remedies are the refund of all the amounts that were collected illegally
                     by the respondents, as well as a mandatory injunction instructing the respondents to
                     change their manner of operation with respect to the issues detailed in the claim.

                     In the event that the claim will be approved as a class action, the amount claimed from
                     all of the respondents is estimated by the plaintiffs at about NIS 2.3 billion, of which
                     the amount claimed from Clal Insurance is about NIS 543 million.

                     Management of Clal Insurance believes, based on the opinion of its legal advisors, it is
                     unlikely (in other words, the probability is lower than 50%) that the court will accept
                     the petition and that the plaintiffs will succeed in the petition. Therefore, no provision
                     was made in the financial statements

                     Nevertheless, should the claim be approved as a class action, in the opinion of the Clal
                     Insurance management, based on the estimate of its legal counsel, it is not possible, at
                     this early stage, to estimate the prospects of the class action and the scope of the
                     financial obligation that Clal Insurance will be committed to if it is recognized as a
                     class action. (This, among other things, for reasons stipulated at the end of Note 11
                     (a)(2)(d).

                m.   In August 2008, a subsidiary, Clal Insurance received a claim that was filed against it
                     with the Tel Aviv Jaffa District Court (hereunder – the claim), together with a request
                     to approve the claim as a class action (hereunder – the request), according to the Class
                     Actions Law, 2006.

                     The plaintiff contends that Clal Insurance acts in contradiction to the provisions of
                     Sections 65, 67, 56(a) and 56(c) to the Insurance Contract Law, 1981, Section 12(a) to
                     the addition to the Supervision of Insurance Business Regulations (Contract Conditions
                     for Insurance of a Private Vehicle), 1986 and the instruction of the Regulator of
                     Insurance, which instruct that when a third party claim is filed for insurance benefits,
                     the insurer should pay the third party all the amounts that the policyholder had to pay
                     for the insurance event, including the total appraiser’s fees that the third party paid to
                     the appraiser, in order for him to perform an assessment of the damage in respect of
                     that insurance event. The plaintiff contends that the respondent refrains from paying
                     and/or refunding the third party for the total appraiser’s fee which the third party paid
                     for preparing the appraiser’s assessment in respect of the damage to the vehicle.




                                                  - 84 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                m.   (Cont.)

                     The grounds for the claim are a breach of a legislated duty and an unlawful
                     enrichment.

                     The group that the plaintiff wishes to represent is any person and/or any other legal
                     entity, who was entitled to receive from the respondent, as a third party, monies and/or
                     insurance benefits for damage to the vehicle, including the sums of money for the
                     appraiser’s fees, which were paid to any appraiser, in order to prepare an assessment of
                     the damage to the vehicle, during the 7 years prior to the date this claim was filed, and
                     the respondent did not reply and/or pay him the total sum he paid for the appraiser’s
                     fees and/or part of it.

                     The plaintiff notes that he does not have the proper information in order to correctly
                     estimate the size of the group and the compensation due to the public and that those
                     who are entitled to compensation under the claim can be found according to the data
                     that is in the possession of Clal Insurance.

                     Based on assumptions that are based on data from the respondent’s financial
                     statements, the plaintiff sets the amount of the damage to the entire group, as defined
                     above, at NIS 32,060,000 to the group members, either directly or through a
                     compensation to the public, plus a special compensation to the plaintiff and lawyers
                     fees.

                     At this stage Clal Insurance is still studying the claim and the request.

                n.   In August 2008, a subsidiary, Clal Insurance received a claim that was filed against it
                      with the Tel Aviv Jaffa District Court (hereunder – the claim), together with a request
                      to approve the claim as a class action (hereunder – the request), according to the Class
                      Actions Law, 2006.

                     The plaintiff contends that Clal Insurance acts in contradiction to the provisions of
                     Section 1 to the addition to the Supervision of Insurance Business Regulations
                     (Contract Conditions for Insurance of a Private Vehicle), 1986 (“the Standard Policy”)
                     by not compensating the respondent’s policyholders of automobile insurance for the
                     damage that was caused to the means of protection that was installed in the vehicle at
                     its demand and signing the policyholders on a statement of settlement, illegally and
                     against the directives of the Regulator of Insurance.

                     The grounds for the claim are a breach of a legislated duty and an unlawful
                     enrichment.

                     The group the plaintiff wishes to represent is any policyholder who received from the
                     respondent commencing from April 1, 2004, insurance benefits for damages to his
                     private or commercial vehicle up to 4 tons, as well as for total loss, a constructive loss,
                     or theft when he was insured with the respondent according to Chapter A to the
                     Standard Policy and he did not receive all and/or part of the insurance benefits for the
                     loss or damage that were caused to the means of protection as mentioned.




                                                   - 85 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          a.    Class actions and significant petitions to certify class actions (cont.)

                n.   (Cont.)

                     The plaintiff notes that he does not have the proper information in order to correctly
                     estimate the size of the group and the compensation due to the public and that those
                     who are entitled to compensation under the claim can be found according to the data
                     that is in the possession of Clal Insurance.

                     Based on the data from the respondent’s financial statements and on the assumption
                     that the amount of the protective means that was not paid as a compensation, is about
                     2% of the amount of the insurance benefits that were paid by Clal Insurance every
                     year, the plaintiff sets the amount of the damage to the entire group, as defined above,
                     at NIS 48,870,000.

                     The main remedy that is demanded by the plaintiff is the payment of the
                     aforementioned amount to the group members, directly or by means of a compensation
                     in favour of the public.

                     At this stage Clal Insurance is still studying the claim and the request.

          b.    Material Claims

                1.    In March 2008 a subsidiary, Guard, received a third party notice filed in court in
                      Illinois, USA (hereinafter, “the claim”) against it and against many other US
                      insurance companies, who were members of the Board of Governors of the National
                      Workers’ Compensation Reinsurance Pool (“the Pool”), as detailed below.

                      The said pool is to ensure workers’ compensation type insurance, which is mandatory
                      in the USA, in cases where insurance companies in the market refuse to insure them.
                      There are hundreds of insurance companies in the pool, run by the Board of
                      Governors, to which a number of companies from the pool are appointed from time to
                      time.

                      This is against a background of legal proceedings that have been running for several
                      years against the insurance company American International Group Inc. and its
                      subsidiaries (hereinafter “AIG”). In the proceedings it is claimed that AIG, a pool
                      company, misled members of the pool in its reports concerning its premiums,
                      deliberately reducing the premium amounts reported, thereby reducing AIG’s share of
                      the pool’s costs (and of course increasing the share of other members of the pool).

                      In the compromise AIG reached in 2006 with the Attorney General for the State of
                      New York, AIG admitted to the said actions and agreed to set up a compensation fund
                      for the said reduction of its share, for hundreds of millions of dollars.

                      Notwithstanding this agreed compromise, the pool filed a civil claim against AIG to
                      the court in Chicago for approximately a billion dollars, on the grounds that the
                      amount of the compromise is not fair compensation for damages incurred by the pool.




                                                   - 86 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          b.    Material Claims

                1.    (Cont.)

                      In response, on March 18, 2008 AIG submitted a statement of defense and a third party
                      notice against members of the pool’s Board of Governors at the time the pool, including
                      Guard, filed its claim. AIG claimed that some members of the pool, among whom Guard
                      was not included, used to unlawfully report reduced premiums to the pool (similar to the
                      behavior to which AIG had admitted), and that they too benefited from reduced shares of
                      the pool’s costs.

                      In addition, AIG claimed that the members of the Board of Governors, including Guard,
                      attempted a conspiracy against AIG in order to weaken it and harm its reputation, inter
                      alia by setting up obstacles for AIG in correcting the shortcomings to which it had
                      admitted and by preventing the identifications of shortcomings in the behavior of other
                      members of the pool.

                      The grounds of the claim are lack of good faith, conspiracy, embezzlement, breach of
                      the obligation of trust and grounds under the racketeering law (hereinafter “RICO
                      Law”).

                      To the best of Guard’s knowledge, the amount claimed is not stated in the claim,
                      however, the plaintiffs seek compensation to cover the damage caused them by the
                      said actions, plus interest and legal fees. They are also seeking penal compensation
                      and compensation of three times the value as provided under the RICO law.

                      Guard has not yet submitted a statement of defense against the claim.

                      In the opinion of Guard’s management, based upon the assessment of its legal counsel, it
                      is more reasonable than not that Guard will overcome AIG’s claims. Accordingly, in the
                      opinion of Guard’s management, based upon the assessment of its legal counsel, if Guard
                      carries on its defense until a ruling, it is not expected (namely, chances do not exceed
                      50%) that AIG’s claims against Guard will succeed and that the ruling that will be
                      handed down will be in favor of AIG and against Guard. Accordingly, in the opinion of
                      Guard’s management, based upon the assessment of its legal counsel, the likeliness that
                      Guard will be found responsible in a court ruling to pay any amounts based upon the said
                      claim does not exceed 50%. Therefore, no provision was made in the financial
                      statements.

                      It should be noted that to the best of the knowledge of Guard’s management, members of
                      the Board of Governors are entitled to indemnity in respect of their work on behalf of the
                      pool, subject to it being proven that they did not act out of malice and/or in an improper
                      manner and/or contrary to the provisions of the law and/or committed criminal acts.




                                                  - 87 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          b.    Material Claims (Cont.)

                2.    In January 2006, E.M.M. Insurance Agency (1998) Ltd. (hereinafter – Hachi Yashir),
                      an insurance agency which, inter alia, served as a mediator for Clal Insurance in the
                      sale of insurance business to borrowers of mortgage banks, filed a motion with the Tel
                      Aviv-Jaffa District Court, against Clal Insurance, to impose on Clal Insurance, within
                      the framework of a requested interim order, to continue to pay Hachi Yashir
                      commissions and advance payments according to the agreement between the parties of
                      May 2002 (hereinafter – the agreement). The motion to issue the interim order ex parte
                      was dismissed due to laches.

                      At the same time, in February 2006, Clal Insurance filed a motion with the Tel Aviv-
                      Jaffa District Court to appoint a temporary and permanent receiver, by virtue of a
                      bond, as well as to enforce pledges against Hachi Yashir that were registered by virtue
                      of the agreement, in respect of Hachi Yashir’s debt to Clal Insurance from the payment
                      of loans and advance payments.

                      The Israeli Phoenix Insurance Company Ltd. filed a motion to join the petition for
                      receivership.

                      In parallel to the petition for receivership, a temporary liquidator was appointed for Hachi
                      Yashir according to the petition filed with the Tel Aviv-Jaffa District Court by Hachi
                      Yashir’s employees. In view of the appointment of the liquidators, and in view of the
                      fact that the portfolio preservation is carried out by Clal Insurance with the liquidators’
                      consent, Clal Insurance informed the court that the hearing in respect of the motion to
                      appoint a temporary receiver is unnecessary. In May 2006 a permanent liquidation order
                      was issued for Hachi Yashir and the temporary liquidators were appointed as its special
                      managers.

                      In March 2006 the temporary liquidators published an invitation to submit offers to
                      acquire the assets and rights of Hachi Yashir. After publication of the invitation, offers
                      were submitted by various parties, including by Clal Insurance. Ultimately the
                      liquidators entered into agreements to sell all the assets and rights of the insurance
                      portfolio. Clal Insurance purchased the insurance portfolio of Hachi Yashir with respect
                      to its insurance. On May 10, 2006 (at the same time as appointment of the
                      aforementioned special managers) the sale agreement was approved by the court.

                      In May 2007, Clal Insurance and Hachi Yashir filed mutual statements of claim to the
                      arbitrator appointed with the agreement of the parties.

                      Hachi Yashir claims that Clal Insurance violated the partnership agreement in the area of
                      mortgage insurance that was executed between the parties in May 2002 (hereinafter “the
                      Agreement”). Hachi Yashir claims, inter alia, that Clal Insurance did not transfer and/or
                      reduced commissions and/or advance payments that were due to Hachi Yashir under the
                      agreement; that Clal Insurance prevented Hachi Yashir from accepting new customers,
                      and in this regard blocked it from contacting customers of specific banks; that Clal
                      Insurance prevented Hachi Yashir from issuing debentures to be backed by future flow of
                      commissions from the sale of policies; that Clal Insurance did not perform its obligation
                      for a trustee mechanism for the funds of the premiums collected from the policyholders;
                      and finally, that Clal Insurance unilaterally cancelled the agreement.




                                                   - 88 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          b.    Material Claims (Cont.)

                2.    (Cont.)

                      The causes for the claim on which Hachi Yashir relies are, inter alia: breach of contract,
                      negligence, unjust enrichment, wrongdoings under the Antitrust Law, action in
                      contravention of the Commercial Wrongdoings Law and breach of contract. Hachi
                      Yashir claims that the acts and/or omissions of Clal Insurance led to the collapse of Hachi
                      Yashir, to the cessation of its activities and liquidation. Hachi Yashir puts the value of its
                      claim at NIS 206 million (plus expenses and legal fees of 15%), an amount that it claims
                      reflects the value at which it was valuated prior to its collapse. In addition, Hachi Yashir
                      is demanding that the arbitrator issue an order for the issue of accounts to show cause of
                      unjust enrichment.

                      Clal Insurance submitted a statement of claim to the arbitrator in the amount of NIS 26.3
                      million against Hachi Yashir, with respect to Hachi Yashir’s debts to it, attributable to the
                      loans Clal Insurance extended to Hachi Yashir and which were not paid back, as well as a
                      motion to recognize the amount paid by Clal Insurance to purchase the customer
                      portfolio from the Hachi Yashir liquidator (in the amount of NIS 3 million) as an amount
                      included in the existing lien that Clal Insurance has on the assets of Hachi Yashir. The
                      liquidators of Hachi Yashir are refusing to view the decision of the arbitrator issued in the
                      said claim of Clal Insurance as a decision in the claim for the debt as part of the
                      dissolution processes of Hachi Yashir, and even argue that Clal Insurance cannot now file
                      proof of debt in this matter. Clal Insurance filed a petition for issue of instructions and
                      appeal with the district court with respect to the said decision of the liquidators.

                      The parties completed the preliminary arbitration proceedings, the process of hearing
                      the evidence has begun, and the arbitrator hired a value assessor to consider the
                      economic value of Hachi Yashir, which is one of the disputed items between the
                      parties. In the economic expert opinion submitted by the assessor to the arbitrator in
                      May 2008 the value of Hachi Yashir was estimated at December 31, 2005 at NIS 15
                      million (as a reasonable representative value of the spread of values for the agency
                      that range between zero and NIS 30 million). Cross-examination of the witnesses for
                      the parties has not yet been completed, including cross-examination of the assessor.

                      In the opinion of the management of Clal Insurance, which is based on the opinion of
                      its legal advisors, Clal Insurance has sound arguments against the claim. Accordingly,
                      in the Management’s opinion, based on the estimate of its legal advisors, it is not
                      expected (in other words, the probability does not exceed 50%) that the arbitrator will
                      accept the claim and that Hachi Yashir will win its claim. Accordingly, in the opinion
                      of Clal Insurance’s management, based upon the assessment of its legal counsel, the
                      likeliness that Clal Insurance will be obliged to pay any amounts based upon the said
                      claim does not exceed 50%. Therefore, no provision was made in the financial
                      statements




                                                    - 89 -
                                                CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 11 - CONTINGENT LIABILITIES (Cont.)

          b.    Material Claims (Cont.)

                3.   In August 2001 an indictment was submitted to the Court against two former
                     employees of subsidiaries of the subsidiary – Clal Finance. The two were convicted
                     for an attempt to deceitfully influence the stock rates in March 1998. The
                     aforementioned indictment does not relate to the subsidiaries of Clal Finance. The
                     verdict that was given in October 2004, acquitted the two defendants from all charges.
                     In January 2005, an appeal was filed on behalf of the plaintiffs, which was dismissed
                     by the appeal instances in July 2008 and thus the decision that was made in the first
                     instance remained in force.

                      There has been no material change in the material claims as presented in Note 35b in
                      the 2007 financial statements.

          c.    In addition to what is stated in Notes 35(a) and 35(b) to the Company’s 2007 financial
                statements, as updated by Notes 11(a) and 11(b) above, the Company and/or its subsidiaries
                are parties to further legal proceedings, which are not insurance claims, initiated by clients,
                past clients and various third parties, in an amount of NIS 26.3 million. The grounds for the
                claims against the Company and/or its subsidiaries in these proceedings are many and
                varied. In the opinion of the Company’s management and/or of the managements of the
                subsidiaries, based upon legal advice concerning the said outstanding claims, the financial
                statements include satisfactory provisions in accordance with accepted accounting practice
                to cover possible damage from all these claims, where a provision is required.

          d.    The overall amount of the provision for claims filed against the Company and or
                subsidiaries as specified in Notes 35(a) clauses 3, 11, 12 and 14, and 35(b) (4) of the
                Company’s 2007 financial statements, as updated as far as possible by Notes 11(a) and 11
                (b) above, and for claims filed against the Company and/or its subsidiaries as detailed in
                Note 11(c) above, come to about NIS 150.9 million. Against a sum for claims of about NIS
                110.3 million, plus expenses, revenue and tax credits have been recognized in an identical
                amount to the claims and expenses under the indemnity commitment stated in Note 35(b)(4)
                to the Company’s 2007 financial statements.




                                                   - 90 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 12: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD

          a.    On January 2, 2008, Clal Finance Trusts 2007 Ltd. (“Clal Trusts”) entered into an
                agreement with Ubank Trust Company Ltd. ("Ubank Trust").

                 Under the agreement, Ubank Trust will transfer to Clal Trusts the provision of the trust
                 services of about 50 debenture series for which Ubank Trust serves as trustee, so that for
                 each such series of debentures Clal Trusts will take over from Ubank Trust in the matter of
                 the deed of trust under which that series was issued, and the trust services for this series of
                 debentures will be provided by Clal Trusts instead of by Ubank Trust ("trustee replacement
                 proceeding"). The parties determined a mechanism for calculating the consideration in a
                 transaction, based on parameters of the profitability of Clal Trusts from the transferred
                 series.

                 The trustee replacement proceeding, for each series, is subject to various conditions which
                 include the consent of the issuing corporation to the replacement, the approval of the court
                 for the resignation of Ubank Trust from its office as trustee, the approval of the court for
                 the appointment of Clal Trusts as trustee instead of Ubank Trust and/or the approval of the
                 general meeting of the holders of the series of debentures for the appointment of Clal
                 Trusts.

          b.    On March 31, 2008, a subsidiary of Clal Finance’s , Titanium Asset Management Corp
                (“Titanium”) completed Titanium’s entry into an agreement to acquire all the issued capital
                of National Investment Services, Inc.

                 National Investment Services, Inc. (“NIS”), a company incorporated under the laws of
                 Wisconsin, USA, which manages investments and sells and distributes financial products.
                 As of December 31, 2007, NIS has about USD 3.2 billion in investment portfolios and
                 funds under direct management, as well as assets of USD 900 million. In consideration for
                 the acquisition of said shares, Titanium will pay the sellers, on the transaction closing date,
                 the sum of approximately USD 28.5 million, and deferred payments, amounting to close to
                 USD 6.85 million.

                Titanium allocated the excess of cost created in respect of the acquisition as follows:

                 The amount of USD 12,000 thousand attributed to the existing investment, the amount of
                 USD 351 thousand attributed to goodwill, the amount of USD 875 thousand attributes to
                 non competition agreement. The balance volume of USD 19,135 thousand will be
                 attributed to goodwill when an examination of impairment is performed for the year.

                 The completion of the transaction constitutes a Qualified Business Combination, meaning
                 an investment reflecting the objectives of Titanium, which in combination with other
                 acquisition transactions conducted by Titanium, has a value of at least 70% of the funds in
                 trust. Therefore:

                 -     The approval of the shareholders of Titanium will no longer be required for making
                       an additional investment in accordance with the objectives of Titanium, except for
                       the cases which were listed in Titanium's proposal document, and the shareholders
                       shall no longer be entitled to demand that their shares in Titanium be purchased by
                       Titanium (repurchase right).




                                                   - 91 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 12: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (Cont.)

          b.    (Cont.)

                -      The balance of the Titanium offering proceeds will be transferred from the trust
                       account in which they were deposited to the Company, and will be used by Titanium
                       to manage its business, and accordingly, the liability of external shareholders in the
                       amount of approximately NIS 50 million was reclassified as shareholders equity.

                -      Titanium will take reasonable action to register under US law within 120 days of the
                       date of completion.

                -      The options issued by Titanium can be exercised.

                On March 31, 2008, Clal Finance signed an agreement with a third party for the purchase of
                385,400 ordinary shares in Titanium ("Shares”) at USD 4.8 per share and 385,400 Titanium
                warrants at USD 0.9 per warrant. Following completion of the transaction and the date of
                these statements, Clal Finance owns 10,485,400 shares, representing 51.3% of Titanium’s
                issued shares and 10,485,400 Titanium warrants.

                On July 25, 2008 Titanium submitted to the US Securities and Exchange Commission
                (“SEC”) a request to be listed in the U.S. under the US Securities and Exchange Act of 1934
                (“the listing document”). The listing document will enter into force within 60 days of said
                submission.

          c.    On June 29, 2008, Clal Finance’s Board of Directors came to a decision with respect to
                internal organizational changes in Clal Finance and in companies it controls (hereunder – the
                Clal Finance Group) in order to increase the efficiency in utilizing the organizational
                resources for supporting all the products and services of Clal Finance. Under these
                organizationl changes the Clal Finance Group will make a structural separation between
                “Sell Side” activities (mainly relating to providing brokerage and underwriting services) and
                “Buy Side” activities (which is involved with management of investment portfolios for the
                Group’s customers). At this stage this is only an internal structural change which is aimed at
                higher efficiency. During the third quarter of 2008, Clal Finance will examine the option of
                performing a legal change in the Group’s structure, subject to the examination of tax and
                accounting implications that might arise from the said change. At this stage it is not certain
                whether a legal structural change will actually be performed.

                Under the organizational change it was decided, among others, that there will be a uniform
                brand name for the whole variety of products and services that the Clal Finance Group
                provides for its customers under the name “Clal Finance”. Accordingly, close to the time the
                financial statements for the second quarter were published, the management examined the
                future use of the brand name “Ilanot” with respect to the mutual funds activities of the Clal
                Finance Group. Since the management estimates that the name “Ilanot” is not expected to
                continue to be used in the foreseeable future, it was decided to decrease the value of the
                excess of cost of acquisition that was attributed to the brand name “Ilanot”, whose value as at
                June 30, is about NIS 21.6 million. Concurrently, the liability for deferred taxes in the
                amount of NIS 7.6 million that was attributed in respect of the aforementioned excess of
                cost, was realized.




                                                   - 92 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 12: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (Cont.)

          c.    (Cont.)

                In addition, and in view of the significant decrease in the amount of assets managed in the
                Group’s mutual funds, in the bonds and shares tracks during the first half of the year 2008
                (and despite the significant increase in the volume of lump sum funds managed by the Clal
                Finance Group, that were marketed from January 2008), the management decided to regard
                the aforementioned as signs that indicate that there might be an impairment in the value of
                the goodwill that is reported in the Company’s consolidated financial statements and
                allocated to the mutual funds’ activities managed by the Clal Finance Group, an activity
                which forms a cash generating unit as described in IFRS 36 with respect to the impairment in
                value of assets. In order to estimate the value of the goodwill that is reported in the
                Company’s consolidated financial statements and attributed to the Group’s mutual funds
                activities, Clal Finance received, close to the time of publication of the financial statements,
                a report from an independent external appraiser, following which decreasing the goodwill, as
                mentioned above, was no longer required. The external appraiser’s report was attached to
                the financial statements of Clal Finance which were reported in the Magna on August 12,
                2008.

          d.    Following an amendment to the National Health Insurance Law, which does not allow health
                care organizations to provide nursing care services in the framework of supplemental health
                services, nursing care insurance coverage to date has been granted to members of all health
                care organizations, with the exception of Maccabi Health Services, through insurance
                companies.

                In accordance and further to the decision of the High Court of Justice on this matter in
                August 2006, in July 2007 Maccabi Health Services and Maccabi Magen Cooperative for
                Mutual Insurance against Disease Ltd. (hereinafter “Maccabi Magen”) published a tender for
                the selection of providers of nursing care insurance for members of Maccabi Magen and
                members of Maccabi Health Services (hereinafter “the Tender”; Maccabi Health Services
                and Maccabi Magen shall be referred to jointly: “Maccabi”). In February 2008, the
                consolidated company, Clal Health, was informed that it had won the tender; accordingly,
                Clal Health shall be the insurer of the group nursing care insurance policy for members of
                Maccabi Health Services that are covered by nursing care insurance.

                In accordance with what is set out in the tender, all members of Maccabi Magen, with the
                exception of those who have already been recognized as requiring nursing care, the total
                number of which is estimated at 1.3 million, will be transferred as insured individuals to the
                collective policy for nursing care insurance for Maccabi Health Services (hereinafter – the
                policy). Members of Maccabi Health Services who were not members of Maccabi Magen on
                the relevant date may also join the policy, subject to the terms stipulated in the tender. The
                term of the agreement executed in accordance with the tender documents is five years, with
                an option to extend, at the discretion of Maccabi, for another three years, subject to
                discussion by the parties regarding the adjustments that will be required to the insurance fee
                and method of calculation of the compensation fund, as defined below, during the extension
                term.

                The policy includes four alternative tracks for nursing care benefits.




                                                   - 93 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 12: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (Cont.)

          d.    (Cont.)

                Additionally, assets totaling an estimated amount of NIS 686 million (hereinafter “the
                Fund”) will be transferred to the management of Clal Health to be held for the policy holders
                in accordance with the provisions stipulated in the agreement and will be returned upon the
                expiration of the term of the agreement, at a value stipulated in the agreement and calculated,
                inter alia, using a mechanism specified in the tender documents with respect to increasing the
                amount of the fund from the premium collected and according to the minimum yield to
                which Clal Health committed.

                Following the award of the tender, Clal Health provided a bank guarantee of NIS 50 million
                for the whole term of the agreement.

          e.    In April 2008 a Court judgment was given by the Haifa District Court, which discussed the
                claim of a policyholder with respect to overseas travel insurance policies “Clalit Meushlam”,
                sold by Clalit Health Services. Under the judgment it was determined, among others, that
                the sick fund is the active party to the engagement under the insurance transaction, its
                operation without an insurance agent’s license can constitute a wrong doing of breach of a
                legislated duty. Clal Health is presently studying the judgment.




                                                   - 94 -
                                                     CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 12: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (Cont.)

          f. Details regarding quoted investments held by the Company and failure to attach the financial
             statements of an affiliate



                                                                    Equity
                                                                    value
                                                                  Unaudited              Market value (1)
                                                                  31.06.2008       31.06.2008     18.08.2008
                                                                                  NIS in millions
               Company

               Clal Finance (2) (4)                                       487              303              271
               Titanium (through Clal Finance) (3)                        211              245              261



               (1)     Based on the number of shares held by the companies in the group as June 30, 2008
                       (without adjustments for the dividends paid in the period).

               (2)     The financial statements of a Clal Finance affiliate, Clal Finance Derivatives Ltd., were
                       not attached to the financial statements as a material affiliate, given that the amount of
                       investment in the affiliate is lower than ten percent of the total consolidated assets and
                       the profit included in the statements of profit and loss with respect to the investment in
                       the affiliate was lower than ten percent or more than the consolidated profit in its
                       absolute value in the previous reporting year, and this is also expected to be the case in
                       the current and following reporting year.

               (3)     Includes cost surpluses attributed to this investment.

               (4)     During the reporting period the Company acquired about 3.88% of Clal Finance in
                       consideration of about NIS 20 million. The amount of about NIS 7 million constitutes
                       the balance sheet excess over the acquisition cost included as income under investment
                       income in the statement of profit and loss.

          g.     The decline in the world capital markets that began in 2007 continued into the reporting
                 period. These decreases led to a decline in income from investments, inter alia, in proprietary
                 trading account funds and to a negative yield in the investment portfolio of profit-sharing
                 policies. Calculation of the management fees for the profit-sharing policies sold in 1991-
                 2003 (Fund J) was conducted as stipulated in Note 3(o)(2)(a) on a cumulative annual basis,
                 such that with respect to said negative yield, notional negative management fees are being
                 recorded. The meaning of the negative notional management fees is that it is not possible to
                 collect variable management fees to cover the notional negative variable management fees.
                 Said non-collection of management fees impacts on the Company’s profitability. As of the
                 end of June 2008, the gross negative yield in the profit-sharing policy portfolio amounted to
                 about 6.08%. As a result, as of the date of the financial statements, the potential income lost
                 in the amount of NIS 170.6 million. As at the end of July 2008, in light of the continuing
                 decline in the capital markets, this sum amounted to about NIS 198.1 million.




                                                      - 95 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 12: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (Cont.)

          h.     During August 2007 a subsidiary of Clal Finances managed the private issue of debentures
                to a third party not related to the Company (“the Issuer”). In the framework of the issue the
                subsidiary committed, towards the issuer and others, to acquire debentures which were not
                acquired by classified investors, and this up to the amount of NIS 187,500 thousand. On
                October 31, 2007 a subsidiary transferred to the trust account for debentures (“the Trustee”),
                the sum of NIS 99.450 million in favor of purchase of debentures (“the Deposited
                Amount”).

                During November 2007 a legal dispute arose between the issuer and others and the holders
                of the issuer's debentures through the Trustee, after the issuer sought to make early
                redemption of the debentures whereas the debentures holders claimed that it was not entitled
                to do so, and the trustee turned to the Tel-Aviv District Court with the request of temporary
                injunctions against the transaction which contradicted the issuer’s liability towards the
                debenture holders. On January 13, 2008 the trustee returned the deposited amount to the
                issuer net of the rate of 1.2% of the deposited sum which stayed in deposit for expense
                coverage and the trustees’ proceedings.

                On April 6, 2008, the Tel Aviv-Jaffa District Court approved a motion to recognize as a
                judgment the settlement agreement to end the dispute, under which, among others, the
                following was agreed: A total of NIS 5 million plus VAT will be paid to the subsidiary for
                the distribution services it provided as part of the issue of the debentures; and an additional
                amount of about NIS 1,038 comprised of the entire accumulated interest for the deposited
                amount in the trustees’ account and half of the accumulated interest in respect of amounts
                deposited in the trustees account by classified investors who participated in the issue. The
                amounts were paid to the subsidiary on April 13, 2008.

          i.     In May 2008, a short-term loan was received from Israeli banks, in the amount of
                 NIS 360 million.

          j.    In May 2008, Guard adopted a performance-based employee benefits plan for the issue of
                approximately 80,000 units of “phantom cash” (hereunder - the Units) to up to 35 officers
                and employees of Guard.

                The plan does not grant rights to receive Guard shares. The benefit (the Units’ value) will be
                based on the difference between the value of Guard in the future, according to the formula
                defined in the plan, and the value of Guard as reflected in the price the Company paid on the
                date of Guard’s acquisition.

                The units will mature in 3 batches – after two, three and four years, and will be exercisable
                two years from the date of maturity of the relevant batch.

          k.    On June 30, 2008 agreements signed between the company C.I.E. Holdings B.V. (hereunder
                – “CIE”) a subsidiary wholly owned by the Company and Elbit Ultrasound (Netherlands)
                B.V (“Elbit”), a subsidiary of Elbit Imaging Ltd., according to which CIE will allocate to
                Elbit 50% of its issued capital in consideration for the amount of about USD 17.76 million.
                The amount of Elbit’s investment in CIE is similar (in dollars) to the amounts that the
                Company invested in CIE so far.




                                                   - 96 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 12: SIGNIFICANT EVENTS DURING THE REPORTING PERIOD (Cont.)

          k.    (Cont.)

                 Elbit provided CIE a loan in the amount of about USD 6 million. This loan will be
                 converted into CIE’s share capital at the time and subject to the completion of the
                 transaction, and it will be on account of the consideration for the transaction, as stated
                 above. The consideration will serve for developing the business activities of CIE and its
                 subsidiary.

                 CIE, which is jointly held by the Company and of Elbit, will operate in the insurance fields
                 in Romania (in which CIE has an active subsidiary – Clal Romania) and in other countries
                 in Eastern Europe which were defined in the agreements and in which the parties will
                 decide to operate from time to time (“the target countries”), by way of developing the
                 insurance business of Clal Romania as well as by establishment and/or acquisition of
                 insurance companies in other target countries (“the target companies).

                 The agreement determine that the Company will provide certain consultation services to the
                 target companies and will impose limitations on the parties regarding competition in the
                 insurance fields in the target countries, and in addition, they include the accepted
                 arrangements regarding the parties’ relations as CIE shareholders, for example: limitations
                 on transferability of shares, equal rights for appointing Directors , decisions that
                 require unanimous consent, decision making mechanisms, etc.

                 Completion of the transaction is subject to receipt of various regulatory approvals,
                 including the approval of the Regulator of Insurance Authorities in Romania and an
                 approval of the Restrictive Trade Practices Authorities in Europe, which is expected to be
                 executed within a number of months, if and when the approvals are received.

                 The Company estimates, on the basis of CIE data as at June 30, 2008, that in respect of the
                 transaction, if and insofar as it is completed, it will record a capital gain of about NIS 19.2
                 million. The actual capital gain is likely to be different from the abovementioned, among
                 others, as a result of the monetary results of CIE until the transaction is carried out and the
                 affect of the changes in the foreign currency exchange rates.




                                                   - 97 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 13: EVENTS AFTER THE BALANCE SHEET DATE

          a.    Regarding the submission of the registration document of Titanium, a subsidiary of Clal
                Finance, to SEC, see Note 12 b above.

          b.    During July David Sheled – Insurance Agency (2000) Ltd. informed Clal Health, of the non
                renewal of the exclusive mutual marketing agreement of health insurance products, to Israeli
                residing abroad. The agreement is expected to end on August 1, 2009.

                 The premium received from David Sheled in the year 2007, constitutes about 13% of the
                 gross premium earned in the health insurance segment through a subsidiary for that year.



NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS

          a.    General

                As noted in Note 2(a), this is the Group’s first condensed consolidated interim financial
                statements for part of the period covered by the first annual consolidated financial statements
                prepared in accordance with IFRS.

                The accounting policies in Note 3 have been applied in preparing the condensed
                consolidated interim financial statements for the six and three months ended on June 30,
                2008, the comparative information for the six and three months ended on June 30, 2007, the
                comparative information for the year ended on December 3, 2007 and the opening IFRS
                balance sheet on January 1, 2007 (hereunder - “Transition Date”).

                This note has been prepared in accordance with the IFRS known as of this time, which were
                published and will be effective or available for early adoption on the Group's first IFRS
                annual reporting date, December 31, 2008. Based on these IFRS, the Company has defined
                its accounting policies. The IFRS that will be effective or available for early adoption in the
                annual financial statements for the year ended December 31, 2008 are still subject to change
                and to the issue of additional interpretations and therefore cannot be determined with
                certainty. Accordingly, the accounting policies to be implemented for the period presented
                will be determined only when the first IFRS financial statements are prepared on December
                31, 2008.

                An explanation of the effects of transition from Israeli GAAP to IFRS on the financial status
                of the Group, the results of its activity and cash flows are provided in the tables and notes
                below.




                                                   - 98 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          b. Details of the exemptions elected

             Below are the exemptions selected by the Group under IFRS 1 and for which the Company is
             not immediately implementing the transition to reporting under IFRS:

             (1)   Business combinations

                   The Group is only applying IFRS 3 to the business combinations that have occurred
                   since January 1, 2007.

                   Therefore, goodwill surplus costs created in business combinations (including business
                   combinations under joint control) that occurred prior to this date with respect to
                   acquisition of subsidiaries, affiliates and proportionately consolidated subsidiaries and
                   minority acquisitions were not handled under IFRS 3, but presented as handled under
                   Israeli GAAP.

             (2)   Cumulative translation differences

                   The Group allocated the capital reserve with respect to cumulative translation differences
                   for foreign activities to retained earnings on the transition date to IFRS.

             (3)   Designation of financial instruments recognized in the past

                   The group designated financial assets to the group of financial assets stated at fair value
                   through profit or loss on the transition date to IFRS, January 1, 2007, as such a
                   designation was not performed on their initial date of recognition.

             (4)   Share-based payment transactions

                   Share-based payments granted prior to November 7, 2002 or which have matured as of
                   January 1, 2007, are not handled retroactively in accordance with the provisions of
                   IFRS 2.

                   Expenses in respect of share based payments, allocated according to the Israeli GAAP to
                   capital reserves, were classified to susrplus.

             (5)   Insurance contracts

                   The Group applies the transitional provisions of IFRS 4 – Insurance Contracts.

             (6)   Fixed assets

                   On the transition date, the Group elected to measure fixed asset items at reported
                   amounts, as deemed cost.




                                                  - 99 -
                                                                                                                             CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008

NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)
          c.    Effect of transition to IFRS
                Balance sheet adjustment
                                                                     January 1, 2007                                 June 30, 2007                       December 31, 2007
                                                                         Effect of                                 Effect of                                   Effect of
                                                           Israeli      transition                    Israeli     transition                     Israeli      transition
                                                           GAAP          to IFRS         IFRS         GAAP         to IFRS          IFRS         GAAP          to IFRS     IFRS
                                                                          Audited                                   Unaudited                                 Audited
                                                Note                                                             NIS in thousands
           Intangible assets                    3,20   906,907           199,666       1,106,573    1,915,002       15,415        1,930,417   2,140,159        17,556    2,157,715
           Deferred tax assets                          10,547            41,662          52,209        6,572       42,231           48,803      20,341        36,113       56,454
           Deferred acquisition costs                1,127,638                 -       1,127,638    1,164,336             -       1,164,336   1,233,222             -    1,233,222
           Leasing fees and pre-paid expenses    5           -            73,471          73,471            -       79,869           79,869           -        69,226       69,226
           Fixed assets                       3,5,21   458,539          (221,720)        236,819      307,275      (22,354)         284,921     302,242       (20,567)     281,675
           Investments in affiliates           2,12    127,684            11,161         138,845      139,278             -         139,278      74,812          (329)      74,483
           Investment property for
            yield dependent contracts           21     677,152           (33,852)        643,300      732,218      (33,783)         698,435     872,617       (34,557)     838,060
           Other investment property             2     309,026            30,434         339,460      323,661            -          323,661     375,134             -      375,134
           Reinsurance instruments                   2,271,691                 -       2,271,691    2,678,055        2,994        2,681,049   2,596,412         6,106    2,602,518
           Current tax instruments                     133,755                 -         133,755       75,636            -           75,636     259,963             -      259,963
           Other financial debtors
            and receivables                     22   2,086,521           (53,889)      2,032,632    2,849,101      (73,768)       2,775,333   2,774,753       (40,205)   2,734,548
           Financial investments for yield
            dependent contracts                      18,128,364               -     18,128,364      20,587,690           -       20,587,690   21,110,213           -     21,110,213
           Other financial investments:
           Quoted debt instruments                   5,206,822             1,780    5,208,602       8,592,174       10,582        8,602,756   8,720,766        8,476     8,729,242
           Unquoted debt instruments                 12,502,405                -    12,502,405      13,633,009         100       13,633,109   13,353,049      (2,386)    13,350,663
           Shares                                    1,268,709             2,517    1,271,226       1,731,285            -        1,731,285   2,023,580        4,980     2,028,560
           Others                                      423,910             3,312      427,222         641,719       27,350          669,069     753,089       16,731       769,820

           Total other financial investments     6,16   19,401,846         7,609    19,409,455      24,598,187      38,032       24,636,219   24,850,484      27,801     24,878,285
           Cash and cash equivalents pledged
            for the holders of basket
            and liability certificates                     838,012            -         838,012     1,696,564            -        1,696,564   1,037,343            -     1,037,343
           Cash and cash equivalents
            for yield dependent contracts                  233,096            -          233,096      190,860            -          190,860     425,302            -       425,302
           Other cash and cash equivalents               1,064,556            -        1,064,556    1,329,432            -        1,329,432   1,211,809            -     1,211,809
           Total assets                                 47,775,334       54,542     47,829,876      58,593,867      48,636       58,642,503   59,284,806      61,144     59,345,950
          *)    Balances after classification and restatement.
                                                                                          - 100 -
                                                                                                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008

NOTE 14:         EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)
                c.      Effect of transition to IFRS (Cont.)
                Balance sheet adjustment (Cont.)
                                                                            January 1, 2007                                 June 30, 2007                      December 31, 2007
                                                                                Effect of                                 Effect of                                  Effect of
                                                                    Israeli    transition                    Israeli     transition                    Israeli      transition
                                                                   GAAP*)       to IFRS         IFRS         GAAP         to IFRS          IFRS        GAAP          to IFRS     IFRS
                                                                                 Audited                                   Unaudited                                Audited
                                                          Note                                                          NIS in thousands
Share capital                                                       140,450           -         140,450      140,661             -      140,661       140,697             -      140,697
Share premium                                                       710,193           -         710,193      711,956             -      711,956       712,478             -      712,478
Capital reserves                                          6,10,16   166,685     123,706         290,391      197,676      142,402       340,078       136,140        72,660      208,800
Treasury shares                                                      (9,449)          -          (9,449)      (2,712)            -        (2,712)      (8,742)            -       (8,742)
Surplus                                                     13    1,826,530     183,988       2,010,518    2,716,148     (117,370)    2,598,778     2,593,791       (61,346)   2,532,445
Total equity attributed
 to the Company’s shareholders                                    2,834,409     307,694       3,142,103    3,763,729       25,032     3,788,761     3,574,364        11,314    3,585,678
Minority interest                                           4        36,563     (16,634)         19,929      220,032      (27,147)      192,885       340,862       (15,028)     325,834
Total capital                                                     2,870,972     291,060       3,162,032    3,983,761       (2,115)    3,981,646     3,915,226        (3,714)   3,911,512
LIABILITIES
Liabilities in respect of non-yield                       1,7,23,
 dependent investment contracts                             24 18,931,192      (118,791)   18,812,401      21,344,325     (38,331)    21,305,994    21,597,961       1,795     21,599,756
Liabilities in respect of yield
 dependent investment contracts                           1,7,24 19,467,302    (248,898)   19,218,404      21,759,609     (68,812)    21,690,797    22,566,972      (86,495)   22,480,477
Subordinated deeds                                               1,005,927            -    1,005,927       1,007,792            -     1,007,792     1,028,357             -    1,028,357
Bonds                                                                    -            -            -         260,527       (8,080)      252,447       439,028        (7,628)     431,400
Liabilities for bonds in liability certificates                    521,883            -      521,883         655,216            -       655,216       510,890             -      510,890
Liability to shareholders in a subsidiary                   20           -       19,840       19,840         263,143       35,959       299,102       117,283        30,730      148,013
Contingent liability upon acquisition
 of a subsidiary                                                          -           -               -       78,182            -        78,182        68,816            -        68,816
Deferred tax liabilities                                   18       236,179      15,059         251,238      243,033       18,695       261,728       281,481       37,560       319,041
Liabilities for employee benefits, net                     7         15,461     103,342         118,803       19,061      102,637       121,698        15,975      106,486       122,461
Liability for current taxes                                          52,825           -          52,825       44,887            -        44,887        38,415            -        38,415
Creditors, payables and other financial balances                  1,542,025      (4,242)      1,537,783    2,357,868         (406)    2,357,462     2,043,717      (17,590)    2,026,127
Liability due to deposit certificate                                275,709           -         275,709      321,066            -       321,066       287,688            -       287,688
Liabilities due to liability certificates, insufficient
certificates, basket certificates and
complex certificates,                                       6    1,994,523       (2,828)   1,991,695       4,602,051        9,089     4,611,140     4,793,868            -     4,793,868
Liabilities to banking institutions and others                     861,336            -      861,336       1,653,346            -     1,653,346     1,579,129            -     1,579,129
Total liabilities                                                44,904,362    (236,518)   44,667,844      54,610,106      50,751     54,660,857    55,369,580      64,858     55,434,438
Total capital and liabilities                                    47,775,334      54,542    47,829,876      58,593,867      48,636     58,642,503    59,284,806      61,144     59,345,950
*)      Balance after reclassification and restatement.
                                                                                                 - 101 -
                                                                                                                      CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008
NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)
             c.    Effect of transition to IFRS (Cont.)
             Statement of profit and loss
                                                                  Six month ended June 30, 2007         Three month ended June 30, 2007        Year ended December 31, 2007
                                                                             Effect of                             Effect of                              Effect of
                                                                Israeli     transition                 Israeli    transition                  Israeli    transition
                                                               GAAP*)        to IFRS        IFRS      GAAP          to IFRS        IFRS       GAAP        to IFRS      IFRS
                                                                            Unaudited                              Unaudited                              Audited
                                                     Note                                                      NIS in thousands
 Gross premiums earned                                7       3,954,060      (9,345)    3,944,715   1,986,890        (6,184)    1,980,706   8,343,845     (19,072)   8,324,773
 Premiums earned by reinsurers                                  644,249           -       644,249     263,276             -       263,276   1,225,661           -    1,225,661
 Premiums earned on retention                                 3,309,811      (9,345)    3,300,466   1,723,614        (6,184)    1,717,430   7,118,184     (19,072)   7,099,112
 Investment income, net                              2,6,7
   and financing income                              16,21    2,592,449       3,794     2,596,243   1,679,876       12,411     1,692,287    3,203,360    110,547     3,313,907
 Income from management fees and
   portfolio management                                        510,505            -      510,505     281,346             -       281,346      827,799           -      827,799
 Income from commissions                                       115,516            -      115,516      54,527             -        54,527      244,372           -      244,372
 Income from other financial services                 19       161,019       (5,056)     155,963      81,252        (2,855)       78,397      254,913      (7,892)     247,021
 Profit from realization of investments in
   investees and other companies                                152,154       5,350       157,504         970            -           970      155,998       4,212      160,210
 Other income                                             1     328,620    (315,240)       13,380       6,784            -         6,784      344,849    (315,240)      29,609
 Total income                                                 7,170,074    (320,497)    6,849,577   3,828,369        3,372     3,831,741    12,149,475   (227,445)   11,922,030
 Payments and change in liabilities                  7,23,
    for gross insurance contracts                     24      4,941,312     (59,125)    4,882,187   2,737,642      (22,474)    2,715,168    8,652,789     (41,990)   8,610,799
 Reinsurers’ share in payments and change
  in liabilities in respect of insurance contracts            (226,915)      (3,171)    (230,086)       3,701       (3,927)         (226)    (565,502)     (6,283)    (571,785)
 Payment and change in liabilities in respect of
    insurance contracts on retention                          4,714,397     (62,296)    4,652,101   2,741,343      (26,401)    2,714,942    8,087,287     (48,273)   8,039,014
 Commissions and other selling, marketing and
    acquisition expenses                                       521,245            -      521,245     270,791             -       270,791    1,125,593          -     1,125,593
 Operating, administrative, general and
   other expenses                                    10,22      725,957      12,772       738,729     384,806       12,146       396,952    1,586,866      27,626    1,614,492
 Financing expenses                                              60,473       8,015        68,488      39,335       (1,537)       37,798      190,379      (7,269)     183,110
 Total expenses                                               6,022,072     (41,509)    5,980,563   3,436,275      (15,792)    3,420,483    10,990,125    (27,916)   10,962,209
 Share in results of affiliates, net                              1,172           -         1,172       2,267            -         2,267        4,539        (329)       4,210
 Income (loss) before income tax                              1,149,174    (278,988)      870,186     394,361       19,164       413,525    1,163,889    (199,858)     964,031
 Income tax                                                     262,257      14,772       277,029     143,949        6,343       150,292      255,628      45,158      300,786
 Income (loss) for the period                                   886,917    (293,760)      593,157     250,412       12,821       263,233      908,261    (245,016)     663,245
 Attributable to:
 Company shareholders                                          859,630     (280,052)     579,578     235,301        19,219       254,520      885,512    (234,820)     650,692
 Minority interests                                             27,287      (13,708)      13,579      15,111        (6,398)        8,713       22,749     (10,196)      12,553
 Income (loss) for the period                                  886,917     (293,760)     593,157     250,412        12,821       263,233      908,261    (245,016)     663,245
*)       After reclassification and restatement.
                                                                                       - 102 -
                                              CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit

                Effects reflected as a result of the adoption of new accounting standards in Israel in 2007

                (1)   Reserve for extraordinary risks

                       Pursuant to the circular of the Regulator of Insurance in February 2007, in
                       financial statements according to Israeli GAAP, the reserve for extraordinary risks
                       in the amount of NIS 315,240 thousand as of December 31, 2006 through profit
                       and loss as a special item was cancelled. Pursuant to the Regulator’s circular
                       whereby this reserve does not correspond to the provisions of IFRS 4, the
                       cancellation of the reserve was presented as an adjustment to the opening balance
                       of the retained earnings on the transition date – see also Note 3(d)(1)(e). As a
                       result, the balance of the retained earnings increased and the profit for 2007
                       decreased by NIS 315,240 thousand, net of a minority share of NIS 95 thousand.

                (2)   Measurement of real estate for investment at fair value

                       Under Israeli GAAP, until December 31, 2006, real estate for investment that is
                       not included in investment portfolios of policies participating in investment profits
                       was stated at its depreciated cost in the real estate for investment item and in
                       investment in an investee that invests in profit-generating real estate in France.
                       Under IFRS, real estate for investment is stated in the balance sheet at its fair value
                       – as the company chooses. Changes in the fair value are charged to profit and loss
                       in each reporting period.

                (3)   Intangible assets

                       Under IFRS, computer software and capitalized software development costs that
                       are not an integral part of the hardware attributed to them, are treated as intangible
                       assets. Accordingly, with the transition to IFRS, the carrying balances as of
                       January 1, 2007, of NIS 199,666 thousand relating to computer software and to
                       capitalized software development costs, were reclassified from the fixed assets
                       item to the intangible assets item.

                Other measurement effects

                (4)    Minority interests – measurement and presentation

                       Under Israeli GAAP, the purchase cost was attributed to assets, intangible assets
                       and liabilities of the subsidiary according to their fair value on purchase date and
                       in accordance with the rate of holding purchases, while the balance was imputed to
                       goodwill. Minority interests were calculated according to the minority share of the
                       book value of the assets and liabilities of the subsidiary on that date. Under IFRS,
                       the assets and liabilities of the subsidiary are stated in the consolidated balance
                       sheet at the purchase date in their full fair value. The minority interests at the
                       purchase date are calculated according to the minority share in their full value of
                       the assets and liabilities of the subsidiary on that date, while the goodwill is the
                       same as the goodwill calculated under Israeli GAAP.




                                                 - 103 -
                                             CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit (Cont.)

                (4)   Minority interests – measurement and presentation (Cont.)

                      Under Israeli GAAP, minority interests are stated in the Company's balance sheets
                      after the liability items and before the capital items, and in the consolidated profit
                      and loss statement as an expense in order to determine the Group's consolidated
                      net profit. Under IFRS, the Company states the minority interests in the
                      consolidated balance sheets as part of the equity and the minority share is not
                      deducted from the Group's profit for the period.

                      As a result, on January 1, 2007, June 30, 2007 and December 31, 2007 minority
                      interests totaling NIS 36,563 thousand, NIS 220,032 thousand and NIS 340,862
                      thousand before the transition to IFRS were stated respectively and stated as a
                      separate item of the equity.

                (5)   Lands leased from the Israel Land Administration

                      Under Israeli GAAP, lands leased from the Israel Land Administration are
                      classified as fixed property and are not depreciated. Under IFRS, when the lands
                      are not considered as lands owned by the Company, the lease payments are
                      classified as deferred expenses and are depreciated over the leasing term, including
                      the option for extending the lease term if at the time of the lease engagement it was
                      reasonably certain that the option will be exercised.

                (6)   Financial instruments available for sale

                      Unlike Israeli GAAP, IFRS require that financial instruments classified as
                      available for sale are recognized as assets or liabilities in their fair value.

                      The adjustment in the consolidated statements results, among others, from a
                      decrease in surpluses and an increase in capital reserve in respect of assets
                      available for sale in the amount of NIS 138,843 thousand, NIS 159,863 thousand
                      and NIS 94,779 thousand (net of tax) as of January 1, 2007, June 30, 2007 and
                      December 31, 2007, respectively.

                (7)   Employee benefits

                      Under Israeli GAAP, liabilities for employee severance benefits are recognized on
                      the basis of the full liability, assuming that all employees will be laid off on terms
                      entitling them to full severance irrespective of discounting rates, wage increase
                      rates in the future and future employee turnover. In addition, liabilities for vacation
                      and sick leave were calculated on the basis of estimated utilization and
                      redemption, respectively. On the date of transition to IFRS, all the net liabilities in
                      respect of post-employment employee benefits and other long-term benefit plans
                      are measured as prescribed in IAS 19 – Employee Benefits. Post-employment
                      benefits in respect of defined benefit plans are measured, among others, on the
                      basis of actuarial estimates and capitalized amounts.




                                                - 104 -
                                               CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit (Cont.)

                (7)   Employee benefits (Cont.)

                      To the best of the Company's knowledge the subject of the discount interest is under
                      examination, and it might eventually be decided that in Israel, the appropriate
                      discount interest is one based on a corporate debenture rather than discounting at the
                      interest of a government bond. If this is decided, the data in this note above will
                      change, the actuarial liability will decrease and the current financing expenses in
                      respect of the liability will increase.

                      Furthermore, under IFRS, severance pay reserves deposited in the Company do not
                      constitute plan assets and are stated after set-off from life assurance reserves.

                      The effects of the transition to IFRS was reflected in an increase of about NIS
                      103,342 thousand, about NIS 96,571 thousand and about NIS 106,486 thousand in
                      the employee benefit liability as of January 1, 2007, June 30, 2007 and December
                      31, 2007, respectively; a decrease of about NIS 104,308 thousand, about
                      NIS 99,552 thousand and about NIS 110,362 thousand in the life assurance reserve
                      as of January 1, 2007 June 30, 2007 and December 31, 2007 respectively, an
                      increase of about NIS 1,130 thousand, about NIS 742 thousand and about
                      NIS 1,702 thousand in wage expenses, a decrease of about NIS 3,042 thousand,
                      about NIS 1,522 thousand and about NIS 6,570 in investment income, a decrease of
                      about NIS 7,339 thousand, about NIS 3,669 thousand and about NIS 16,167 in
                      premiums registered, a decrease of about NIS 3,335 thousand, about NIS 1,667 and
                      about NIS 6,735 thousand in claims relating to maturities, and a decrease of about
                      NIS 1,516 thousand, about NIS 821 thousand and about NIS 3,990 thousand in tax
                      expenses for the six and three months ended as at June 30, 2007 and for the year
                      ended as at December 31, 2007, respectively.
                      The Group has chosen to recognize actuarial gains and losses directly in
                      shareholders' equity, in accordance with the alternatives provided in IAS 19.
                      Accordingly, the Company recognized actuarial gains in the amount of about
                      NIS 4,628 thousand and about NIS 2,400 thousand and about NIS 8,266 thousand
                      directly in retained earnings for the six and three months ended as at June 30, 2007
                      and the year ended as at December 31, 2007, respectively.
                (8)   Embedded derivatives

                      Under Israeli GAAP, embedded derivatives are not required to be separated from
                      hybrid contracts. Under IFRS, certain circumstances require the separation of
                      embedded derivatives from hybrid instruments and presentation at fair value at each
                      balance sheet date. Changes in their fair value will be imputed to the profit and loss
                      statement of each term.
                (9)   Jointly controlled entities
                      Under Israeli GAAP, corporations in which the Group has joint control are presented
                      under the proportional consolidation method. Under IFRS, investments in the said
                      corporations may be stated according to the proportional consolidation method or
                      according to the equity method. The Group chose to state its investments in jointly
                      controlled corporations according to the proportional consolidation method in order to
                      properly reflect the recording of assets and liabilities and the results of a jointly owned
                      company.


                                                    - 105 -
                                              CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit (Cont.)

                (10)   Share based payment transactions

                       Under Israeli GAAP, the Company recognized share-based payment transactions
                       commencing January 1, 2006 with regard to bonuses granted after March 15, 2005
                       that had not vested by January 1, 2006. IFRS 1 affords a relief whereby share-
                       based payments granted after November 7, 2002 but not yet vested by January 1,
                       2007, are treated retroactively as prescribed in IFRS 2. The Company granted
                       share-based payments settled with its shares to Group employees in 2000 – 2006.

                (11)   Hedge accounting

                       Under Israeli GAAP, the accounting treatment of the results of derivative
                       instruments as hedging transactions is charged concurrently with charging the
                       results from the hedged item in the financial statements, according to the change in
                       the exchange rates in the reported period. Under IFRS, all the derivatives in the
                       balance sheet are classified as assets or liabilities and they are measured at fair
                       value. Changes in the fair value of the derivative instruments will be charged
                       mainly to the income statement according to the designation of the instrument's
                       use. The Company chose not to designate derivative instruments as hedging
                       recognized for accounting according to International Standards, except for hedging
                       transactions made in the amount of the financing in shareholders' equity in the
                       acquisition of a consolidated company in the US. The transition to application of
                       IFRS has no material effect on the financial statements as of January 1, 2007 and
                       as of December 31, 2007.

                (12)   Investment in affiliates of Clal Finance

                       Statement of loans provided by the company to an affiliate at fair value in
                       accordance with the provisions of IAS 39.

                (13)   Dividend declared after the balance sheet date

                       Under Israeli GAAP, a dividend declared after the balance sheet date and up to the
                       date of approval of the financial statements was stated as part of the shareholders'
                       equity as a separate component called "dividend proposed or declared after the
                       balance sheet date", against a decrease in retained earnings. Under IFRS, only
                       disclosure of such a dividend is required, and no classification in equity is made.

                       Accordingly, as at June 30, 2007 and December 31, 2007, retained earnings
                       increased and the dividend declared after the balance sheet date which was stated
                       in the shareholders' equity decreased by about NIS 150,000 and by about
                       NIS 360,000 thousand, respectively.




                                                 - 106 -
                                             CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit

                (14)   Functional currency

                       Under Israeli GAAP it was possible to determine a functional currency other than
                       the shekel only when the majority of revenues are received and the majority of
                       assets are purchased in that currency. Under IFRS, in determining the functional
                       currency, the entity should consider, among others, the following factors:

                       1.    The currency that impacts mainly the selling prices of goods and services
                             (usually the currency in which the selling prices of goods and services are
                             denominated and settled) and the currency of the country whose market
                             forces and regulation are the main determinants of the selling prices of
                             goods and services.

                       2.    The currency that impacts mainly the cost of labor, materials and other costs
                             for the provision of goods and services (usually the currency in which these
                             costs are denominated and settled).

                             In addition, there may be additional factors that can serve as evidence for the
                             entity's functional currency, for example the currency in which financial
                             sources from financing activities are produced and the currency in which
                             proceeds from ongoing activities are usually returned.

                             Under Israeli GAAP, the Company's functional currency is the New Shekel
                             while under IFRS, the functional currency is the US Dollar.

                (15)   Purchase of assets from a controlling shareholder and the sale of assets to a
                       controlling shareholder

                       Under Israeli GAAP, which are based on the Securities Regulations, the Company
                       imputed to equity the surplus of consideration to the cost of assets sold or bought
                       from the controlling shareholder. Under IFRS, the Company recognized assets in
                       respect of which the said transaction was undertaken according to their fair value
                       at the transaction date.

                (16)   The designation of financial instruments as measured at fair value through profit
                       and loss / as available for sale

                       The Group has decided to designate the assets as follows:

                       Assets included in investment portfolios of policies participating in investment
                       income –

                       In accordance with reporting standards, these assets, which include negotiable
                       financial instruments and non-negotiable financial instruments, are included in the
                       balance sheet on the basis of fair value, which is computed according to the market
                       value, and for unquoted debentures at fair value computed according to a model
                       based on discounting the cash flows, where the interest rates for discounting are
                       determined by a company that provides interest quotations relating to the various
                       ratings of the risk.



                                                - 107 -
                                              CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit

                (16)   The designation of financial instruments as measured at fair value through profit
                       and loss / as available for sale (Cont.)

                       Assets included in investment portfolios of policies participating in investment
                       income – (Cont.)

                       Under IFRS, these financial instruments belong to the fair value through profit and
                       loss group, for the following reasons: these are portfolios under management,
                       separate and identified, whose statement at fair value significantly reduces an
                       accounting distortion of financial asset – financial liability mismatch; furthermore,
                       the management is conducted according to fair value and the portfolio's
                       performance is measured according to fair value, in accordance with a documented
                       risk management strategy, and the information about the financial instruments is
                       reported to the management (the relevant investments committee) internally on the
                       basis of fair value.
                       Unquoted assets that are not included in investment portfolios against profit-
                       sharing policies (Nostro), that do not include embedded derivatives or do not
                       constitute derivatives –

                       Under reporting regulations, these assets, which fall within the definition of loans
                       and debit balances receivable, include debentures designated for Hetz (life linked)
                       bonds agreements, another unquoted debenture, and commercial certificates, will
                       be stated in the balance sheet at depreciated cost, using the effective interest
                       method.

                       The effective interest, linkage differentials and translation and provision for
                       impairment will be allocated to the statement of profit and loss if required (as a
                       result of a change in the estimate of the cash flow expected to be generated by the
                       asset and not as a result of a change in the market interest rates). There is no
                       material change in treatment between the situation today and the requirements of
                       IFRS (subject to that stated in paragraph 6 below).

                       Unquoted shares will be classified as financial assets available for sale.

                       Quoted assets that are not included in investment portfolios against profit-
                       sharing policies (Nostro), that do not include embedded derivatives or do not
                       constitute derivatives (including investment funds) –

                       Under reporting regulations, these assets are stated at market value, and changes in
                       the market value are charged to profit and loss, except for venture capital funds
                       and other investment funds, which are stated at adjusted cost.

                       Under IFRS, most of these assets were classified (except at Clal Finance) in the
                       financial instruments available for sale group.




                                                 - 108 -
                                               CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit

                (16)   The designation of financial instruments as measured at fair value through profit
                       and loss / as available for sale (Cont.)

                       Derivatives and financial instruments that include embedded derivatives
                       requiring separation –

                       (Excluding designated as effective hedging derivatives) will be assigned to the fair
                       value through profit and loss group commencing on the transition date.

                       Quoted assets and liabilities of special purpose companies (basket certificate,
                       insufficient certificates, complex certificates and certain liability certificates) –

                       Pursuant to the provisions of IAS 39 – Financial Instruments: Recognition and
                       Measurement (hereunder - IAS 39), the Company chose to designate the quoted
                       securities used as back-up assets to the fair value through profit or loss group.
                       Liabilities in respect of the exchange-traded funds are a complex financial
                       instrument comprising a host contract and an embedded derivative. Under IAS 39,
                       the accounting treatment of the host contract (exchange-traded funds which are a
                       zero coupon loan) must be separated from that of the embedded derivative (a
                       forward transaction on the CPI to which the index certificate is linked), and each
                       of them must be measured separately. The host contract within the index certificate
                       will be measured at amortized cost on each reporting date, net of the balance of the
                       issuance expenses not yet amortized. IAS 39 does not require separate presentation
                       of each of the components of the complex instrument. In the opinion of the
                       Company, presentation of the components of the index certificate together more
                       properly reflects the economic nature of the liability in respect of the certificates.

                       Under the provisions of IAS 39, when a complex financial instrument includes an
                       embedded derivative, the embedded derivative is stated at fair value. Changes in
                       the fair value through the life of the index certificate are charged to profit and loss.
                       The fair value of the embedded derivative as of the issuance date of the exchange-
                       traded funds is almost zero, and accordingly, the issuance expenses of the
                       exchange-traded funds will be attributed proportionately between the embedded
                       derivative and the host contract. Since the value of the embedded derivative is
                       negligible, most of the issuance expenses will be attributed to the host contract
                       (zero coupon loan).

                       Financial assets and liabilities of certain liability certificates

                       Quoted and unquoted financial assets and liabilities of liability certificates
                       included in a portfolio measured as a whole by the Company at fair value are
                       stated at fair value.




                                                  - 109 -
                                              CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008

NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)
          d.    Notes to the adjustment of balance sheet and profit
                (17)   Provisions for legal claims
                       Under Israeli GAAP, the Company recognized the provision for legal claims when
                       it is probable that the Company's economic resources will be used to settle the
                       obligation. In addition, the provision was measured according to the full value of
                       the expected amount in which the claim will be settled.
                       Under IFRS, the Company recognized the provision to the said claims when it is
                       more likely than not that the Company would have to use its economic resources
                       to settle the obligation. In addition, when the effect of the time value was material,
                       the provision was measured in its present value.
                       The transition to IFRS has no material impact on the financial statements as of
                       January 1, 2007, June 30, 2007 and December 31, 2007.
                (18)   Deferred taxes in respect of certain depreciable land and assets
                       Under Israeli GAAP, a deferred tax liability in respect of temporary differences
                       relating to land generated in business combinations before January 1, 2005 and
                       which were not recognized in the past cannot be recognized. Under IFRS, a
                       deferred tax liability in respect of temporary differences relating to land generated
                       in business combinations before January 1, 2005 must be recognized.
                (19)   Splitting the proceeds of block issuance and the treatment of issuance expenses
                       Under Israeli GAAP, a consolidated company, Clal Finance, split the proceeds in
                       respect of a public offering of debentures in accordance with the ratio of the
                       components of the block according to the average of the first three days' trading
                       after the date of the offering.

                       Under IAS 32, at the time of offering such a block, the proceeds of the offering are
                       attributed first to a financial liability measured on the date of first recognition only
                       at fair value, and the value attributed to the share component is deemed an equity
                       instrument calculated as retention value. The value is attributed according to the
                       first day's trading.
                (20)   Put / Call Options to minority shareholders in subsidiaries
                       a.    In accordance with the alternative chosen for the application of IFRS 3,
                             when a subsidiary has a put option for a non-controlling interest with the
                             controlling shareholder, the financial statements of the controlled company
                             will be fully consolidated and no provision will be made for a non-
                             controlling interest. Concurrently, a non-controlling interest liability will be
                             stated in the amount of the fair value of the put option. In accordance with
                             the alternative chosen, the value of the put option will be revised against
                             goodwill.
                             Accordingly, on the date of establishment of subsidiaries in which the non-
                             controlling interest was granted a put option, their financial statements were
                             consolidated without a provision for the non-controlling interest (the
                             "minority interest" recorded in the past has been cancelled), and a liability
                             for the non-controlling interest was recorded in the amount of the fair value
                             of the put option according to its terms. In addition, commencing on the
                             same date, a liability was charged against goodwill in respect of revision of
                             the fair value of the option as of January 1, 2007 and December 31, 2007,
                             respectively.


                                                 - 110 -
                                              CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit

                (20)   Put / Call Options to minority shareholders in subsidiaries (Cont.)

                       b.    Clal Finance holds approximately 50% of the shares of a proportionately
                             consolidated company, and the partner has a put option to sell its shares to
                             Clal Finance. The put option for the shares of a company that is not a
                             subsidiary is treated as prescribed in IAS 39. Accordingly, the option
                             constitutes a liability and is stated at fair value according to its terms.
                             Differences stemming from changes in the fair value will be imputed to the
                             statement of profit and loss.

                             In addition, Clal Finance has a Call option to purchase the partner's share
                             under certain terms stipulated in the agreement between the shareholders.
                             The call option is also treated in accordance with IAS 39, and is stated as an
                             asset at its fair value. Differences stemming from changes in the fair value
                             will be allocated to the statement of profit and loss.

                (21)   Investment property included in investment portfolios of policies participating in
                       investment income

                       In accordance with the directives of the Regulator of Insurance, investment
                       property included in investment portfolios of policies participating in investment
                       profits are stated at their fair value; changes in the fair value are charged to profit
                       and loss in each reporting period, and conversely, are charged to change in a life
                       assurance reserve as part of the yield attribution. Under IFRS, real estate for
                       investment used by the companies of the Group is stated in the balance sheet at its
                       depreciated cost under the fixed assets item.

                (22)   Provision for doubtful debts

                       Under Israeli GAAP, a provision for doubtful debts can, where necessary, consist
                       of a provision in respect of specific debts and/or a general provision computed as a
                       fixed percentage of receivables/sales. Under IFRS, a provision for doubtful debts
                       will include specific material debts whose collection is in doubt, as well as a
                       collective provision in respect of a homogeneous group of assets for which no
                       specific provision was made.

                (23)   Outstanding claims in general insurance

                       a.    In accordance with the directives of the Insurance Regulator, effective from
                             the financial statement as of December 31, 2006 the provisions for
                             contingent claims in Clal Insurance include provisions for indirect costs of
                             settling claims related to general insurance policies issued for underwriting
                             year 2006 or later. Upon the transition to IFRS, the full provision for
                             indirect cost has been recorded even for underwriting years before 2006.




                                                 - 111 -
                                             CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit

                (23)   Outstanding claims in general insurance (Cont.)

                       b.    According to the Regulator’s regulations, the revenues from actual
                             investments should be imputed to accumulation in liability groups.
                             According to the instructions of the Insurance Circular 2008-1-1, following
                             the expected changes in the rules related to recognition of income from
                             investments due to the transition to IFRS, the insurance company should
                             change the calculation method of revenues from investments added to the
                             surplus of revenues over expenses so as to reach a fixed real rate of 3% per
                             annum regardless of the return obtained on the investments in practice.

                       The change will be implemented according to the following instructions:

                       1.    The opening balance of the reserve of surplus revenues over expenses as of
                             January 1, 2007 must not be changed;

                       2.    2007 statements prepared according to Israeli GAAP should impute
                             revenues from investments to a reserve according to the rules that were in
                             place before the change;

                       3.    The note that discloses the statements according to IFRS should include the
                             reserve calculated according to the above instruction.

                             As of the statements of the first quarter of 2008, the reserve should be
                             calculated according to the above instruction, including as part of the
                             comparative figures.

                             As a result, as of January 1, 2007, June 30, 2007 and December 31, 2007,
                             respectively, the liabilities for insurance contracts grew by NIS 51,682
                             thousand, NIS 21,855 thousand and NIS 58,039 thousand, the deferred
                             taxes increased by NIS 18,182 thousand, NIS 6,613 thousand and
                             NIS 18,208 thousand, and retained earnings decreased by NIS 33,677
                             thousand, NIS 12,245 thousand and NIS 33,725 thousand respectively.

                (24)   Reserve for life insurance annuity

                       In the directives of Insurance Circular 2007-1-3 (hereunder - the Annuity Circular)
                       concerning calculation of reserves for payment of an annuity in life assurance
                       policies, it was possible to spread the positive difference calculated as of
                       December 31, 2006 between the provision for payment of an annuity calculated
                       according to the instructions of the annuity circular and the provision for payment
                       of an annuity calculated according to the method and assumptions on which the
                       insurer relied in the financial statements for the third quarter of 2006, commencing
                       from the last quarter of 2006 and no later than the fourth quarter of 2009, and
                       uniformly – see Note 3(d)(1)(d).




                                                - 112 -
                                             CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit

                (24)   Reserve for life insurance annuity (Cont.)

                       In accordance with the directives of Insurance Circular 2008-1-1, with the
                       transition to International Standards, in the financial statements for 2007 prepared
                       in accordance with IFRS, the insurance company must make up the balance of the
                       positive difference as of December 31, 2006 immediately, to match the opening
                       balances of the shareholders' equity as of January 1, 2007 or throughout the life of
                       the policy, which is the alternative chosen by the Company.

                       The deployment throughout the life of the policy can be by the use of a
                       capitalization factor K of more than 0.3%. The value K represents the percentage
                       of future income expected from management fees or from a financial margin
                       stemming from investments held against the insurance reserve due to the policy or
                       from premium payments for the policy that were used to finance the building of
                       the reserves for annuity through the life of the policy.

                       The insurance company will determine, from time to time, at the professional
                       discretion of its actuary, the maximum value based on conservative financial
                       assumptions, in a way that will ensure that the management fees or the financial
                       margin stemming from investments held against the reserve due to the policy and
                       the premium payments for the policy, are sufficient to cover the expenses
                       including the supplementary amounts to the annuity until the date of retirement
                       age. The value K selected should be that which will lead to appropriate
                       deployment of the annuity reserve but not more than the maximum value K.

                       If the value of K changes significantly, disclosure will be made of the reason for
                       the change and its effect on the expected change in provisions that will be included
                       in the financial statements in the subsequent periods, in accordance with the
                       accounting principles applied in estimate changes.

                       According to the calculations of the actuary of Clal Insurance responsible for life
                       assurance, the deployment of the said positive difference throughout the life of the
                       policy is compatible with using K equals 0.42% per annum, compared with the
                       0.3% in the model, based on the deployment of the difference and using K equals
                       0.42% per annum.




                                                - 113 -
                                                 CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          d.    Notes to the adjustment of balance sheet and profit

                (25)    The effect of the aforementioned adjustments on retained earnings:


                                                                      January 1,          June 30,        December 31,
                                                               Note      2007               2007              2007

                                      Investment
                                      property                 2,21     24,294                (7,726)        (10,414)
                        Financial instruments                  6,16   (136,807)             (143,908)        (80,420)
                        Employee benefits                        7         477                 2,970           1,986
                        Land leased from The
                         Land Administration                    5        (6,441)              (6,668)         (6,900)
                        Provision for general insurance
                          expenses                             23       (33,677)             (12,248)        (33,725)
                        Share-based payment                    10        16,121               18,658          25,713
                        Provision for doubtful debts           22           355                  355               -
                        Fair value measurement
                          of Put and Call options              20          (854)                (886)           (986)
                        Deferred taxes in respect of
                          cost surpluses                        18        (750)                 (250)              -
                        Reserve for extraordinary risks          1     315,240                     -               -
                        Cancellation of
                         minority share                                       -               15,478         15,125
                        Revaluation of loan to affiliates       12         (135)                   -           (197)
                        Assets and liabilities of special
                        purpose companies                       16        4,608                 (925)          9,422
                        Translation differences fund                      1,548                1,548           1,548
                        Reserve for annuity payment             24            -               13,626          20,467
                        Attribution in consideration of
                         issuance                               19            -                8,164           7,888
                        Total adjustments                              183,979              (111,812)        (50,493)
                        Attributed to:
                        Company's equity holders                       183,988              (117,370)        (61,346)
                        Minority interests                                  (9)                5,558          10,853


          e.    Explanation of material adjustments in the statement of cash flows for the six-month period ended
                on June 30, 2007 and the year ended on December 31, 2007.


                (1)    Pursuant to the Financial Statement Details Regulations, a full separation was made
                       between the cash flows from current activities in life assurance, general insurance and from
                       other activities – and the basis for the breakdown of assets and liabilities was the Details of
                       Assets and Liabilities (Form 106). Under IFRS there is no such separation in the statement
                       of profit and loss and accordingly, there is no such separation also in the statement of cash
                       flows.

                (2)    Interest and dividends paid

                       In accordance with Israeli GAAP, interest paid was classified as cash flows from ordinary
                       operations. Under IFRS and the accounting policy adopted by the Company, interest and
                       dividends paid were classified as cash flows from financing activities.


                                                     - 114 -
                                             CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          f.     Differences in the reporting format between Israeli GAAP and the current statement:

                 1.   Balance sheet

                       The reporting format of most items was different in Israeli GAAP. The table below
                       lists the main differences:

                       a.    Under Israeli standards, investments in performance-based contracts were
                             not presented separately. In the current statement, these investments are
                             stated separately and are divided into real estate for investment, financial
                             investments and cash and cash equivalents.

                       b.    Securities, loans and bank deposits used to be stated in separate lines. In the
                             current reporting format, they are presented as follows:

                             1.    Debt instruments securities were divided into negotiable and non-
                                   negotiable debt assets. Exchange-traded funds, options and investment
                                   funds are included in the current statement as other financial
                                   investments.

                             2.    Loans and bank deposits used to be stated in separate lines. In the
                                   current statement, they are included in non-negotiable debt assets.

                             3.    Shares are presented separately in the current statement.

                       c.    The share of re-insurers of the insurance reserves and contingent claims,
                             which used to be presented separately, is included in the current statement in
                             the reinsurance assets item.

                       d.    Premiums for collection, receivables and debit balances as well other
                             accounts of re-insurers, which used to be presented separately, were
                             included in the current statement in the other receivables item.

                       e.    Expenses on the acquisition of life assurance portfolios and other property,
                             which used to be presented separately, are included in the current statement
                             in the intangible assets item.

                       f.    Insurance reserves and outstanding claims in life assurance and in general
                             insurance, which used to be presented separately, are included in the current
                             statement in the following items under liabilities in respect of non-yield
                             dependent insurance contracts and liabilities in respect of yield dependent
                             insurance contracts.

                       g.   Liabilities for reinsurers, creditors and payables, which used to be presented
                            separately, are included in the current statement under creditors and
                            payables.




                                                - 115 -
                                               CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          f.     Differences in the reporting format between Israeli GAAP and the current statement:
                 (Cont.)

                 h.   In accordance with standard practice in Israel, the assets and liabilities of the special
                      purpose companies were stated in one line (the "capsule" method) and the income
                      net of expenses were stated at net in one line in the statement of income. Under IAS
                      27 and Clarification 12 of IAS 27, in the accounting control tests all the items of the
                      financial statements of controlled companies must be fully consolidated.

                      The consolidation of special purpose companies caused the increase of the
                      investment in securities items by NIS 2,021,705 thousands, NIS 3,983,248
                      thousands, and NIS 4,793,204 thousands as of January 1, 2007, June 30, 2007 and
                      December 31, 2007, respectively.

                 i.   Under Israeli GAAP, prepaid expenses were classified under receivables and debit
                      balances. Upon the transition to IFRS, the balance of the prepaid expenses was
                      reclassified from creditors and receivables to leasing and prepaid expenses item.

                 j.   Under Israeli GAAP, deferred tax assets were classified as current or non-current
                      assets, according to the classification of the assets for which they were recognized.
                      Under IFRS, deferred tax assets are classified as non-current assets even if expected
                      to be realized in the short term. Consequently, upon the transition to IFRS, the
                      balance of short-term deferred taxes as of January 1, 2007 and as of December 31,
                      2007 were reclassified from receivables and debit balances to the deferred tax assets
                      item.

                 k.   Deferred acquisition expenses in general insurance, which used to be presented net
                      of the share of the re-insurers, are presented in their gross values and the share of
                      the re-insurers is included in the commitments for insurance and investment
                      contracts item.

                2.    Statement of profit and loss

                       a.    The presentation of the life assurance business report, general insurance
                             business report, and profit and loss statement were consolidated into a single
                             profit and loss statement.

                       b.    Only premiums earned, not the turnover of premiums received, is presented
                             in the current statement.

                       c.    Change in the reserve for unexpired risk, which used to be presented under
                             retention in a separate item, was offset from the gross premiums and
                             secondary premiums in the current statement.

                       d.    Commission received from re-insurers, which used to be presented
                             separately, is included in the current statement in the revenues from
                             commissions item.




                                                  - 116 -
                                             CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Notes To The Condensed Consolidated Interim Financial Statements as at June 30, 2008


NOTE 14: EXPLANATION OF THE EFFECTS OF TRANSITION TO IFRS (Cont.)

          f.     Differences in the reporting format between Israeli GAAP and the current statement:
                 (Cont.)

                 2.    Statement of profit and loss (Cont.)_


                       e.    Paid and outstanding claims, and change in life assurance reserves, which
                             used to be presented separately, are included in the current statement in
                             increase (decrease) of insurance liabilities and payments for insurance
                             contracts.

                       f.    Commission fees and changes in deferred acquisition costs, which used to be
                             presented separately, are included in the commissions and other acquisition
                             expenses item in the current statement.

                       g.    Under Israeli GAAP, financing expenses, excluding interest on long term
                             loans were presented together with net financing revenues in the revenues
                             from investments item in the profit and loss statement and in the business
                             statements. Under IFRS, financing expenses and revenues are presented
                             separately in the profit and loss statement.

                       h.    The operations of consolidated non-insurance companies, which used to be
                             presented in one line before financing and taxes are presented in the current
                             statement according to the items of the profit and loss statement. Mutual
                             transactions between the Company and consolidated companies, which were
                             not offset against insurance businesses, are fully offset in the current
                             statement.

                 3.   Statements of cash flows and details on assets and liabilities were changed
                      according to the changes in the balance sheet items.




                                                - 117 -
                                                                                                                                                           CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008

APPENDIX A Details of the Assets and Liabilities of Insurance Subsidiaries Registered in Israel *

                                                                                                                                         As at June 30, 2008
                                                                                                                                                                                   Total assets
                                                                                                                                                                                      and
                                                                  Life assurance **                                                                                                receivables
                                                                            Unlinked or                                                                                              without
                                                                            denominated                General                                                                        yield               Yield               Total assets
                                                               Linked to     to foreign               insurance          Minimum             Capital        Other                  dependent            dependent                and
                                                                the CPI       currency                    **             solvency            surplus      liabilities               contracts           contracts             receivables
                                                                                                                                             Unaudited
                                                                                                                                          NIS in thousands

         Intangible assets                                           -                    -            10,959             908,688                   -             193,254          1,112,901                   -              1,112,901
         Deferred taxes                                              -                    -                 -                   -                   -               5,766              5,766                   -                  5,766
         Deferred acquisition costs                             23,776                    -           257,324             768,586              18,571             123,800          1,192,057              22,851              1,214,908
         Leasing fees and pre-paid expenses                          -                    -                 -              37,334                   -               5,499             42,833                   -                 42,833
         Fixed assets                                                -                    -                 -             175,786                   -               5,848            181,634                   -                181,634
         Investments in affiliates                               4,511                    -                 -                   -                   -              50,457             54,968               5,232                 60,200
         Investment property                                   448,654                    -                 -               8,921                   -                   -            457,575           1,030,711              1,488,286
         Reinsurance assets                                     51,857                    -         1,745,561                   -                   -                   -          1,797,418              94,890              1,892,308
         Current tax assets                                          -                    -           272,030                   -                   -                   -            272,030                   -                272,030
         Debtors and receivables                               170,113               16,356           796,035              74,560                   -              38,662          1,095,726             230,135              1,325,861
         Financial investments:
            Quoted debt instruments                           542,786                    -          2,246,596              528,778            115,816              67,670          3,501,646           9,385,295              12,886,941
            Unquoted debt instruments                        10,537,555            154,178          1,483,005              325,804                  -              32,817          12,533,359          4,839,204              17,372,563
            Shares                                              39,301              39,613            255,616              162,767                  -                   -            497,297           4,907,789              5,405,086
            Others                                            233,442                    -            131,563              112,892                  -               2,622            480,519           2,262,661              2,743,180
         Cash and cash equivalents                            114,061               37,709            655,352                    -                  -              37,518            844,640             430,074              1,274,714
                                                                                                                                 -                                                                                                    -
         Total assets                                        12,166,056            247,856          7,854,041            3,104,116            134,387             563,913          24,070,369          23,208,842            47,279,211

         Total liabilities                                   11,846,865            247,856          8,205,390            3,104,116            134,387             563,913          24,102,527          23,176,684             47,279,211

         Surplus (deficiency)                                  319,191                      -        ( 351,349 )                    -                  -                   -          (32,158 )          ( 32,158 ) ***)                 -



         *     The details are given in accordance with the Regulator’s instructions see Note 3 (n)and do not correspond to the Group’s activity segments.
         **    Includes health business.
         ***   The surplus results from offset of fund for deposits for Company employees from liabilities in respect of insurance contracts, and from classification of investment property for yield dependent contracts used by the
               consolidated companies.

                                                                                                               - 118 -
                                                                                                                                                              CLAL INSURANCE ENTERPRISES HOLDINGS LTD.
 Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008

APPENDIX A Details of the Assets and Liabilities of Insurance Subsidiaries Registered in Israel *

                                                                                                                                  As at June 30, 2008
                                                                                                                    Breakdown of shareholders’ equity and liabilities
                                                                                                                                                                    Total assets
                                                                                                                                                                       and
                                                                       Life assurance **                                                                            receivables
                                                                                 Unlinked or                                                                          without
                                                                                 denominated                General                                                    yield                Yield      Total assets
                                                                    Linked to     to foreign               insurance    Minimum         Capital         Other       dependent             dependent        and
                                                                     the CPI       currency                    **        solvency       surplus       liabilities    contracts            contracts    receivables
                                                                                                                                      Unaudited
                                                                                                                                   NIS in thousands

          Shareholders’ equity:
          Share capital                                                       -                  -                   -         128,007                        -          -     128,007            -      128,007
          Share premium                                                       -                  -                   -         214,512                        -          -     214,512            -      214,512
          Capital reserves                                                    -                  -                   -          59,599                        -          -      59,599            -       59,599
          Retained earnings                                                   -                  -                   -       1,875,310                        -          -   1,875,310            -    1,875,310
          Total capital attributed to
           the Company’s shareholders                                         -                  -                   -       2,277,428                        -          -   2,277,428            -    2,277,428
          Minority interest                                                   -                  -                   -                   -                    -     12,562     12,562             -      12,562
          Total capital                                                       -                  -                   -       2,277,428                        -     12,562   2,289,990            -    2,289,990
          Liabilities:
          Liabilities in respect of insurance
           and investment contracts                                11,571,407           247,856           7,654,969                  -                   -               -   19,474,232   22,885,457   42,359,689
          Subordinated deeds                                               -                  -                   -            826,688             134,387          96,909   1,057,984            -    1,057,984
          Deferred tax liabilities                                         -                  -                   -                  -                   -         232,626     232,626            -      232,626
          Liabilities for employee benefits, net                           -                  -                   -                  -                   -          99,523      99,523            -       99,523
          Current tax liabilities                                          -                  -                   -                                                  4,124       4,124            -        4,124
          Payables and other financial balances                     275,458                   -             550,421                      -                    -    118,169     944,048     291,227     1,235,275
          Total liabilities                                        11,846,865           247,856           8,205,390            826,688             134,387        551,351    21,812,537   23,176,684   44,989,221
          Total capital and liabilities                            11,846,865           247,856           8,205,390          3,104,116             134,387         563,913   24,102,527   23,176,684   47,279,211

          *    The details are given in accordance with the Regulator’s instructions see Note 3 (n) and do not correspond to the Group’s activity segments.
          **   Includes health business.

                                                                                                                - 119 -
                                                    CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

Condensed Consolidated Interim Financial Statements as of June 30, 2008

APPENDIX B - Special Purpose Investees in the Finance Sector

Hereunder are the data included in the consolidated reports:

a.   Balance sheet data

                                                                          June 30          December 31
                                                                     2008         2007         2007
                                                                          Unaudited           Audited
                                                                             NIS in thousands
 Assets
 Deferred tax assets                                                    674            529          -
 Debtors and other financial balances                                11,858         14,569      9,093
 Other financial investments:
 Quoted debt instruments                                           5,013,528   2,646,548     2,790,906
 Unquoted debt instruments                                           276,267     493,347       433,782
 Shares *                                                            411,103     815,611     1,283,934
 Others                                                                    -      27,742       284,582
 Total other financial investments                                 5,700,898   3,983,248     4,793,204
 Cash and cash equivalents pledged for holders of the
  basket and liabilities certificates                              1,230,710   1,696,564     1,037,343
 Other cash and cash equivalents                                       8,075      28,472         3,641
 Special purpose subsidiaries total assets                         6,952,215   5,723,382     5,843,281
 Liabilities
 Liability for debentures in liability certificates **               413,247     655,216       510,890
 Deferred taxes liability                                              2,831         208         5,091
 Creditors, payables, and other financial balances                    22,143       9,514        13,334
 Liabilities due to deposit certificates                             138,129     321,066       287,688
 Liabilities due to liability certificates                           651,146   1,228,569       722,635
 Liabilities due to complex certificates                             279,280     254,917       286,420
 Liabilities due to basket certificates                            5,020,728   2,792,111     3,592,457
 Liabilities due to insufficient certificates                        256,582     335,543       192,357
 Liabilities to banking institutions and others                       77,358      29,023       139,449
 Total liabilities for special purpose companies                   6,861,444   5,626,167     5,750,321
 Shareholders’ equity and balances with
  the Group companies                                                90,771         97,215     92,960
                                                                   6,952,215   5,723,382     5,843,281


 *    Net of the Company’s shares acquired by the special purpose companies in the amount of NIS 6,643
      thousand, NIS 2,788 thousand and NIS 8,523 thousand as at June 30, 2008, June 30, 2007 and
      December 31, 2007, respectively.

 ** Net of the debenture held by the Group companies in the amount of NIS 16,980, NIS 23,882 and
          NIS 16,100 as at June 30, 2008, June 30, 2007 and December 31, 2007, respectively.




                                                         - 120 -
                                                       CLAL INSURANCE ENTERPRISES HOLDINGS LTD.

    Notes To The Condensed Consolidated Interim Financial Statements as of June 30, 2008


    Hereunder are the data included in the consolidated reports:

    b.    Data for the statements of profit and loss


                                                                      Six months ended         Year ended
                                                                           June 30             December 31
                                                                     2008          2007           2007
                                                                          Unaudited              Audited
                                                                              NIS in thousands

Income

Management fees                                                       2,091        3,354          4,355

Finance income                                                       15,345       14,222        38,019       *)

Total income of special purpose subsidiaries                         17,436       17,576        42,374

Finance expenses                                                      3,658        7,591              -      *)

Costs and expenses                                                   10,248       10,830        20,795

Profit (loss) before taxes                                            3,530          845        21,579

Taxes on income (tax benefit)                                         1,116          319          7,494

Profit (loss) after taxes                                             2,414          526        14,085

Special purpose affiliates                                             215            72            20

Profit (loss) for the period                                          2,629          454        14,105

*        Reclassified.




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                                                           - 121 -

								
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