SEMELE GROUP INC, 10KSB, 1999-04-15

SEMELE GROUP INC
10KSB, 1999-04-15
REAL ESTATE INVESTMENT TRUSTS

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-KSB

|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998

|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________.

Commission File Number 0-16886

SEMELE GROUP INC.
-----------------
(Name of Small Business Issuer in its charter)

Delaware 36-3465422
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

One Canterbury Green, Stamford, Connecticut 06901
(Address of principal executive offices) (Zip Code)

Issuer's telephone number (203) 363-0849

Securities registered under Section 12(b) of the Exchange Act:

Title of each class Name of each exchange on which registered
None None

Securities registered under Section 12(g) of the Exchange Act:

Shares of Common Stock
(Title of Class)

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES |_| NO |X|.

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|

The Issuer's revenues for the fiscal year ended December 31, 1998 were
$1,158,216. Shares of common stock outstanding as of March 2, 1999: 1,145,491.
The aggregate market value of the Issuer's shares of common stock held by
non-affiliates on such date was approximately $3,550,466

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Registrant's Annual Report to security holders for the year
ended December 31, 1998 (Part I and II)

Transitional Small Business Disclosure Format: YES |_| NO |X|.

<PAGE>

TABLE OF CONTENTS

- --------------------------------------------------------------------------------

PART I

ITEM 1 DESCRIPTION OF BUSINESS 1
ITEM 2 DESCRIPTION OF PROPERTY 2
ITEM 3 LEGAL PROCEEDINGS 3
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 3

PART II

ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 4
ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 4
ITEM 7 FINANCIAL STATEMENTS 5
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE 5

PART III

ITEM 9 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS 6
ITEM 10 EXECUTIVE COMPENSATION 7
ITEM 11 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 11
ITEM 12 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 13
ITEM 13 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 14

SIGNATURES 17

<PAGE>

PART I

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS OPERATION

The Issuer, Semele Group Inc. (the "Company"), formerly known as Banyan
Strategic Land Fund II, is a Delaware corporation, organized pursuant to a
Certificate of Incorporation filed on April 14, 1987 under the name VMS
Strategic Land Fund II.

The Company was originally established to invest primarily in short-term,
junior, pre-development and construction mortgage loans. The borrowers
subsequently defaulted on these mortgage loan obligations, adversely affecting
the Company. As a result of these defaults, the Company suspended the making of
new loans, except for advances of additional funds under circumstances in which
it was deemed necessary to preserve the value of existing collateral, including
instances where it had foreclosed upon or taken title, directly or indirectly,
to the collateral. In 1990, the Company implemented a plan designed to preserve
its assets and manage its properties acquired through foreclosure or otherwise
until they would be disposed of in an orderly manner. On February 25, 1997, the
Directors of the Company authorized management to engage an investment banking
firm for purposes of evaluating strategic alternatives for maximizing
stockholder value. The Company executed and delivered an Exchange Agreement
dated April 30, 1997 (amended as of August 7, 1997, the "Agreement") among the
Company, Equis Exchange L.L.C., a Massachusetts limited liability company
("Equis"), Equis Financial Group Limited Partnership ("EFG") and certain
partnerships managed by EFG ("the Partnerships"). Pursuant to the Agreement, on
April 30, 1997, the Company issued to the Partnerships 198,700 shares of the
Company's common stock at the price of $15.00 per share. Cash proceeds received
by the Company, $2,480,500, were net of related costs of $500,000. In addition,
the Partnerships made a three-year loan (the "Loan") to the Company in the
amount of $4,419,500. The Loan has an interest rate of 10% per annum with
mandatory principal reductions, if and to the extent net proceeds are received
from the sale or refinancing of the Company's property known as Rancho Malibu.
The transaction also called for a one time $2.00 per share cash dividend to be
paid in the event certain stockholder proposals were approved. The Consent of
the stockholders was obtained and the proposals were adopted on October 21,
1997.

On August 31, 1998, the Company executed an agreement to acquire all of
the common stock of Ariston Corporation ("Ariston") for a total purchase price
of $12,450,000. Ariston is a holding company having two investments: (i) a 99%
limited partnership interest in AFG Eireann Limited Partnership ("AFG Eireann"),
a Massachusetts limited partnership having a tax interest in a diversified pool
of lease contracts owned by an institutional investor and (ii) a 98% limited
partnership interest in Old North Capital Limited Partnership ("ONC"), a
Massachusetts limited partnership with investments in cash and notes, equipment
leases, and limited partnerships that are engaged in either equipment leasing or
real estate. The latter includes two commercial buildings located in Washington
D.C. and Sydney, Australia that are leased to an investment-grade educational
institution. Gary D. Engle, Chairman, Chief Executive Officer and a director of
the Company and James A. Coyne, President, Chief Operating Officer and a
director of the Company both are affiliated with ONC and Gary D. Engle is
affiliated with AFG Eireann. Ariston was organized on July 31, 1998 as a
Delaware corporation. On August 3, 1998, Equis Financial Group Limited
Partnership ("EFG") contributed its limited partnership interests in AFG Eireann
and ONC to Ariston in exchange for Ariston common stock. Ariston was a
wholly-owned subsidiary of EFG until its acquisition by the Company and was
formed principally to facilitate the transfer of limited partnership interests
held by EFG in AFG Eireann and ONC. Gary D. Engle controls EFG and is the sole
director of Ariston.

The acquisition of Ariston was approved by the Company's independent
directors. (Both Messrs. Engle and Coyne elected to abstain from any votes
conducted by the Company's Board of Directors in connection with this
acquisition.) In addition, the Company, through its independent directors,
engaged an independent investment banking firm (the "Investment Banker"), to
evaluate the transaction and express its opinion as to whether the acquisition
was fair to the Company's shareholders from a financial point of view. The
Investment Banker concluded that the terms of the acquisition were fair to the
Company's shareholders.

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The Company purchased all of the common stock of Ariston from EFG for cash
of $2 million and a purchase-money note of $10,450,000 (the "Note"). The Ariston
acquisition was accounted for under the purchase method of accounting. The
balance sheet and statement of operations of Ariston were consolidated effective
September 1, 1998. The Note bears interest at the annualized rate of 7%, payable
quarterly in arrears, and requires principal reductions based upon the cash
flows generated by the limited partnership interests owned by Ariston. The Note
matures on August 31, 2003 and is recourse only to the common stock of Ariston.
The cost of the Ariston acquisition was allocated on the basis of the estimated
fair value of the assets acquired and liabilities assumed. In October 1998,
Ariston declared and paid a cash distribution of $2,020,000 to the Company.
Until the Note is retired, future cash distributions by Ariston require the
consent of EFG.

AFG Eireann is a special purpose limited partnership created in 1994
having a "tax interest" in a diversified pool of lease contracts owned by an
institutional investor. Gary D. Engle is a 50% owner and a director of the
general partner of AFG Eireann. ONC is a Massachusetts limited partnership
established in 1995. ONC has investments in (i) cash, (ii) a portfolio of
equipment leases, (iii) limited partnership units of several
direct-participation equipment leasing programs sponsored and managed by EFG,
(iv) general and limited partnership interests in a real estate partnership
sponsored by EFG that owns two commercial buildings leased to an
investment-grade educational institution, and (v) a note receivable having a
principal balance of approximately $2.7 million that is due from Messrs. Engle
and Coyne. Gary D. Engle owns all of the voting stock, and has a one-third
equity interest in, and is a director of the general partner of ONC. James A.
Coyne owns non-voting stock, and has a one-third equity interest in, and is a
director of the general partner of ONC.

The Company's business plan contemplates making additional acquisitions or
other investments where its sizable net operating loss carryforward can make it
a value added buyer.

Certain statements in this annual report that are not historical fact
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Without limiting the foregoing, words
such as "anticipates", "expects", "intends", "plans" and similar expressions are
intended to identify forward-looking statements. These statements are subject to
a number of risks and uncertainties including the Company's ability to
successfully implement a new growth-oriented business plan. Actual results could
differ materially from those projected in the forward-looking statements.

The Company currently holds an ownership interest in a 274 acre land
parcel in Southern California known as the Rancho Malibu property. The Company's
investment in the Rancho Malibu property is not subject to any competition. The
Company also holds a 0.3% beneficial interest in a liquidating trust,
established for the benefit of a group of unsecured creditors of a previous
borrower of the Company, which holds interests in various assets.

OTHER INFORMATION

The Company has two employees who serve as directors and executive
officers.

On February 23, 1998, new requirements for continued inclusion on the
NASDAQ National Market system became effective. The Company has not consistently
met the new bid price criteria for continued listing based on the Company's
stock price. Effective January 8, 1999, the Company's began trading on the
NASDAQ SmallCap system.

The Company reviews and monitors compliance with federal, state and local
ordinances that have been enacted or adopted regulating the discharge of
material into the environment, or otherwise relating to the protection of the
environment. For the year ended December 31, 1998, the Company did not incur any
material environmental expenditures.

ITEM 2. DESCRIPTION OF PROPERTY

Incorporated herein by reference to Note 4 to the Consolidated Financial
Statements in the 1998 annual report.

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ITEM 3. LEGAL PROCEEDINGS

Incorporated herein by reference to Notes 4 and 15 to the Consolidated
Financial Statements in the 1998 annual report.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

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PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

On June 30, 1998, the stockholders approved a 1-for-300 reverse stock
split followed by a 30-for-1 forward stock split. As a result of the reverse
stock split, each stockholder of record who owned less than 300 shares of common
stock immediately prior to the reverse stock split received in lieu of the
fractional share resulting from the reverse split, cash in the amount of
$.790625 per share (the average daily closing price per share of common stock on
the NASDAQ Stock Exchange for the ten trading days prior to effective date)
multiplied by the number of shares of common stock owned by such stockholder
immediately prior to the reverse stock split. Immediately after the reverse
stock split, the number of shares of common stock of each holder (excluding
stockholders who held less than 300 shares immediately prior to the reverse
split) was converted in a forward split into multiple shares of common stock on
the basis of 30 shares of common stock for each share or fraction thereof then
held. The Company paid $356,098 to fractional stockholders on July 17, 1998 as a
result of the reverse stock split. All share and per share data for prior
periods presented have been restated to reflect the stock splits.

The Company's shares were included for quotation on the NASDAQ National
Market (symbol - VSLF) during 1998 and 1997 (see Item 1). The table below shows
the quarterly high and low bid prices as reported by NASDAQ National Market for
the years ended December 31, 1998 and 1997:

Share Price
Quarter ----------------------------------
Ended 1998 1997
------- ---- ----
3/31 High $10.000 $11.250
Low $5.000 $9.063

6/30 High $9.375 $10.000
Low $7.500 $8.125

9/30 High $8.500 $12.500
Low $4.625 $6.875

12/31 High $4.750 $12.500
Low $3.750 $4.063

In connection with the Consent of the stockholders (described in Item 1),
the Company declared a one-time cash dividend to its stockholders of $2.00 per
share during the fourth quarter of 1997. The Company had not paid a dividend to
its stockholders since 1990 as a result of the defaults by borrowers on the
Company's mortgage loans, the resultant interruption in the Company's cash flow,
the uncertainties regarding its assets and the Company's future cash
requirements. The Company will continue to periodically evaluate its dividend
policy, however, the Company's management currently does not anticipate
additional dividends in the foreseeable future.

The Company's ability to pay future dividends to its stockholders is
dependent upon, among other things, the level of liquidity required to
successfully implement a growth-oriented business plan and the Company's ability
to control its property and Company level operating expenses. The Company will
have future cash inflows as a result of the Ariston acquisition (see Item 1),
which will be used to service associated acquisition indebtedness.

At March 2, 1999, there were 1,479 record holders of the Company's shares
of common stock.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

Incorporated herein by reference to the section entitled "Management's
Discussion and Analysis or Plan of Operation" in the 1998 annual report.

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<PAGE>

ITEM 7. FINANCIAL STATEMENTS

Incorporated herein by reference to the Company's Consolidated Financial
Statements included in the 1998 annual report.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no changes in, or disagreements with, the accountants on
any matter of accounting principles, practices or financial statement
disclosure.

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<PAGE>

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The directors and executive officers of the Company are:

Walter E. Auch, Sr. Director
Robert M. Ungerleider Director
Joseph W. Bartlett Director
Gary D. Engle Chairman, Chief Executive Officer and Director
James A. Coyne President, Chief Operating Officer and Director
Gary M. Romano Chief Financial Officer
Michael J. Butterfield Treasurer

WALTER E. AUCH, SR., age 76, was the Chairman and Chief Executive Officer
of the Chicago Board Options Exchange. Prior to that time, Mr. Auch was
Executive Vice President, Director and a member of the executive committee of
Paine Webber. Mr. Auch is a Director of Pimco Advisors L.P., Geotek
Communications, Inc., Smith Barney Concert Series Funds, Smith Barney Trak Fund,
The Brinson Partners Funds, and Nicholas Applegate Funds. He is also a Trustee
of Hillsdale College and the Arizona Heart Institute. Mr. Auch has been a
Director of the Company since 1987. Mr. Auch is also a Trustee of Banyan
Strategic Realty Trust and a Director of Legend Properties, Inc. (f/k/a Banyan
Mortgage Investment Fund) and Banyan Management Corp.

ROBERT M. UNGERLEIDER, age 57, is presently the President of Pilot Books,
a book publisher located in Greenport, New York. Mr. Ungerleider has founded,
developed and sold a number of start-up ventures including Verifone Finance, an
equipment leasing service, SmartPage, a paging service company and Financial
Risk Underwriting Agency, Inc., an insurance firm specializing in financial
guarantee transactions. Prior to these endeavors, Mr. Ungerleider practiced real
estate and corporate law in New York City for ten years. Mr. Ungerleider
received his B. A. Degree from Colgate University and his Law Degree from
Columbia University Law School. Mr. Ungerleider has been a Director of the
Company since 1987. Mr. Ungerleider is also a Director of Legend Properties,
Inc. (f/k/a Banyan Mortgage Investment Fund) and Banyan Management Corp. and is
counsel to the law firm of Lane Felcher Kurlander & Fox.

JOSEPH W. BARTLETT, age 65, is a partner in the law firm of Morrison &
Foerster LLP, which he joined in March 1996. From July 1991 until March 1996 he
was a partner in the law firm of Mayer, Brown & Platt. Mr. Bartlett is also a
Director of Cyrk, Inc., which designs, manufactures and distributes products for
promotional programs and custom-designed sports apparel and accessories. Mr.
Bartlett became a Director of the Company in October 1997.

GARY D. ENGLE, age 50, is Chairman and Chief Executive Officer of the
Company which position he assumed in November 1997. Mr. Engle is President and
Chief Executive Officer of EFG, which he joined in 1990 as Executive Vice
President. Mr. Engle purchased a controlling interest in EFG in December, 1994.
He is also President of AFG Realty, Inc. From 1987 to 1990, Mr. Engle was a
principal and co-founder of Cobb Partners Development, Inc., a real estate and
mortgage banking company, with principal offices in Florida. From 1980 to 1987,
Mr. Engle served in various capacities with Arvida Disney Company, a large scale
community real estate development company owned by the Walt Disney Company with
real estate development projects worldwide. Mr. Engle became a Director of the
Company in May 1997.

JAMES A. COYNE, age 38, is President and Chief Operating Officer of the
Company which position he assumed in 1997. Mr. Coyne is Executive Vice
President, Capital Markets of EFG and is also Vice President of AFG Realty Inc.,
an affiliate of EFG. He is responsible for EFG's real estate activities in both
the United States and Australia. Mr. Coyne joined EFG in 1989, remained until
May 1993, and rejoined EFG in November 1994. In September 1997, Mr. Coyne was
appointed Executive Vice President of EFG. From May 1993 through November 1994,
he was employed by the Raymond Company, a private investment firm, where he was
responsible for financing corporate and real estate acquisitions. From 1985
through 1989, Mr. Coyne was affiliated with a real estate investment company and
an equipment leasing company. Prior to 1985, he was with the accounting firm of
Ernst & Whinney

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(now Ernst & Young LLP). He has a BS in Business Administration from John
Carroll University, a Masters Degree in Accounting from Case Western Reserve
University and is a Certified Public Accountant. Mr. Coyne became a Director of
the Company in October 1997.

GARY M. ROMANO, 39, is Chief Financial Officer of the Company which
position he assumed in November 1997. Mr. Romano is Executive Vice President and
Chief Operating Officer of EFG and certain of its affiliates. Mr. Romano joined
EFG in November 1989, became Vice President and Controller in April 1993 and
Chief Financial Officer in April 1995. Mr. Romano assumed his current position
at EFG in April 1996. Prior to joining EFG, Mr. Romano was Assistant Controller
for a privately held real estate development and mortgage origination company
that he joined in 1987. Previously, Mr. Romano was an Audit Manager at Ernst &
Whinney (now Ernst & Young LLP), where he was employed from 1982 to 1986. Mr.
Romano is a Certified Public Accountant and holds a B.S. degree from Boston
College.

MICHAEL J. BUTTERFIELD, 39, is Treasurer of the Company which position he
assumed in November 1997. Mr. Butterfield joined EFG in June 1992, became Vice
President, Finance and Treasurer of EFG and certain of it's affiliates in April
1996 and in July 1998, was promoted to Senior Vice President, Finance and
Treasurer of EFG and certain of its affiliates. Prior to joining EFG, Mr.
Butterfield was an Audit Manager with Ernst & Young LLP, which he joined in
1987. Mr. Butterfield was employed in public accounting and industry positions
in New Zealand and London (UK) prior to coming to the United States in 1987. Mr.
Butterfield attained his Associate Chartered Accountant (A.C.A.) professional
qualification in New Zealand and has completed his CPA requirements in the
United States. He holds a Bachelor of Commerce degree from the University of
Otago, Dunedin, New Zealand.

ITEM 10. EXECUTIVE COMPENSATION

A. DIRECTOR COMPENSATION

The Directors are paid an annual fee of $15,000, payable quarterly, plus
$875 for each board meeting, including meetings of the compensation and audit
committees, attended in person and $250 an hour for each board meeting,
including meetings of the compensation and audit committees, attended via
telephonic conference call. In addition, each Director is reimbursed for
out-of-pocket expenses incurred in attending meetings of the board.

B. EXECUTIVE COMPENSATION

Compensation paid to Mr. Engle for the years ended December 31, 1998 and
1997, Mr. Coyne for the year ended December 31, 1998 and Mr. Levine, the former
President and Chief Executive Officer of the Company, for the years ended
December 31, 1997 and 1996 is as follows:

Annual Compensation (1)
-----------------------

<TABLE>
<CAPTION>
Other Annual
Year Salary Bonus (3) Compensation
---- ------------ ------------- -----------------
<S> <C> <C> <C> <C>
Gary D. Engle, (2) 1998 $ 120,000 n/a n/a
Chairman and Chief 1997 $ 48,383 n/a n/a
Executive Officer

James A. Coyne, 1998 $ 120,000 n/a n/a
President and Chief 1997 $ 48,383 n/a n/a
Operating Officer

Leonard G. Levine, 1997 $ 111,926 $ 7,164 n/a
Former President and Chief 1996 $ 108,141 $ 217,135 n/a
Executive Officer
</TABLE>

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Long-Term Compensation (1)
--------------------------

<TABLE>
<CAPTION>
Awards Payouts
---------------------------- ---------------------------------
Restricted
Stock Options/ LTIP All Other
Year Awards SARSs (#) Payouts Compensation
---- ---------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Gary D. Engle, (2) 1998 n/a n/a n/a n/a
Chairman and Chief 1997 n/a n/a n/a n/a
Executive Officer

James A. Coyne, 1998 n/a n/a n/a n/a
President and Chief
Operating Officer

Leonard G. Levine, 1997 n/a n/a n/a $ 400,000
Former President and Chief 1996 n/a n/a n/a n/a
Executive Officer
</TABLE>

(1) Total compensation for each of the next three highest paid executive
officers did not exceed $100,000 in 1998, 1997 or 1996.

(2) Mr. Engle became Chairman and Chief Executive Officer on November 10,
1997, following Mr. Levine's resignation.

(3) Pursuant to Mr. Levine's employment agreement the incentive amounts which
were earned in 1996 and 1995 were paid or awarded to him by the Company in
1997 and 1996, respectively.

Mr. Engle serves as Chief Executive Officer of the Company pursuant to an
Executive Employment Agreement dated November 10, 1997, and Mr. Coyne serves as
Chief Operating Officer of the Company pursuant to an Executive Employment
Agreement dated May 1, 1997. The provisions of the two Agreements (the
"Agreements") are identical.

Pursuant to the Agreements, the Company paid each executive a base salary
of $120,000 and $48,383 for services rendered to the Company in 1998 and 1997,
respectively. For 1998 and thereafter, the Agreements provide that the Company
will pay each executive a base salary at the rate of not less than $120,000 per
year, subject to adjustment by the Board of Directors based upon performance by
the executive of his duties and the financial performance of the Company. Under
the Agreements, each executive is also entitled to receive such incentive or
performance cash bonuses as the Board may determine from time to time.

The Agreements provide that the executives' salary will be deferred under
an Incentive Compensation Plan, unless the executive in any prospective period
elects to have such salary paid to him directly. Pursuant to the Agreements and
the Incentive Plan, the Participants deferred $240,000 and $96,766 of
compensation during the years ended December 31, 1998 and 1997, respectively,
which represented 41,400 and 15,483 shares of common stock, respectively. During
1997, the number of shares of Common Stock was determined by dividing the dollar
amount of the salary deferred by $6.25, the closing price of a share of the
Company's Common Stock on December 30, 1997, the effective date of the Incentive
Plan. During 1998, such shares of Common Stock was determined by dividing the
dollar amount of the salary deferred each month by the average of the closing
prices of a share of the Company's Common Stock for the last ten trading days of
the month.

The Agreements also provide for the grant of 40,000 options to each
executive, subject to approval by the stockholders. Incentive stock options to
purchase 40,000 shares of Common Stock of the Company at an exercise price of
$9.25 per share were granted to each executive on December 30, 1997. These
grants were approved by stockholders at the 1998 Annual Meeting. One-third of
such options vest on each anniversary of the date of grant, subject to
acceleration in the event of a Change-in-Control, which is defined as an
occurrence whereby (i) any person, partnership, corporation, entity or group (as
such term is used in the Exchange Act), in a single transaction or series of

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related transactions, directly or indirectly, acquires beneficial ownership of
more than 50 percent of the Company's securities or substantially all of the
Company's assets, or (ii) individuals who were members of the Board immediately
prior to a meeting of stockholders involving a contest for directors do not
constitute a majority of the Board following such election or (iii) the
executive fails to be elected or re-elected to the Board, unless the executive
was not nominated with his consent.

Additional benefits to which the executives are entitled under the
Agreements include such amount of paid vacation per calendar year and such
health, life and disability insurance protection as the executive reasonably
requests.

Each Agreement extends until December 31, 2000, and thereafter is renewed
for additional one-year terms unless either party gives written notice to the
other not less than 30 days prior to the end of the original term or any renewal
term that the party does not wish to renew the Agreement. The Company may
terminate the Agreements for cause, and the executive may terminate his
Agreement at any time upon 60 days' prior written notice. In addition, the
executive may terminate his Agreement effective immediately within 60 days of a
Change-in-Control, and in that event the Company must continue the executive's
salary and fringe benefits under his Agreement and his incentive compensation
under the Incentive Plan for a period of 18 months. If the Company terminates an
executive or the Company elects not to renew an executive's Agreement within 24
months following a Change-in-Control, the Company must pay to the executive in a
lump sum an amount equal to the greater of (i) three times the base salary paid
to the executive in the 36 months preceding the Change-in-Control and (ii) the
base salary due to be paid the executive through the end of the term (or renewal
term) of his Agreement. If the Company terminates the employment of an executive
without cause, all payments under his Agreement continue through the end of the
then term. If the Company elects not to renew an executive's Agreement at the
end of the original term or any renewal term, the executive will receive a
termination settlement equal to 12 months' salary and will continue to receive
insurance benefits for 12 months, unless such non-renewal occurs within 24
months following a Change-in-Control, in which event the executive will receive
the benefits he would have received if he had terminated the Agreement following
a Change-in-Control. Upon termination of an Agreement voluntarily by an
executive, upon the election by the executive not to renew his Agreement or by
the Company for cause, all payments and benefits under the Agreement cease on
the date of termination.

Until November 10, 1997, Mr. Levine served as Chief Executive Officer of
the Company pursuant to an employment agreement entered into on January 1, 1990
, which was amended and restated effective May 1, 1997 (together, the "Levine
Agreement"). Under the Levine Agreement, Mr. Levine was paid a salary for the
calendar year 1997 equal to $111,926 per year.

Under the Levine Agreement, Mr. Levine received incentive compensation
under an incentive program included in the agreement, calculated as follows: (i)
1.00% of the Company's collateralized claims which were converted into cash;
(ii) 3.00% of the Company's unsecured claims which were converted into cash;
(iii) 0.1% of all cash distributions of capital; and (iv) 0.14% of all
distributions of income to stockholders of the Company. Pursuant to the Levine
Agreement, incentive earned was paid 80% in cash on or before March 15th of the
following year and 20% in phantom stock rights (the "Phantom Stock").

On April 1, 1997 and March 1, 1996, Mr. Levine was paid (i) $7,164 and
$217,135, respectively, in cash, representing 80% of his incentive compensation
earned for the fiscal years ended December 31, 1996 and 1995, respectively; and
(ii) received 191 shares and 4,308.3 shares, respectively, of Phantom Stock,
representing 20% of the incentive compensation earned for those years. The value
of the Phantom Stock on the date of grant was $9.375 per share or $1,790 for
shares issued in 1997, $12.60 per share or $54,284 for shares issued in 1996.

Under the Levine Agreement, Mr. Levine received a termination fee of
$400,000 in connection with the termination of his employment, and all of his
Phantom Shares were forfeited by him.

C. EXECUTIVE AND DIRECTORS STOCK OPTION PLAN

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<PAGE>

stock options within the meaning of Section 422 of the Internal Revenue Code.
The stockholders approved the Amendment to the Plan at the 1998 Annual Meeting
of Stockholders. The Plan granted the Board of Directors the authority to issue
up to 100,000 shares of the Company's common stock for stock option awards. The
Plan consists of an Executive Option Grant Program and a Director Option Grant
Program. Under the Director Option Grant Program, each of the Directors, in
consideration of their length of service on the Board, received an option to
acquire 5,000 shares. The exercise price of the options initially granted to the
Board of Directors on July 15, 1994 under the Director Option Grant Program was
$11.25. The exercise price was reduced to $9.25 by a vote of the Board of
Directors on December 30, 1997. No executive is eligible to receive options
under the Director Option Grant Program.

The Board administers the Executive Option Grant Program and has the
authority to determine, among other things, the individuals to be granted
Executive Options, the exercise price at which shares may be acquired, the
number of shares subject to each option and the exercise period of each option.
The Board is also authorized to construe and interpret the Executive Option
Grant Program and to prescribe additional terms and conditions of exercise in
option agreements and provide the form of option agreement to be utilized with
the Executive Option Grant Program. No Director is eligible to receive options
under the Executive Option Grant Program.

Options are not transferable except by will or by the laws of descent and
distribution, and are exercisable during an optionee's lifetime only by the
optionee or the appointed guardian or legal representative of the optionee. Upon
the: (a) death or permanent and total disability of an optionee; or (b)
retirement in accord with the Company's retirement practices, any unexercised
options will be exercisable at any time within one year in the case of (a) and
ninety days in the case of (b) (but in no case beyond the expiration date
specified in the Option Agreement). If, while unexercised options remain
outstanding under the Plan, the Company ceases to be a publicly-traded company,
or if the Company merges with another entity or a similar event occurs, all
options outstanding under the Plan shall immediately become exercisable at that
time.

The Plan requires the optionee to pay, at the time of exercise, for all
shares acquired on exercise in cash, shares, or in the case of the Executive
Option Program, other forms of consideration acceptable to the Board.

If the Company declares a stock dividend, splits its stock, combines or
exchanges its shares, or engages in any other transactions which results in a
change in capital structure such as a merger, consolidation, dissolution,
liquidation or similar transaction, the Board may adjust or substitute, as the
case may be, the number of shares available for options under the Plan, the
number of shares covered by outstanding options, the exercise price per share of
outstanding options, any target price levels for vesting of the options and any
other characteristics of the options as the Board deems necessary to equitably
reflect the effects of those changes on the option holders.

The Board granted 9,000 options on each of April 16, 1996, July 11, 1995
and January 18, 1994 (27,000 options in total) to management under the Plan, at
a price equal to the closing price of the Company's stock as reported by NASDAQ
on the day of the grant of options ($12.50 per share at April 16, 1996, $15.00
per share at July 11, 1995 and $11.25 per share at January 18, 1994).

Pursuant to the terms of the grants, options for all shares granted under
the Executive Option Grant Program are exercisable and vested in installments as
follows: (i) 33.3% of the number of shares commencing on the first anniversary
of the date of grant; (ii) an additional 33.3% of the shares commencing on the
second anniversary of the date of the grant; and (iii) an additional 33.4% of
shares commencing on the third anniversary of the date of grant. Options for all
shares as granted under the Director Option Grant Program are exercisable in
installments as follows: (i) 50.0% of the number of shares commencing on the
first anniversary of the date of grant; and (ii) an additional 50.0% of the
number of shares commencing on the second anniversary of the date of grant. The
Board is granted discretion to determine the term of each option granted under
the Executive Option Grant Program, but in no event will the term exceed ten
years and one day from the date of grant.

During 1998, unexercised stock options issued to a former Director, Mr.
Nudo under the Director Option Grant Program were canceled and surrendered in
connection with his resignation. Mr. Nudo was paid $20,000 by the Company as
consideration for his options.

10
<PAGE>

During 1997, the Company's former executives who held unexercised options
issued under the Executive Option Grant Program agreed to cancel and surrender
these options in consideration of the Company paying each holder $2.00 in cash
for each share of Common Stock subject to such holder's options. The Company
retired 6,850 options to purchase shares of the Company's common stock at a
price of $2.00 per share or $13,700. The options held by Mr. Levine (18,000
options), were canceled and surrendered in connection with his resignation.

On December 30, 1997, the Board voted to grant nonstatutory stock options
for 5,000 shares at an exercise price of $9.25 per share to Joseph W. Bartlett
under the Director Option Grant Program and incentive stock options for 40,000
shares at an exercise price of $9.25 per share to each of Gary D. Engle and
James A. Coyne under the Executive Option Grant Program. These grants were
approved by the stockholders at the June 30, 1998 Annual Meeting. The closing
price for a share of the Company's Common Stock as reported by NASDAQ was $6.25
and $8.125 at December 30, 1997 and June 30, 1998, respectively.

Stock Options granted or exercised under the Option Plan by executive
officers named in the executive compensation table for the year ended December
31, 1998, are as follows:

STOCK OPTION GRANTS IN 1998 FISCAL YEAR

<TABLE>
<CAPTION>
Number of Securities % of Total Options Granted
Underlying to Employees Exercise or Expiration
Name Options Granted in Fiscal Year Base Price Date
- ----------------- --------------- -------------- ---------- -------
<S> <C> <C> <C> <C>
Gary D. Engle none n/a n/a n/a
James A. Coyne none n/a n/a n/a
</TABLE>

AGGREGATED STOCK OPTION EXERCISES DURING 1998
AND DECEMBER 1998 OPTION VALUES

<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options In-the-Money Options
at December 31 at December 31
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ---------------- ------------ --------- -------------- -------------
<S> <C> <C> <C> <C>
Gary D. Engle None $0 13,320/26,680 n/a / n/a
James A. Coyne None $0 13,320/26,680 n/a / n/a
</TABLE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth certain information regarding beneficial
owners of Common Stock as of March 2, 1999 by: (i) each person or entity who is
known by the Company to own more than five percent of the Common Stock (together
with such person's address); (ii) each director and each executive officer of
the Company named in the executive compensation table; and (iii) all current
directors and officers as a group. Share amounts and percentages shown for each
person or entity are adjusted to give effect to shares of Common Stock that are
not outstanding but may be acquired by that person or entity upon exercise of
all options and warrants exercisable by that person or entity within 60 days.
However, such shares of Common Stock are not deemed to be outstanding for the
purpose of computing the percentage of outstanding shares beneficially owned by
any other person or entity. Messrs. Romano and Butterfield do not own any shares
of Common Stock of the Company.

11
<PAGE>

<TABLE>
<CAPTION>
Name of Person or Entity Number of Shares Percent of Total Shares
- ------------------------ ---------------- -----------------------
<S> <C> <C>
AFG Hato Arrow Limited Partnership 198,700 (1) 17.5%
AFG Dove Arrow Limited Partnership
AIP/Larkfield Limited Partnership
c/o Equis Corporation
88 Broad Street
Boston, Massachusetts 02110

Gary D. Engle, Chairman, Chief Executive 34,857 (2) (3) 3%
Officer and Director

James A. Coyne, President, Chief Operating 36,757 (4) 3.2%
Officer and Director

Joseph W. Bartlett, Director 5,000 (5) Less than 1%

Robert M. Ungerleider, Director 5,600 (5) Less than 1%

Walter E. Auch, Sr., Director 6,600 (5) Less than 1%

All Directors and Officers of the Company, 21,300 1.9%
as a group (7 persons)
</TABLE>

(1) Certain affiliates of EFG have filed reports with the Securities and
Exchange Commission (the "SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
indicating ownership of five percent or more of the outstanding Common
Stock. At March 2, 1999: (i) AFG Hato Arrow Limited Partnership owns
63,544 shares, amounting to 5.5% of the outstanding Common Stock; (ii) AFG
Dove Arrow Limited Partnership owns 61,673 shares, amounting to 5.4% of
the outstanding Common Stock and (iii) AIP/Larkfield Limited Partnership
owns 73,483 shares, amounting to 6.4% of the outstanding Common Stock.
Gary D. Engle, Chairman, Chief Executive Officer and a director of the
Company, has effective control over the operation of each of these limited
partnerships.

(2) Because Mr. Engle has effective control over AFG Hato Arrow Limited
Partnership, AFG Dove Arrow Limited Partnership and AIP/Larkfield Limited
Partnership, he is also deemed to beneficially own 198,700 shares owned by
those partnerships.

(3) Includes 33,757 shares held by a rabbi trust for the benefit of Mr. Engle
representing salary deferred by the officer through March 2, 1999 pursuant
to the Company's Incentive Compensation Plan.

(4) Includes 33,757 shares held by a rabbi trust for the benefit of Mr. Coyne
representing salary deferred by the officer through March 2, 1999 pursuant
to the Company's Incentive Compensation Plan.

(5) Includes currently exercisable options granted under the Company's 1994
Executive and Director Stock Option Plan to purchase 5,000 shares of
Common Stock.

The Company is not aware of any other person who, alone or as part of a
group, beneficially owns more than five percent of the outstanding shares of
Common Stock at March 2, 1999. The Company is not aware of any arrangement, the
operation of which may at a subsequent date result in a change of control of the
Company.

Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file initial statements of beneficial
ownership (Form 3), and statements of changes in beneficial ownership (Forms 4
and 5), of Common Stock and other equity

12
<PAGE>

securities of the Company with the SEC and the National Association of
Securities Dealers, Inc. (the "NASD"). The SEC requires officers, directors and
greater than ten percent stockholders to furnish the Company with copies of all
these forms filed with the SEC and NASD.

To the Company's knowledge, based solely on its review of the copies of
these forms received by it, or written representations from certain reporting
persons that no additional forms were required for those persons, the Company
believes that all filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with during 1998.

See Item 10, Executive Compensation, for information on Stock Options of
the Company held by officers and directors pursuant to the 1994 Executive and
Directors Stock Option Plan and for information on shares held by a rabbi trust
for the benefit of certain officers pursuant to the Company's Incentive
Compensation Plan.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ACQUISITION OF ARISTON CORPORATION

As described in Item 1, the Company acquired Ariston on August 31, 1998
for a total purchase price of $12,450,000. Ariston is a holding company having
two investments: (i) a 99% limited partnership interest in AFG Eireann Limited
Partnership ("AFG Eireann"), a Massachusetts limited partnership having a tax
interest in a diversified pool of lease contracts owned by an institutional
investor and (ii) a 98% limited partnership interest in Old North Capital
Limited Partnership ("ONC"), a Massachusetts limited partnership with
investments in cash and notes, equipment leases, and limited partnerships that
are engaged in either equipment leasing or real estate. The latter includes two
commercial buildings located in Washington D.C. and Sydney, Australia that are
leased to an investment-grade educational institution. Gary D. Engle, Chairman,
Chief Executive Officer and a director of the Company and James A. Coyne,
President, Chief Operating Officer and a director of the Company both are
affiliated with ONC and Gary D. Engle is affiliated with AFG Eireann.

OTHER RELATED PARTY TRANSACTIONS

As described in Item 1, The Company executed and delivered an Exchange
Agreement dated April 30, 1997 (amended as of August 7, 1997, the "Agreement")
among the Company, Equis, EFG and certain partnerships managed by EFG. Pursuant
to the Agreement, the Administrative Services Agreement between the Company and
Banyan Management Corp. ("BMC") was amended to provide, among other things, for
the payment to BMC of a termination fee in the amount of $251,823 and the
transfer of the Company's ownership interest in BMC to BMC's designee. Effective
May 6, 1997, EFG entered into an Administrative Services Agreement to provide
administrative services to the Company, replacing BMC. Administrative costs,
primarily salaries and general and administrative expenses, of $152,201 were
incurred on the Company's behalf by EFG during the year ended December 31, 1998.
During the year ended December 31, 1997, the Company incurred $49,166 in
administrative costs for services provided by EFG and $107,781 for services
provided by BMC. The costs incurred by EFG on behalf of the Company are
reflected as Administrative Reimbursement - Affiliate on the Consolidated
Statements of Operations. The costs incurred by BMC on behalf of the Company are
included in General and Administrative expenses on the Consolidated Statements
of Operations.

Pursuant to the Agreement, on April 30, 1997, the Company issued to the
Partnerships 198,700 shares of the Company's common stock at the price of $15.00
per share. Cash proceeds received by the Company, $2,480,500, were net of
related costs of $500,000. In addition, the Partnerships made a three-year loan
to the Company in the amount of $4,419,500. The Loan has an interest rate of 10%
per annum with mandatory principal reductions, if and to the extent net proceeds
are received from the sale or refinancing of the Rancho Malibu property.

13
<PAGE>

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

The following consolidated financial statements of Semele Group Inc. included in
its Annual Report for the year ended December 31, 1998 are incorporated by
reference in Item 7 hereof:

Consolidated Balance sheets as of December 31, 1998 and 1997
Consolidated Statements of Operations For the Years Ended December
31, 1998 and 1997
Consolidated Statements of Stockholders' Equity For the Years Ended
December 31, 1998 and 1997
Consolidated Statements of Cash Flows For the Years Ended December
31, 1998 and 1997
Notes to Consolidated Financial Statements

(2) Financial Statement Schedules

None required.

(3) Exhibits

A list of exhibits filed or incorporated by reference is as follows:

3.1 Restated Certificate of Incorporation (filed with the Securities and
Exchange Commission as Exhibit (3)(i) to the Registrant's Report on
Form 8-K dated October 21, 1997 and incorporated by reference)

3.2 Amended and Restated By-Laws (filed with the Securities and Exchange
Commission as Exhibit (3)(ii) to the Registrant's Report on Form 8-K
dated October 21, 1997 and incorporated by reference)

4 Form of new stock certificate (filed with the Securities and
Exchange Commission as Exhibit (4) to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended September 30, 1997 and
incorporated by reference)

10.1 Executive Employment Agreement for Gary D. Engle (filed in the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1997 as Exhibit 10.1 and is incorporated herein by reference)

10.2 Executive Employment Agreement for James A. Coyne (filed in the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1997 as Exhibit 10.2 and is incorporated herein by reference)

10.3 Amended 1994 Executive and Director Stock Option Plan (filed in the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1997 as Exhibit 10.3 and is incorporated herein by reference)

10.4 Incentive Compensation Plan (filed in the Registrant's Annual Report
on Form 10-K for the year ended December 31, 1997 as Exhibit 10.4
and is incorporated herein by reference)

10.5 Trust under Semele Group Inc. Incentive Compensation Plan (filed in
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 as Exhibit 10.5 and is incorporated herein by
reference)

10.6 Qualified Stock Option Agreement Executive Option Grant Program
dated December 30, 1997 between Semele Group Inc. and Gary D. Engle
(filed in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 as Exhibit 10.6 and is incorporated herein
by reference)

14
<PAGE>

10.7 Qualified Stock Option Agreement Executive Option Grant Program
dated December 30, 1997 between Semele Group Inc. and James A. Coyne
(filed in the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1997 as Exhibit 10.7 and is incorporated herein
by reference)

10.8 Director Stock Option Agreement Director Option Grant Program (filed
in the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1997 as Exhibit 10.8 and is incorporated herein by
reference)

10.9 Amendment to Director Stock Option Agreement Director Option Grant
Program dated December 30, 1997 between Semele Group Inc. and Gerald
L. Nudo (filed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997 as Exhibit 10.9 and is incorporated
herein by reference)

10.10 Amendment to Director Stock Option Agreement Director Option Grant
Program dated December 30, 1997 between Semele Group Inc. and Robert
M. Ungerleider (filed in the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1997 as Exhibit 10.10 and is
incorporated herein by reference)

10.11 Amendment to Director Stock Option Agreement Director Option Grant
Program dated December 30, 1997 between Semele Group Inc. and Walter
E. Auch (filed in the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1997 as Exhibit 10.11 and is
incorporated herein by reference)

10.12 Third Amended and Restated Employment Agreement for Leonard G.
Levine dated May 1, 1997 (filed with the Securities and Exchange
Commission as Exhibit (10)(i) to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended June 30, 1997 and incorporated
by reference)

10.13 Amendment No. 1 to Exchange Agreement dated August 7, 1997 (filed
with the Securities and Exchange Commission as Exhibit (10)(ii) to
the Registrant's Quarterly Report on Form 10-QSB for the quarter
ended June 30, 1997 and incorporated by reference)

10.14 Exchange Agreement dated April 30, 1997 by and among AFG Hato Arrow
Limited Partnership, AFG Dove Arrow Limited Partnership,
AIP/Larkfield Limited Partnership, Equis Exchange LLC, Equis
Financial Group Limited Partnership and the Registrant and related
exhibits (filed with the Securities and Exchange Commission as
Exhibit (10)(i) to the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1997 and incorporated by reference)

10.15 Directors Stock Option Agreement dated July 15, 1994

10.16 Executive Stock Option Agreements dated July 1, 1994, July 11, 1995
and April 16, 1996.

13 The Company's Annual Report to Stockholders for the year ended
December 31, 1998

21 Subsidiaries of the Company

23 Consent of Independent Auditors

27 Financial Data Schedule (such schedule is not deemed filed as part
of this report)

99.1 Press Release dated October 21, 1997 (filed with the Securities and
Exchange Commission as Exhibit (99)(i) to the Registrant's Report on
Form 8-K dated October 21, 1997 and incorporated by reference)

(b) No Reports on Form 8-K were filed during the quarter ended December
31, 1998.

15
<PAGE>

(d) None.

An annual report will be sent to the stockholders subsequent to this
filing and the Company will furnish copies of such report to the Commission at
that time.

16
<PAGE>

SIGNATURES

IN ACCORDANCE WITH Section 13 or 15(d) of the Exchange Act, the Issuer has
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SEMELE GROUP INC.

By: /s/Gary D. Engle Date: April 15, 1999
Gary D. Engle, Chairman, Chief Executive
Officer and Director

IN ACCORDANCE WITH the Exchange Act, this Annual Report has been signed
below by the following persons on behalf of the Issuer and in the capacities and
on the dates indicated.

By: /s/Gary D. Engle Date: April 15, 1999
Gary D. Engle, Chairman, Chief Executive
Officer and Director

By: /s/James A. Coyne Date: April 15, 1999
James A. Coyne, President, Chief
Operating Officer and Director

By: /s/Gary M. Romano Date: April 15, 1999
Gary M. Romano, Vice President and
Chief Financial Officer

By: /s/Walter E. Auch Date: April 15, 1999
Walter E. Auch, Sr., Director

By: /s/Robert M. Ungerleider Date: April 15, 1999
Robert M. Ungerleider, Director

By: /s/Joseph W. Bartlett Date: April 15, 1999
Joseph W. Bartlett, Director

17
<PAGE>

SIGNATURES

IN ACCORDANCE WITH Section 13 or 15(d) of the Exchange Act, the Issuer has
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.

SEMELE GROUP INC.

By: ____________________________________ Date: April 15, 1999
Gary D. Engle, Chairman, Chief Executive
Officer and Director

IN ACCORDANCE WITH the Exchange Act, this Annual Report has been signed
below by the following persons on behalf of the Issuer and in the capacities and
on the dates indicated.

By: ____________________________________ Date: April 15, 1999
Gary D. Engle, Chairman, Chief Executive
Officer and Director

By: ____________________________________ Date: April 15, 1999
James A. Coyne, President, Chief Operating
Officer and Director

By: ____________________________________ Date: April 15, 1999
Gary M. Romano, Vice President and
Chief Financial Officer

By: ____________________________________ Date: April 15, 1999
Walter E. Auch, Sr., Director

By: ____________________________________ Date: April 15, 1999
Robert M. Ungerleider, Director

By: ____________________________________ Date: April 15, 1999
Joseph W. Bartlett, Director

17
<PAGE>

EXHIBIT 13

SEMELE GROUP INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
Pages
-----
<S> <C>
Management's Discussion and Analysis of Financial Condition or Plan of Operation 19-23

Report of Independent Auditors 24

Consolidated Balance Sheets as of December 31, 1998 and 1997 25

Consolidated Statements of Operations
For the Years Ended December 31, 1998 and 1997 26

Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 1998 and 1997 27

Consolidated Statements of Cash Flows
For the Years Ended December 31, 1998 and 1997 28

Notes to Consolidated Financial Statements 29-41
</TABLE>

All schedules are omitted since the required information is not present or is
not present in amounts sufficient to require submission of the schedule or
because the information required is included in the consolidated financial
statements and notes thereto.

18
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OR PLAN OF OPERATION

GENERAL

The Company, formerly known as Banyan Strategic Land Fund II, was
originally established to invest primarily in short-term, junior,
pre-development and construction mortgage loans. The borrowers subsequently
defaulted on these mortgage loan obligations, adversely affecting the Company.
As a result of these defaults, the Company suspended the making of new loans,
except for advances of additional funds under circumstances in which it was
deemed necessary to preserve the value of existing collateral, including
instances where the Company had foreclosed upon or taken title, directly or
indirectly, to the collateral. In 1990, the Company implemented a plan designed
to preserve its assets and manage its properties acquired through foreclosure or
otherwise until they would be disposed of in an orderly manner. On February 25,
1997, the Directors of the Company authorized management to engage an investment
banking firm for purposes of evaluating strategic alternatives for maximizing
stockholder value. The Company executed and delivered an Exchange Agreement
dated April 30, 1997 (amended as of August 7, 1997, the "Agreement") among the
Company, Equis Exchange L.L.C., a Massachusetts limited liability company
("Equis"), Equis Financial Group Limited Partnership ("EFG") and certain
partnerships affiliated with EFG (the "Partnerships"). Pursuant to the
Agreement, the Company issued to the Partnerships 198,700 shares of the
Company's common stock at the price of $15.00 per share. Cash proceeds received
by the Company, $2,480,500, were net of related costs of $500,000. In addition,
the Partnerships made a three-year loan to the Company in the amount of
$4,419,500. These transactions are intended to provide capital to assist the
Company in a new growth-oriented business plan, which includes the development
of the Company's property known as Rancho Malibu. The transaction also called
for a one time $2.00 per share cash dividend to be paid in the event certain
stockholder proposals were approved. The Consent of the stockholders was
obtained and the proposals were adopted on October 21, 1997.

Pursuant to the Agreement, the Administrative Services Agreement between
the Company and Banyan Management Corp. ("BMC") was amended to provide, among
other things, for the immediate payment to BMC of a termination fee in the
amount of $251,823 and the transfer of the Company's ownership interest in BMC
to BMC's designee. Pursuant to the Agreement, the Company also entered into a
new Administrative Services Agreement with EFG (see Note 5 to the consolidated
financial statements).

On August 31, 1998, the Company executed an agreement to acquire all of
the common stock of Ariston Corporation ("Ariston") for a total purchase price
of $12,450,000. Ariston is a holding company having two investments: (i) a 99%
limited partnership interest in AFG Eireann Limited Partnership ("AFG Eireann"),
a Massachusetts limited partnership having a tax interest in a diversified pool
of lease contracts owned by an institutional investor and (ii) a 98% limited
partnership interest in Old North Capital Limited Partnership ("ONC"), a
Massachusetts limited partnership with investments in cash and notes, equipment
leases, and limited partnerships that are engaged in either equipment leasing or
real estate. The latter includes two commercial buildings located in Washington
D.C. and Sydney, Australia that are leased to an investment-grade educational
institution. Gary D. Engle, Chairman, Chief Executive Officer and a director of
the Company and James A. Coyne, President, Chief Operating Officer and a
director of the Company both are affiliated with ONC and Gary D. Engle is
affiliated with AFG Eireann. Ariston was organized on July 31, 1998 as a
Delaware corporation. On August 3, 1998, EFG contributed its limited partnership
interests in AFG Eireann and ONC to Ariston in exchange for Ariston common
stock. Ariston was a wholly-owned subsidiary of EFG until its acquisition by the
Company and was formed principally to facilitate the transfer of limited
partnership interests held by EFG in AFG Eireann and ONC. Gary D. Engle controls
EFG and is the sole director of Ariston.

19
<PAGE>

acquisition.) In addition, the Company, through its independent directors,
engaged an independent investment banking firm (the "Investment Banker"), to
evaluate the transaction and express its opinion as to whether the acquisition
was fair to the Company's shareholders from a financial point of view. The
Investment Banker concluded that the terms of the acquisition were fair to the
Company's shareholders.

The Company currently holds an ownership interest in a 274 acre land
parcel located in Southern California known as the Rancho Malibu property. The
Company also holds a 0.3% beneficial interest in a liquidating trust,
established for the benefit of a group of unsecured creditors of a previous
borrower of the Company, which holds interests in various assets.

Year 2000 Issue

The Year 2000 Issue generally refers to the capacity of computer
programming logic to correctly identify the calendar year. Many companies
utilize computer programs or hardware with date sensitive software or embedded
chips that could interpret dates ending in "00" as the year 1900 rather than the
year 2000. In certain cases, such errors could result in system failures or
miscalculations that disrupt the operations of the affected businesses. The
Company uses information systems provided by EFG and has no information systems
of its own. EFG has adopted a plan to address the Year 2000 Issue that consists
of four phases: assessment, remediation, testing, and implementation and has
elected to utilize principally internal resources to perform all phases. EFG
completed substantially all of its Year 2000 project by December 31, 1998 at an
aggregate cost of less than $50,000 and at a di minimus cost to the Company. All
costs incurred in connection with EFG's Year 2000 project have been expensed as
incurred.

EFG's primary information software was coded by IBM at the point of
original design to use a four digit field to identify calendar year. All of the
Company's lease billings, cash receipts and equipment remarketing processes are
performed using this proprietary software. In addition, EFG has gathered
information about the Year 2000 readiness of significant vendors and third party
servicers and continues to monitor developments in this area. All of EFG's
peripheral computer technologies, such as its network operating system and
third-party software applications, including payroll and electronic banking,
have been evaluated for potential programming changes and have required only
minor modifications to function properly with respect to dates in the year 2000
and thereafter. EFG understands that each of its and the Company's significant
vendors and third-party servicers are in the process, or have completed the
process, of making their systems Year 2000 compliant. Substantially all parties
queried have indicated that their systems would be Year 2000 compliant by the
end of 1998.

Presently, EFG is not aware of any outside customer with a Year 2000 Issue
that would have a material effect on the Company's results of operations,
liquidity, or financial position. The Company's equipment leases were structured
as triple net leases, meaning that the lessees are responsible for, among other
things, (i) maintaining and servicing all equipment during the lease term, (ii)
ensuring that all equipment functions properly and is returned in good
condition, normal wear and tear excepted, and (iii) insuring the assets against
casualty and other events of loss. Non-compliance with lease terms on the part
of a lessee, including failure to address Year 2000 Issues, could result in lost
revenues and impairment of residual values of the Company's equipment assets
under a worst-case scenario.

20
<PAGE>

EFG believes that its Year 2000 compliance plan will be effective in
resolving all material Year 2000 risks in a timely manner and that the Year 2000
Issue will not pose significant operational problems with respect to its
computer systems or result in a system failure or disruption of its or the
Company's business operations. However, EFG has no means of ensuring that all
customers, vendors and third-party servicers will conform ultimately to Year
2000 standards. The effect of this risk to the Company is not determinable.

Liquidity and Capital Resources

Cash and cash equivalents consist of cash and short-term investments. The
Company's cash and cash equivalents balance at December 31, 1998 and 1997 was
$7,788,124 and $7,884,593, respectively. The decrease in total cash and cash
equivalents of $96,469 was the result of cash used in financing activities
offset by cash provided by operating and investing activities (see below).

Cash Flow From Operating Activities: Net cash from operating activities
was $279,607 during the year ended December 31, 1998 compared to net cash used
in operating activities of $2,103,061 for the same period in 1997. Net cash used
in 1997 resulted from cash used to engage an investment banking firm for
purposes of evaluating strategic alternatives for maximizing shareholder value
and costs incurred to implement a growth-oriented business plan. See Results of
Operations for additional discussion.

Cash Flow From Investing Activities: During the year ended December 31,
1998, net cash provided by investing activities resulted from $475,000 of
principal repayments on the Hemet IV and Lindfield Tract A loans (see below)
and $148,843 from investment in partnerships and trusts offset by cash used
to acquire Ariston. During the year ended December 31, 1997, net cash
provided by investing activities was $5,330,489 resulting from distributions
from the Company's investment in a real estate venture of $4,713,101 (see
below) and proceeds received from the sale of foreclosed real estate of
$617,388 (see below).

Cash Flow From Financing Activities: During the year ended December 31,
1998, net cash used in financing activities resulted from $356,098 of cash
used to pay fractional shareholders as a result of the reverse stock split,
$354,768 to purchase 69,223 shares of the Company's common stock, $72,755 to
repay certain debt obligations assumed in connection with the Ariston
acquisition and $105,232 to pay certain distributions as a result of the
Ariston acquisition. During the year ended December 31, 1997, net cash
provided by financing activities was $4,511,830 resulting from the issuance
of stock pursuant to the Exchange Agreement described above, offset by
$2,388,170 cash used in connection with the dividend to stockholders and
proceeds of $4,419,500 from note payable - affiliate received pursuant to the
Exchange Agreement described above.

At December 31, 1997, the Company's mortgage loan portfolio consisted of
two loans with a carrying value totaling $475,000. During the year ended
December 31, 1998, the Company received final principal and interest payments on
these loans (Lindfield Tract A and Hemet IV loans).

The Company's future liquidity needs will be dependent upon, among other
things, the level of liquidity required to successfully implement a
growth-oriented business plan and the Company's ability to control its property
and Company level operating expenses. The Company will have future cash inflows
as a result of the Ariston acquisition (see above), which will be used to
service associated acquisition indebtedness.

Results of Operations

Total income for the year ended December 31, 1998 increased to $1,158,216
from $234,641 for the same period in 1997. Income from lending and investing
activities increased due to (i) interest received on the Hemet IV loan of
$244,795 (see Note 8 to the financial statements) and (ii) an increase in
interest earned on investments, resulting from additional cash available for
investment due to the issuance of stock and cash distributions received related
to the Company's investment in the real estate venture (see below). Other income
during 1998 resulted from the acquisition of Ariston (see above) which included:
(i) property and equipment on operating leases generating rental income and (ii)
a note receivable-affiliates generating interest income. Interest income on the
note receivable-

21
<PAGE>

affiliates is subordinate to the repayment of certain institutional
indebtedness. Ariston's operating results are consolidated in the Company's
financial statements.

Total expenses for the year ended December 31, 1998 decreased to
$2,618,063 from $3,339,108 for the same period in 1997. This decrease of
$721,045 for the year ended December 31, 1998 when compared to the same period
in 1997 is due to an increase in total expenses from property operating
activities offset by a decrease in total other expenses. The increase in total
property operating expenses is due primarily to costs incurred in connection
with the Rancho Malibu property relating to entitlement activities, holding
costs and litigation (see Note 4 to the consolidated financial statements for
discussion of settlement). The Company also recognized net income from
operations of the real estate venture of $412,236, relating to the Company's
interest in the H Street property (see discussion below) during 1997. The
decrease in total other expenses is due to a decrease in other professional fees
and general and administrative expenses and an offset in 1998 of $383,176
reflecting a recovery of amounts previously charged to losses on loans, notes,
advances and interest receivable. During 1997, the Company recorded a provision
for losses on loans, notes, advances and interest receivable in the amount of
$1,166,246 in connection with amounts loaned to Northholme Partners (see Note 8
to the Consolidated Financial Statements). Other professional fees were higher
during 1997 due to legal costs related to the Winding River litigation as
discussed below and costs incurred to engage an investment banking firm for
purposes of evaluating strategic alternatives for maximizing shareholder value.
General and administrative expenses were higher in 1997 due to a termination fee
of $251,823 paid to BMC in connection with the Exchange Agreement (see Note 5 to
the consolidated financial statements) and incentive compensation accrued in
connection with the H-Street sale. Other expenses in 1998 include interest
expense of $685,783 related to the loan from the Partnerships as a result of the
Exchange Agreement (see above) and the purchase money note to EFG as a result of
the Ariston acquisition (see above). Interest expense during 1997 was $108,947
related to the loan from the Partnerships.

During the year ended December 31, 1997, the Company recorded net income
of $412,236 from the operations of a real estate venture. This net income
reflects the Company's 47% interest in the H Street Venture (the "Venture"). The
Venture owned an office building with approximately 55,900 square feet of gross
leasable area (the "Victor Building") and an adjacent land parcel consisting of
36,100 square feet (the "H Street Assemblage") located in Washington, D.C. On
March 20, 1997, the Venture sold approximately 3,500 square feet of the
Venture's land to the United States General Services Administration ("GSA") for
a net purchase price of $1,828,900, including $150,000 paid by the GSA as a
reimbursement of expenses that the Venture incurred in anticipation of this
transaction. On July 29, 1997, the Venture sold the remaining land and office
building to an unaffiliated third party for net sale proceeds of $8,469,821. The
Company's share of the gain on disposition recognized by the Venture was
$371,979 and is included in net income from operations of real estate venture
for the year ended December 31, 1997 on the accompanying Consolidated Statement
of Operations. During the year ended December 31, 1997, the Company received
aggregate distributions from the Venture of $4,713,101, including its allocation
of such sales proceeds. The Venture has no further ownership interest in the H
Street Assemblage property. See Note 7 to the consolidated financial statements
for additional information regarding the sale of this property and subsequent
cash distribution from the Venture.

On June 23, 1997, the Company sold the Lindfield Tract D property, having
a carrying value of $650,000, to an unaffiliated third party for a purchase
price of $675,000. Cash proceeds received, net of transaction costs, were
$617,388 resulting in a loss on disposition of $32,612 for financial reporting
purposes.

The above discussed changes resulted in a decrease in the net loss for the
year ended December 31, 1998 to $1,459,847 ($1.23 per share) from $3,104,467
($2.75 per share) for the year ended December 31, 1997. On April 30, 1997, the
Company issued 198,700 shares of stock. In addition, the Company issued 15,483
shares of common stock on December 30, 1997 and 41,400 shares of common stock
during 1998 in connection with the incentive compensation plan (see Note 10 to
the consolidated financial statements). On September 23, 1998, the Company
purchased 69,223 shares of common stock, which are reflected as treasury stock
on the accompanying balance sheet at December 31, 1998. As a result of these
changes, the net loss per share for the year ended December 31, 1998 is based on
the weighted average number of shares outstanding during the period of 1,182,810
as compared to 1,127,645 for the same period in 1997.

22
<PAGE>

On a quarterly basis, management reviews the investment properties held by
the Company and, when it has been determined that a permanent impairment in the
value of a given property has occurred, the carrying value of the property is
then written down to its fair market value. Management has determined that no
reductions are necessary for the year ended December 31, 1998.

Litigation

In connection with the Company's interest in a joint venture which owns
the Rancho Malibu property (the "Venture"), the Venture had been engaged in
zoning and entitlement activities which have been opposed by the City of
Malibu and various citizen groups. During the year ended December 31, 1998,
the Venture incurred approximately $730,000 in costs in connection with
Rancho Malibu relating principally to litigation. These costs, treated as
capital contributions to the Venture by the Company, were included in total
expenses from property operating activities on the Company's consolidated
statements of operations. See Note 4 to the consolidated financial statements
for discussion of settlement.

The Company has been engaged in litigation involving a real estate
development project known as "Winding River." On December 15, 1998 the Court
granted summary judgments in favor of BMC Westholme Corporation (a wholly owned
subsidiary of the Company and a defendant in this lawsuit) on all remaining
counts of the complaint and also granted BMC Westholme's motions for
reimbursement of certain attorney's fees and costs. On January 21, 1999 the same
Court awarded the sum of $15,178 to BMC Westholme in consideration of attorney's
fees and expenses. The Court's order of December 15, 1998, granting summary
judgment in favor of BMC Westholme has been appealed by Coastal Group, Inc. See
Note 15 to the consolidated financial statements for discussion of settlement.

23
<PAGE>

REPORT OF INDEPENDENT AUDITORS

To the Stockholders of Semele Group Inc.

We have audited the accompanying consolidated balance sheets of Semele
Group Inc. (formerly Banyan Strategic Land Fund II) as of December 31, 1998 and
1997, and the related consolidated statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Semele Group
Inc. at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

ERNST & YOUNG LLP

Boston, Massachusetts
April 13, 1999

24
<PAGE>

SEMELE GROUP INC.
Consolidated Balance Sheets

December 31, 1998 and 1997

<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
ASSETS
Cash and Cash Equivalents.......................................... $ 7,788,124 $ 7,884,593
Interest Receivable on Loans....................................... -- 3,565
Loans Receivable................................................... -- 475,000
Rents Receivable................................................... 91,038 --
Accounts Receivable - Affiliate.................................... 6,652 --
Interest Receivable - Affiliates................................... 125,382 --
Note Receivable - Affiliates....................................... 2,725,695 --
Foreclosed Real Estate Held for Sale, Net.......................... 9,961,991 9,961,991
Investment in Partnerships and Trusts.............................. 3,884,755 --
Land .............................................................. 1,929,000 --
Building, net of accumulated depreciation of $820,478
at December 31, 1998.............................................. 11,112,519 --
Other Assets....................................................... 543,763 --
---------------- ----------------
Total Assets....................................................... $ 38,168,919 $ 18,325,149
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Notes Payable - Affiliates......................................... $ 14,869,500 $ 4,419,500
Notes Payable...................................................... 7,011,202 --
Accrued Interest - Affiliate....................................... 243,833 --
Accrued Interest................................................... 67,659 --
Accrued Expenses - Affiliates...................................... 71,118 49,166
Accounts Payable and Accrued Expenses.............................. 853,189 404,358
Distributions Payable.............................................. 48,875 --
Minority Interest.................................................. 3,722,131 --
---------------- ----------------
Total Liabilities.................................................. 26,887,507 4,873,024
---------------- ----------------
Stockholders' Equity
Shares of Common Stock, $0.01 Par Value,
5,000,000 Authorized, 2,080,185 and 2,125,327 Shares Issued
at December 31, 1998 and 1997, respectively...................... 170,663,365 171,019,463
Accumulated Deficit................................................ (143,172,978) (141,713,131)
Deferred Compensation, 56,883 and 15,483 Shares at
December 31, 1998 and 1997, respectively......................... (967,004) (263,204)
Treasury Stock at Cost, 945,325 and 917,502 Shares at
December 31, 1998 and 1997, respectively......................... (15,241,971) (15,591,003)
---------------- ----------------
Total Stockholders' Equity........................................ 11,281,412 13,452,125
---------------- ----------------
Total Liabilities and Stockholders' Equity........................ $ 38,168,919 $ 18,325,149
================ ================
Book Value Per Share of Common Stock
(1,134,860 and 1,207,825 Shares Outstanding at
December 31, 1998 and 1997, respectively)........................ $ 9.94 $ 11.14
================ ================
</TABLE>

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

25
<PAGE>

SEMELE GROUP INC.
Consolidated Statements of Operations

For the Years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
1998 1997
---------------- ----------------
<S> <C> <C>
INCOME
Income From Lending and Investing Activities:
Interest on Loans Receivable......................................... $ 269,000 $ 28,333
Income on Investments ............................................... 382,282 206,308
---------------- ----------------
Total Income From Lending and Investing Activities..................... 651,282 234,641
---------------- ----------------
Other Income:
Rental Income........................................................ 395,163 --
Interest on Note Receivable - Affiliates............................. 104,771 --
Gain on Sale of Equipment ........................................... 7,000 --
---------------- ----------------
Total Other Income..................................................... 506,934 234,641
---------------- ----------------
Total Income........................................................... 1,158,216 234,641
---------------- ----------------
EXPENSES
Expenses From Property Operating Activities:
Net Loss From Operations of Foreclosed Real Estate Held for Sale..... 730,249 660,994
Net Loss From Disposition of Foreclosed Real Estate Held for Sale.... -- 32,612
Net Income From Operations of Real Estate Venture ................... -- (412,236)
---------------- ----------------
Total Expenses From Property Operating Activities...................... 730,249 281,370
---------------- ----------------
Other Expenses:
Stockholder Expenses ................................................ 138,549 120,031
Directors' Fees, Expenses, and Insurance ............................ 234,709 234,075
Other Professional Fees ............................................. 124,091 371,966
General and Administrative .......................................... 496,836 1,007,307
Administrative Reimbursement - Affiliate ............................ 152,201 49,166
Interest Expense - Affiliates ....................................... 685,783 108,947
Interest Expense .................................................... 187,006 --
Depreciation and Amortization Expense .............................. 251,815 --
(Recovery of) Provision for Losses on Loans, Notes, Advances
and Interest Receivable............................................ (383,176) 1,166,246
---------------- ----------------
Total Other Expenses .................................................. 1,887,814 3,057,738
---------------- ----------------
Total Expenses ........................................................ 2,618,063 3,339,108
---------------- ----------------

Net Loss .............................................................. $ (1,459,847) $ (3,104,467)
================ ================
Net Loss Per Share of Common Stock Basic
(Based on the Weighted Average Number of Shares
Outstanding of 1,182,810 and 1,127,645, respectively)................ $ (1.23) $ (2.75)
================ ================
</TABLE>

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

26
<PAGE>

SEMELE GROUP INC.
Consolidated Statements of Stockholders' Equity

For the years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
Common Stock
------------------------------ Accumulated Deferred Treasury
Shares Amount Deficit Compensation Stock Total
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stockholder's Equity,
December 31, 1996 ............. 1,926,627 $ 170,927,133 $(138,608,664) $ -- $ (15,854,207) $ 16,464,262

Issuance of Stock, Net .......... 198,700 2,480,500 -- -- -- 2,480,500

Dividend to Stockholders ........ -- (2,388,170) -- -- -- (2,388,170)

Deferred Compensation
15,483 Shares of Stock ........ -- -- -- (263,204) 263,204 --

Net Loss ........................ -- -- (3,104,467) -- -- (3,104,467)
------------- ------------- ------------- ------------- ------------- -------------

Stockholder's Equity,
December 31, 1997 ............. 2,125,327 171,019,463 (141,713,131) (263,204) (15,591,003) 13,452,125

Deferred Compensation
41,400 Shares of Stock ........ -- -- -- (703,800) 703,800 --

1-for-300 reverse stock split and
30-for-1 forward stock split
(including $356,098 paid for
fractional shares) ........... (45,142) (356,098) -- -- -- (356,098)

Acquisition of 69,223 Shares of
Treasury Stock, at Cost ....... -- -- -- -- (354,768) (354,768)

Net Loss ........................ -- -- (1,459,847) -- -- (1,459,847)
------------- ------------- ------------- ------------- ------------- -------------

Stockholder's Equity,
December 31, 1998 ............. 2,080,185 $ 170,663,365 $(143,172,978) $ (967,004) $ (15,241,971) $ 11,281,412
============= ============= ============= ============= ============= =============
</TABLE>

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

27
<PAGE>

SEMELE GROUP INC.
Consolidated Statements of Cash Flows

For the Years ended December 31, 1998 and 1997

<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss...................................................................... $ (1,459,847) $ (3,104,467)
Adjustments to Reconcile Net Loss to Net Cash Provided By (Used In)
Operating Activities:
Provision for Losses on Loans, Notes, Advances and Interest Receivable...... -- 1,166,246
Net Loss From Disposition of Foreclosed Real Estate Held For Sale........... -- 32,612
Net Income From Operations of Real Estate Venture........................... -- (412,236)
Depreciation and Amortization Expense....................................... 251,815 --
Minority Interest........................................................... 31,315 --
Net Change In:
Interest Receivable on Loans................................................ 3,565 657
Rents Receivable............................................................ 977,678 --
Accounts Receivable - Affiliate............................................. 36,912 --
Interest Receivable - Affiliate............................................. (104,771) --
Other Receivables........................................................... 65,374 --
Other Assets................................................................ (7,375) 60,221
Accrued Interest - Affiliate................................................ 243,833 --
Accrued Interest............................................................ 14,387 --
Accrued Expenses - Affiliates............................................... 25,681 49,166
Accounts Payable and Accrued Expenses....................................... 198,914 104,740
Distributions Payable....................................................... 2,126 --
--------------- ---------------
Net Cash Provided By (Used In) Operating Activities........................... 279,607 (2,103,061)
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Ariston Corporation.......................................... (111,066) --
Collection of Loans Receivable.............................................. 475,000 --
Investment in Partnerships and Trusts....................................... 148,843 --
Distributions from Investment in Real Estate Venture........................ -- 4,713,101
Proceeds from the Sale of Foreclosed Real Estate Held for Sale.............. -- 617,388
--------------- ---------------
Net Cash Provided By Investing Activities..................................... 512,777 5,330,489
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment for Fractional Shares as a Result of Reverse Stock Split............ (356,098) --
Acquisition of Treasury Stock............................................... (354,768) --
Principal Payments on Notes Payable......................................... (72,755) --
Proceeds from Note Payable - Affiliate...................................... -- 4,419,500
Issuance of Stock, Net...................................................... -- 2,480,500
Distributions Paid by Investee.............................................. (105,232) --
Dividend to Stockholders.................................................... -- (2,388,170)
--------------- ---------------
Net Cash (Used In) Provided By Financing Activities........................... (888,853) 4,511,830
--------------- ---------------
Net (Decrease) Increase in Cash and Cash Equivalents.......................... (96,469) 7,739,258

Cash and Cash Equivalents at Beginning of Year................................ 7,884,593 145,335
--------------- ---------------
Cash and Cash Equivalents at End of Year...................................... $ 7,788,124 $ 7,884,593
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest ..................................... $ 463,151 $ 108,947
============== ==============
</TABLE>

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

28
<PAGE>

SEMELE GROUP INC.

Notes To Consolidated Financial Statements
December 31, 1998

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

Semele Group Inc. (the "Company"), formerly known as Banyan Strategic Land
Fund II, was organized as a corporation under the laws of the State of Delaware,
pursuant to the Certificate of Incorporation filed April 14, 1987.

The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries and consolidated ventures which
hold title to the Company's property. In August 1998, the Company acquired
Ariston Corporation, the results of which are consolidated in the Company's
financial statements (see Transactions with Affiliates and Related Parties -
Note 5 herein). All intercompany balances and transactions have been
eliminated in consolidation. The Company's 47% interest in the H Street
Assemblage was accounted for under the equity method and was reported as an
investment in real estate venture (see Note 7 for discussion of sale).

The Company accounts for its investment in partnerships and trusts
using the cost method as the investment in each partnership or trust is minor.

REVENUE RECOGNITION

Interest income is accrued when earned. The accrual of interest is
discontinued when the borrower acknowledges its inability to make payments or
when payments become contractually delinquent ninety days or more, unless the
loan is in the process of collection. Once a loan has been placed in a
non-accrual status, all cash received is applied against the outstanding loan
balance until such time as the borrower has demonstrated an ability to make
payments under the terms of the then current loan agreement. That portion of
accrued interest income which the Company considers to be unlikely of collection
is reflected in the accompanying consolidated statements of operations in the
provision for losses on loans, notes, advances and interest receivable. However,
the Company intends to pursue the collection of all amounts contractually due
from the borrowers.

Rental income from operating leases is recognized on a straight-line
basis over the life of the lease agreements.

FORECLOSED REAL ESTATE HELD FOR SALE

Foreclosed real estate held for sale is recorded at its estimated fair
market value, net of selling costs.

INCOME TAXES

Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No. 109 "Accounting for Income Taxes". Tax provisions are
made based upon earnings reported for financial statement purposes and includes
deferred taxes for the effects of timing differences between financial
accounting and taxable earnings. Reserves are recorded against deferred tax
assets in accordance with FAS 109.

CASH EQUIVALENTS

The Company considers liquid debt instruments with a maturity of three
months or less when purchased to be cash equivalents. From time to time, the
Company invests excess cash with large institutional banks in federal agency
discount notes and reverse repurchase agreements with overnight maturities.
Under the terms of the agreements, title to the underlying securities passes to
the Company. The securities underlying the agreements are book entry securities.
At December 31, 1998, the Company had $5,747,945 invested in federal agency
discount notes and reverse repurchase agreements secured by U.S. Treasury Bills
or interests in U.S. Government securities.

29
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

INVESTMENTS IN REAL ESTATE PROPERTY

Investments in real estate property, consisting of buildings and land,
are recorded at cost. Impairment losses on investments are recognized where
indicators of impairment are present and the undiscounted cash flows (net
realizable value) estimated to be generated by the Company's investments is
less than the carrying amount of such investments. The determination of net
realizable value includes consideration of many factors including income to
be earned from the investment, holding costs (exclusive of interest),
estimated selling prices, and prevailing economic and market conditions.

DEPRECIATION AND AMORTIZATION

Depreciation is computed using the straight-line depreciation method over
the estimated useful lives of the related assets (2 years for equipment of
operating leases and 27.5 and 40 years for buildings). Amortization is computed
using the straight-line depreciation method over the estimated useful lives of
the related intangible assets.

VALUATION OF STOCK OPTIONS

The Company's Stock Options awarded pursuant to its 1994 Directors and
Executive Option Plans are accounted for in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees."

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

MINORITY INTEREST

Ariston owns approximately 51% of a real estate investment program that is
consolidated in the Company's financial statements. The outside investors'
interest in this investment is reflected on the accompanying consolidated
balance sheet as minority interest and its share of the respective loss is
included in general and administrative expenses on the accompanying consolidated
statement of operations. Additionally, Ariston's investments include a 98%
interest in Old North Capital Limited Partnership ("ONC"). The remaining 2%
interest has been recorded as a minority interest adjustment.

RECLASSIFICATION

Certain 1997 balances have been reclassified to conform to the 1998
presentation.

2. OTHER ASSETS

Other assets principally include equipment on operating lease and deferred
financing costs, both of which pertain to Ariston. The deferred financing costs
are being amortized over the life of the loan to which they pertain and
equipment on operating leases is being depreciated using the straight-line
method over the equipment's remaining estimated useful life. Rental income and
interest expense associated with equipment on operating leases are recognized as
earned and incurred, respectively. At December 31, 1998, future minimum rents
due in connection with equipment on operating leases was as follows:

For the year ending December 31, 1999 $ 139,551
2000 68,673
-----------
Total $ 208,224
===========

In addition, the Company, through its consolidation of Ariston, has an
interest in future rental income from leasing two commercial buildings to an
investment-grade educational institution. Future minimum lease payments
pertaining to these contracts are as follows:

30
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

For the year ending December 31, 1999 $ 985,000
2000 1,005,000
2001 786,500
2002 786,500
-----------
Total $ 3,563,000
===========

3. NOTES PAYABLE

Through its acquisition of Ariston, the Company acquired a limited
partnership interest in a real estate investment program and assumed related
debt. The note bears a fluctuating interest rate based on Prime plus a margin
and requires quarterly payments of principal and interest. The note matures on
January 15, 2003 and is secured by the associated limited partnership interest.
Repayment of the debt is partially guaranteed by certain individuals, including
Messrs. Engle and Coyne. In connection with the acquisition of Ariston, the
Company has consolidated certain additional indebtedness pertaining to a
commercial property leased to an investment-grade educational institution. The
interest rate on this debt is fixed at 7.86%.

Additionally, the Company assumed non-recourse debt, consisting of
installment notes that are collateralized by certain equipment held on operating
leases. The installment notes will be repaid fully by non-cancelable rents
generated by the associated lease agreements. At December 31, 1998, the interest
rate on these obligations was 7.1%.

The annual maturities of the notes payable are as follows:

For the year ending December 31, 1999 $ 446,429
2000 399,054
2001 546,607
2002 593,781
2003 643,321
Thereafter 4,382,010
-----------
Total $ 7,011,202
===========

The notes payable balance sheet value approximates fair value at
December 31, 1998.

4. FORECLOSED REAL ESTATE HELD FOR SALE

Rancho Malibu is a 274-acre parcel of undeveloped land north of Malibu,
California ("Project"). On July 1, 1992, a joint venture (the "Venture") between
the Company and Legend Properties, Inc. (f/k/a Banyan Mortgage Investment Fund)
("Legend") acquired title to the property pursuant to a deed in lieu of
foreclosure agreement. The Company owns a 98.6% general partner interest in the
Venture while Legend holds the remaining 1.4% interest as a limited partner. The
Venture's results are consolidated in the accompanying financial statements.

The Venture has engaged in zoning and entitlement activities that have
been opposed by the City of Malibu and various citizen groups since the
acquisition of the property. The city initiated two separate legal actions
intended to preclude the issuance of a Coastal Development Permit, both of which
were ultimately resolved in favor of the Venture.

1995 - 1996 County of Los Angeles Action on Project

Concurrent with the aforementioned litigation, the Venture pursued
entitlements before the Board of Supervisors for the County of Los Angeles. In
September 1995, the Los Angeles County Regional Planning

31
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

Commission, by a 3 to 2 vote, approved a revised plan to develop a fifty-one
unit housing community on the Rancho Malibu property. The Los Angeles County
Regional Planning Commission's approval was appealed to the Los Angeles County
Board of Supervisors. On May 14, 1996, the Los Angeles County Board of
Supervisors approved a compromise project (the "Project") to create forty-six
single family lots. These approvals are specified in Los Angeles County CUP No.
91-315(3), Oak Tree Permit No. 91-315(3) and Tentative Tract No. 46277
(revised), approved May 14, 1996.

Litigation on 1996 County Project Approval

On June 17, 1996, a neighboring homeowners association filed an action
entitled La Chusa Highlands Property Owners Association, Inc. v. Los Angeles
County, et al., Los Angeles County Superior Court Case No. BS039789 (the "La
Chusa Litigation"), challenging the aforesaid approvals. The Company, Legend and
the Venture were named as real parties in interest. The La Chusa Litigation was
tried before a Court on January 27, 1997. On February 5, 1997, the Court issued
its ruling, granting the Petitioner's Writ and remanding the matter to the
County Board of Supervisors for further action on three separate grounds: (i)
the Supervisors' analyses and findings relating to the consistency of the
Projects' cul de sacs and streets within certain County of Los Angeles Code
provisions restricting the length of cul de sacs to 1,000 feet were deemed
inadequate; (2) a proposed deed restriction requiring the Venture to "diligently
seek" approval for a second living unit on five of the forty-six lots was held
to be too abstract to comply with the low income housing requirement of state
law and (3) the Court found that the County acted improperly when it approved
the Project in January of 1996 and later approved a Supplemental Environmental
Impact Report ("SEIR") in May of 1996 ("Court Writ"). The Court's Writ
specifically rejected challenges to the Project's entitlements predicated on (i)
the adequacy of the Supervisors' analyses of the environmental impacts of the
Project under the SEIR; (ii) the consistency of the Project with the County
General Plan; (iii) the approval of a sewage treatment plant and (iv) the
density of the Project under the Hillside Management Ordinance.

The Court entered a final judgment in the La Chusa Litigation on March 25,
1997. The Venture filed a notice of appeal ("Appeal") of the Court Writ on April
25, 1997. On April 29, 1997, counsel for La Chusa Highlands Property Owners
Association, Inc., presented a petition for an award of attorney's fees in
connection with the Court's judgment of March 25, 1997. The Court heard argument
on the petition and on April 30, 1997 awarded the petitioner's counsel the sum
of $126,711 in attorney's fees and related costs. An appeal of this order was
incorporated into the Company's Appeal of the March 25, 1997 judgment discussed
above. The Company's initial brief on appeal was filed on October 9, 1997. The
petitioner's response was filed on February 9, 1998. On March 2, 1998, the
Company filed its reply brief. On or about October 27, 1998, the Venture and the
County filed a Request for Dismissal of the Appeal pursuant to the Settlement
Agreement (see discussion below). On or about October 29, 1998, at the request
of the court of appeal, the Venture, the County and La Chusa filed a stipulation
in the court of appeal stipulating that each party shall bear its own costs in
connection with the Appeal. The court of appeal issued an order dismissing the
Appeal on October 30, 1998.

1997 - 1998 Action on Project Pursuant to Court Writ

In addition to appealing the Court Writ, the Venture sought further action
by the Supervisors to address the three issues specified in the Court Writ in
order to reinstate the entitlements set aside by the Court. The Venture appeared
before the Supervisors at a public hearing on November 6, 1997. The matter was
heard and continued with no action taken. On January 27, 1998, the Supervisors
held a continued public hearing and directed County staff to present the Final
SEIR and environmental finding at a future meeting (scheduled for February 24,
1998) for review and consideration for approval. On February 24, 1998, the
Supervisors certified the Final SEIR and adopted environmental findings for the
Project. The public hearing was continued for the Board to review and consider
approval of Project entitlements. On March 31, 1998, the Supervisors considered
the Project entitlements. The Supervisors directed the Venture to revise the
proposed tract map to relocate lots 23 and 24 from the eastern ridge to the main
development cluster and present the revised tract map to the Supervisors for
their review and consideration at a future meeting. On June 9, 1998, the
Supervisors approved Tentative Tract Map No. 46277 (revised), CUP No.

32
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

91-315(3) and Oak Tree Permit No. 91-315(3) for a 46 residential lot and 5
second unit project ("1998 County Project"). Pursuant to the Board's direction,
the new tract map relocates former lots 23 and 24 to the northeastern portion of
the main development cluster. The statute of limitations to challenge the
environmental review for the 1998 County Project under the California
Environmental Quality Act expired on July 16, 1998. Neither the County nor the
Venture has been served with a lawsuit under the California Environmental
Quality Act at this time and the Venture is not aware of any lawsuit having
being filed. The statute of limitations to challenge the Project entitlements
themselves expired on September 9, 1998. The Venture and La Chusa extended this
statute of limitations for La Chusa only until October 23, 1998, in order to
discuss settlement. Since a settlement agreement was entered into between the
Venture, the County, and La Chusa on October 22, 1998 (see discussion below), no
lawsuit was filed by La Chusa prior to the expiration of the extended statute of
limitations. Neither the County nor the Venture has been served with a lawsuit
challenging the Project entitlements at this time and the Venture is not aware
of any lawsuit having been filed.

On August 6, 1998, in compliance with the Court Writ, the County and
Venture filed a motion seeking a court finding that the 1998 County Project is
in compliance with the Court Writ and discharging the Writ. The motion was
scheduled to be heard on August 21, 1998. The Venture took the motion off the
calendar to discuss settlement with La Chusa. On or about October 30, 1998, the
Venture filed in the trial court a stipulation signed by La Chusa, the County
and the Venture requesting the court to discharge the writ and dismiss the
action with prejudice. The trial court rejected the stipulation and requested a
formal, noticed motion. On November 13, 1998 the Venture, the County and La
Chusa requested the trial court to discharge the writ. The Court issued a minute
order on November 13, 1998 discharging the Court Writ. On November 19, 1998, the
Court entered a final order dismissing the Writ proceedings.

Settlement Agreement with La Chusa on Project

On October 22, 1998, the Venture, the County and La Chusa entered into a
Settlement Agreement to resolve the La Chusa Litigation, the appeal, and any
challenge to the 1998 County Project or future Coastal Commission action on the
1998 County Project. The settlement was contingent upon dismissal of the La
Chusa action. On October 23, 1998, the Venture transferred the amount of One
Hundred and Twenty Five Thousand Dollars ($125,000) to a trust account pursuant
to the Settlement Agreement. This amount was released to La Chusa's counsel of
record after the Court dismissed the Court Writ on November 18, 1998. On October
23, 1998, the Venture transferred an additional amount of One Hundred and Twenty
Five Thousand Dollars ($125,000) to an escrow account established at Boston
Private Bank & Trust Company. This amount was released to La Chusa's counsel of
record after the Coastal Commission approved the 1998 County Project on November
4, 1998.

1998 Coastal Commission Action on Project

On November 4, 1998, the California Coastal Commission unanimously
approved an amendment to the Coastal Development Permit for the 51 lot Project
previously approved in 1993. The amendment revised the Coastal Development
Permit to conform to the 46 lot 1998 County Project. On November 4, 1998, the
California Coastal Commission also approved an extension of the term of the
Coastal Development Permit to August 11, 1999. The statute of limitations to
challenge the Coastal Commission actions expired on January 4, 1999. Neither the
Coastal Commission nor the Venture has been served with a lawsuit at this time
and the Venture is not aware of any lawsuit being filed.

Litigation and Settlement Agreement with City of Malibu on Project

In an earlier action, the Venture challenged the General Plan and the
Environmental Impact Report adopted by the City of Malibu on November 20, 1995
in a lawsuit entitled BMIF/BSLFII Rancho Malibu Limited Partnership v. City of
Malibu, Los Angeles County Superior Court Case No. SS006374. On July 31, 1996,
the Venture and the City of Malibu executed and delivered a settlement agreement
which, among other things, resulted in a dismissal of the lawsuit challenging
the City's General Plan and which precludes the City from challenging the
Venture's

33
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

entitlements before any public body (in the absence of a significant requested
change). The City also was precluded by the settlement agreement from
participating in the La Chusa Litigation.

During the year ended December 31, 1998, the Venture incurred
approximately $730,000 in costs in connection with Rancho Malibu relating
principally to litigation. These costs, treated as capital contributions to
the Venture by the Company, were included in total expenses from property
operating activities on the Company's consolidated statements of operations.
At December 31, 1998, the Company's carrying balance for the property is
$9,961,991.

5. TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

ACQUISITION OF ARISTON CORPORATION

The Company purchased all of the common stock of Ariston from EFG for
cash of $2 million and a purchase-money note of $10,450,000 (the "Note"). The
total fair value of assets acquired was $12,450,000. The Ariston acquisition
was accounted for under the purchase method of accounting. The balance sheet
and statement of operations of Ariston were consolidated effective September
1, 1998. The Note bears interest at the annualized rate of 7%, payable
quarterly in arrears, and requires principal reductions based upon the cash
flows generated by the limited partnership interests owned by Ariston. The
Note matures on August 31, 2003 and is recourse only to the common stock of
Ariston. The cost of the Ariston acquisition has been allocated on the basis
of the estimated fair value of the assets acquired and liabilities assumed.
In October 1998, Ariston declared and paid a cash distribution of $2,020,000
to the Company. Until the Note is retired, future cash distributions by
Ariston require the consent of EFG.

The following summarized, unaudited pro forma results of operations for
the years ended December 31, 1998 and 1997, assume that the Company effected the
acquisition at the beginning of the respective periods:

34
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

<TABLE>
<CAPTION>
1998 1997
--------------- --------------
<S> <C> <C>
Revenue and Other Income $ 6,808,297 $ 5,886,149

Net Income $ 3,616,802 $ 1,560,358

Net Income Per Share of Common Stock Basic $ 3.06 $ 1.38
</TABLE>

The combined pro forma results of operations includes activities that
were not ongoing as of the date of the Ariston purchase.

AFG Eireann is a special purpose limited partnership created in 1994
having a tax interest in a diversified pool of lease contracts owned by a
institutional investor. Gary D. Engle is a 50% owner and a director of the
general partner of AFG Eireann. ONC is a Massachusetts limited partnership
established in 1995. ONC has investments in (i) cash, (ii) a portfolio of
equipment leases, (iii) limited partnership units of several
direct-participation equipment leasing programs sponsored and managed by EFG,
(iv) general and limited partnership interests in a real estate partnership
sponsored by EFG that owns two commercial buildings leased to an
investment-grade educational institution, and (v) a note receivable having a
principal balance of approximately $2.7 million that is due from Messrs. Engle
and Coyne. Gary D. Engle owns all of the voting stock, and has a one-third
equity interest in, and is a director of the general partner of ONC. James A.
Coyne owns non-voting stock, and has a one-third equity interest in, and is a
director of the general partner of ONC.

OTHER RELATED PARTY TRANSACTIONS

The Company executed and delivered an Exchange Agreement dated April 30,
1997 (amended as of August 7, 1997, the "Agreement") among the Company, Equis
Exchange L.L.C., a Massachusetts limited liability company ("Equis"), EFG and
certain partnerships managed by EFG ("the Partnerships"). Pursuant to the
Agreement, on April 30, 1997, the Company issued to the Partnerships 198,700
shares of the Company's common stock at the price of $15.00 per share. Cash
proceeds received by the Company, $2,480,500, were net of related costs of
$500,000. In addition, the Partnerships made a three-year loan (the "Loan") to
the Company in the amount of $4,419,500. The Loan has an interest rate of 10%
per annum with mandatory principal reductions, if and to the extent net proceeds
are received from the sale or refinancing of the Rancho Malibu property. At
December 31, 1998, the carrying value of the note payable approximates fair
value.

Pursuant to the Agreement, the Administrative Services Agreement between
the Company and Banyan Management Corp. ("BMC") was amended to provide, among
other things, for the payment to BMC of a termination fee in the amount of
$251,823 and the transfer of the Company's ownership interest in BMC to BMC's
designee. Effective May 6, 1997, EFG entered into an Administrative Services
Agreement to provide administrative services to the Company, replacing BMC.
Administrative costs, primarily salaries and general and administrative
expenses, of $152,201 were incurred on the Company's behalf by EFG during the
year ended December 31, 1998. During the year ended December 31, 1997, the
Company incurred $49,166 in administrative costs for services provided by EFG
and $107,781 for services provided by BMC. The costs incurred by EFG on behalf
of the Company are reflected as Administrative Reimbursement - Affiliate on the
Consolidated Statements of Operations. The costs incurred by BMC on behalf of
the Company are included in General and Administrative expenses on the
Consolidated Statements of Operations.

6. DISPOSITION OF FORECLOSED REAL ESTATE HELD FOR SALE

The Lindfield Tract D property is an 8.5-acre parcel of land zoned for
commercial use within a multi-use planned unit development, located in
Kissimmee, Florida. On June 23, 1997, the Company sold the Lindfield Tract D
property to an unaffiliated third party for a purchase price of $675,000. The
Company's carrying value for this

35
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

property at the time of the sale was $650,000. Cash proceeds received, net of
transaction costs, were $617,388, resulting in a net loss on disposition of
$32,612 for financial reporting purposes.

7. DISPOSITION OF INVESTMENT IN REAL ESTATE VENTURE

On October 22, 1990, the Company acquired title to the property known as
the H Street Assemblage located in Washington, D.C. pursuant to an agreement
with Banyan Strategic Realty Trust ("BSRT"). On June 5, 1992, the Company and
BSRT formed a joint venture (the "Venture") to pursue its development rights.
The Company had a 47% interest in the Venture while BSRT owned the remaining
53%. This property consisted of 36,100 square feet of undeveloped land in
downtown Washington D.C. plus an approximately 55,900 square foot office
building. The entire property was zoned for office development.

On March 20, 1997, the Venture sold approximately 3,500 square feet of the
Venture's land to the United States General Services Administration ("GSA") for
a purchase price of $1,828,900, including $150,000 paid by GSA for reimbursement
of expenses that the Venture incurred in anticipation of this transaction. On
July 29, 1997, the Venture sold the remaining land and office building to an
unaffiliated third party for net sale proceeds of $8,469,821. The Company's
share of the gain on disposition recognized by the Venture was $371,979 and is
included in net income from operations of real estate venture for the year ended
December 31, 1997 on the accompanying consolidated statement of operations.
During the year ended December 31, 1997, the Company received aggregate
distributions from the Venture of $4,713,101, including its allocation of sales
proceeds. The Venture has no further ownership interest in the H Street
Assemblage property.

8. (RECOVERY OF) PROVISION FOR LOSSES ON LOANS, NOTES, ADVANCES AND INTEREST
RECEIVABLE

During 1998, the Company received cash distributions of $18,423 related to
its interest in a liquidating trust established for the benefit of the unsecured
creditors (including the Company) of VMS Realty Partners and its affiliates. In
addition, the Company received $89,753 from its interest in Springtown Partners,
a California limited partnership formed by three land owners, including the
Company, for the purpose of merging land parcels in order to option them to a
third party for use as a wetland mitigation bank. The Company acquired the land
from Anden Group as a result of a loan default, but fully reserved for the asset
as the land was determined to be "undevelopable" due to certain environmental
issues. Since 1993, the Company has sought to realize value from this asset. The
Company has treated both amounts as a recovery of amounts previously charged to
losses on loans, notes, advances and interest receivable on its consolidated
statement of operations for the year ended December 31, 1998.

During 1994, in connection with the restructuring of Anden, the Company
was conveyed an interest in a first mortgage loan collateralized by a parcel of
land located in Hemet, California. The borrower was Hemet Phase IV Partners,
L.P. ("Hemet"). The Company also was conveyed a limited partnership interest in
Hemet. The Company recorded its interest in the loan acquired at $500,000 as of
the date of foreclosure. During 1994, the Company recorded a provision for
losses on loans, notes, advances and interest receivable relating to the Hemet
loan in the amount of $275,000. Pursuant to the Company's valuation of the
underlying collateral, the loan was placed on non-accrual status. On October 8,
1998, the Company received $744,795 as payment in full on the loan and interest.
The Company recorded $225,000 as a principal repayment, $275,000 as a recovery
of amounts previously charged to losses on loans, notes, advances and interest
receivable and the remainder as interest income.

Northholme Partners ("Northholme"), of which the Company holds an 80%
limited partnership interest, was created by the Company and a partner of the
Anden Group on August 31, 1992. On September 2, 1992, the Company and Northholme
entered into a loan agreement whereby the Company committed to lend Northholme
$700,000. The

36
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

partner associated with the Anden Group, Eugene S. Rosenfeld, owns a 20%
participation in the loan. The loan pertains to a 1,000-acre land parcel located
north of Los Angeles, California which is owned by a third party (the "Owner").
The Company also advanced $491,647 for costs associated with the completion of
the zoning and entitlement work for the property. Northholme has a profit
participation arrangement with the Owner based on the proceeds received from the
sale or refinancing of the property. Based on the Owner's disclosure related to
the property, it was determined that a reserve should be established in the
amount of the loan and all advances plus accrued interest. The Company recorded
a provision for losses on loans, notes, advances and interest receivable in the
amount of $1,166,246 for the year ended December 31, 1997. Notwithstanding the
reserve, the Company intends to pursue its rights to collect on its investment.

9. EXECUTIVE AND DIRECTOR STOCK OPTION PLAN

On June 30, 1994, the stockholders approved and adopted the 1994 Executive
and Directors Stock Option Plan (the "Plan"). As originally adopted, the Plan
authorized the grant of non-statutory stock options only. On December 30, 1997,
the Board of Directors of the Company adopted an amendment to the Plan to permit
the grant of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code. The stockholders approved the Amendment to the Plan at
the 1998 Annual Meeting of Stockholders. The Plan granted the Board of Directors
the authority to issue up to 100,000 shares of the Company's common stock for
stock option awards. The Plan consists of an Executive Option Grant Program and
a Director Option Grant Program. Under the Director Option Grant Program, each
of the Directors, in consideration of their length of service on the Board,
received an option to acquire 5,000 shares. The exercise price of the options
initially granted to the Board of Directors on July 15, 1994 under the Director
Option Grant Program was $11.25. The exercise price was reduced to $9.25 by a
vote of the Board of Directors on December 30, 1997. No executive is eligible to
receive options under the Director Option Grant Program.

37
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

SFAS No. 123 "Accounting for Stock-Based Compensation," became effective
for 1996. This statement addresses accounting and reporting standards for
stock-based employee compensation plans. The Company has elected to continue to
recognize compensation expense using the intrinsic value-based method of
accounting prescribed by APB Opinion No. 25. Proforma information regarding net
income and earnings per share is required by SFAS 123. Proforma disclosures must
include all stock-based compensation grants made in fiscal years that begin
after December 15, 1994.

Proforma results of net income and earnings per share using the fair value
method for accounting for stock-based employer compensation plans for the year
ended December 31, 1998 and 1997 are not presented, as results differ by two or
less percent from those reported. For the purpose of SFAS 123, compensation
expense was not recognized in 1997 for the 24,850 options canceled.

For purposes of estimating the fair value of the Company's employee stock
options at the grant date, a Black-Scholes option pricing model was used with
the following weighted average assumptions for 1998: risk-free interest rate of
6.01%, dividend yield of 0%, and volatility factors of the expected market price
of the Company's common stock of .474. The weighted average life of the stock
options was 2.5 and 3 years as of December 31, 1998 and 1997, respectively. For
purposes of the proforma calculation, the estimated fair value of the options
was amortized to expense over the options vesting period.

The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of Options.

The effects on 1998 and 1997 pro forma net income and pro forma basic
earnings per common share and common share equivalent of amortizing to expense
the estimated fair value of stock options are not necessarily representative of
the effects on net income to be reported in future years due to such things as
the vesting period of the stock options, and the potential for issuance of
additional stock options in future years.

A summary of the Company's stock option activity, and related information
for the years ended December 31, 1998 and 1997 is as follows:

38
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

<TABLE>
<CAPTION>
Weighted Average
Shares Subject to Exercise Price Per
Option Share
------------------ -------------------
<S> <C> <C>
Balance at January 1, 1997...... 39,850 12.31
Options canceled............. (24,850) 12.94
------------------ -------------------
Balance at December 31, 1997.... 15,000 9.25
Options granted.............. 85,000 9.25
Options canceled............. (5,000) 9.25
------------------ -------------------
Balance at December 31, 1998 ... $ 95,000 $ 9.25
================== ===================
</TABLE>

At December 31, 1998, Options on 39,140 shares were exercisable. The
exercise price of these options was $9.25 per share.

10. DEFERRED COMPENSATION

In December 1997, the Company established an incentive compensation plan
(the "Plan") for Messrs. Engle and Coyne (the "Participants"). The Plan provides
for all or some of the Participants' salary to be deferred. All such deferred
compensation is held subject to the claims of creditors of the Company in a
"rabbi" trust until paid to the Participants following the Participants'
termination of employment. The amounts deferred are invested in common stock of
the Company. Pursuant to the Plan, the Participants deferred $240,000 of
compensation during the year ended December 31, 1998 which represented 41,400
shares of common stock. The number of shares of common stock was determined by
dividing the dollar amount of the salary deferred each month by the average of
the closing prices of the Company's common stock for the last ten trading days
of the month. The Participants deferred $96,766 of compensation during 1997
which represented 15,483 shares of common stock using the December 30, 1997
closing price of $0.625. The Company transfers these shares from treasury stock
to the rabbi trust. The deferred amounts were expensed by the Company during
1998 and 1997 and are included in general and administrative expenses on the
consolidated statements of operations for the years ended December 31, 1998 and
1997. Future compensation will be deferred and invested in common stock which
will be issued on a monthly basis to the trust for the benefit of the
Participants.

11. STOCK SPLITS

Effective June 30, 1998, the stockholders approved a 1-for-300 reverse
stock split followed by a 30-for-1 forward stock split. As a result of the
reverse stock split, each stockholder of record who owned less than 300 shares
of common stock immediately prior to the reverse stock split received in lieu of
the fractional share resulting from the reverse split, cash in the amount of
$.790625 per share (the average daily closing price per share of common stock on
the NASDAQ Stock Exchange for the ten trading days prior to effective date)
multiplied by the number of shares of common stock owned by such stockholder
immediately prior to the reverse stock split. Immediately after the reverse
stock split, the number of shares of common stock of each holder (excluding
stockholders who held less than 300 shares immediately prior to the reverse
split) was converted in a forward split into multiple shares of common stock on
the basis of 30 shares of common stock for each share or fraction thereof then
held. The Company paid $356,098 to fractional stockholders on July 17, 1998 as a
result of the reverse stock split. All share and per share data for prior
periods presented have been restated to reflect the stock splits.

39
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

12. TREASURY STOCK

On September 23, 1998, the Company purchased 69,223 shares of common
stock, or approximately 6.1% of the Company's common stock outstanding. The
Company paid cash in the amount of $5 1/8 per share, for a total purchase price
of $354,768.

13. NASDAQ SMALLCAP MARKET STOCK LISTING

14. INCOME TAXES

Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes. Deferred income taxes
consist of the following at December 31,:

<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
Deferred tax assets:
Loans receivable $ -- $ 93,000
Mortgage loans in substantive foreclosure 2,327,000 2,327,000
Foreclosed real estate held for sale, net 1,195,000 1,195,000
Investment in real estate venture 40,000 40,000
Net operating loss carry forwards 30,035,000 28,558,000
--------------- ---------------
Sub-total 33,597,000 32,213,000
Less valuation allowance for deferred tax assets (33,597,000) (32,213,000)
--------------- ---------------
Total deferred tax assets -- --
Deferred tax liabilities:
Note payable -- --
--------------- ---------------
Net deferred tax assets $ -- $ --
=============== ===============
</TABLE>

As of December 31, 1998, the Company had net operating loss carry forwards
of approximately $83,995,000 which expire as follows: $18,817,000 in 2005;
$47,337,000 in 2006; $281,000 in 2007; $2,981,000 in 2008; $4,086,000 in 2009;
$1,265,000 in 2010; $2,028,000 in 2011 and $7,200,000 in 2012.

15. LITIGATION

On June 16, 1994, Coastal Group, Inc. brought an action against Westholme
Partners, (an entity in which the Company has a limited partnership interest),
Bank of America (f/k/a Continental Bank, N.A.) ("CINB"), BMC Westholme Corp., (a
wholly owned subsidiary of the Company); the Anden Group ("Anden"), William A.
Brandt, Jr. and Kent Kneblekamp in the New Jersey Superior Court, Middlesex
County. The case was subsequently removed to the United States District Court
for the District of New Jersey and assigned case # 94-3010. The case involves a
real estate development project located in New Jersey known as "Winding River."

40
<PAGE>

SEMELE GROUP INC.

Notes to the Consolidated Financial Statements
(Continued)

BMC Westholme Corp. was served with Summons and Complaint in June of 1994,
but was not actively involved in the various motions and other procedural
matters which extended for approximately thirty months. On February 10, 1997,
BMC Westholme Corp. filed its Answer and began to take a more active role in the
case.

The plaintiff's complaint was substantially reduced by favorable rulings,
entered October 3, 1996, on various motions to dismiss whereby ten of
plaintiff's sixteen counts were dismissed and another count was limited in
scope. The reduced complaint alleged breach of contract, unjust enrichment,
breach of the implied covenant of good faith and fair dealing, fraudulent
transfer and also sought relief under a theory of promissory estoppel and
requested the creation of a constructive trust for the benefit of plaintiff.

The case arose from a failed development and a subsequent foreclosure
filed by defendant CINB. The plaintiff alleged, among other things, that CINB
and BMC Westholme conspired with Anden to deprive the plaintiff of its interest
in the Winding River project, damaging plaintiff's reputation as a homebuilder
and causing it to lose business opportunities. A motion for summary judgment was
filed by CINB. The Company joined in that motion.

On December 15, 1998 the Court granted summary judgments in favor of BMC
Westholme Corporation on all remaining counts of the complaint and also granted
BMC Westholme's motions for reimbursement of certain attorney's fees and costs.
On January 21, 1999 the same Court awarded the sum of $15,178 to BMC Westholme
in consideration of attorney's fees and expenses.

The Court's order of December 15, 1998, granting summary judgment in favor
of BMC Westholme has been appealed by Coastal Group, Inc. Management does not
believe that the resolution of the appeal will have a material adverse effect on
the Company's financial position or results of operations.

<PAGE>

EXHIBIT 23

CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in this Annual Report (Form
10-KSB) of Semele Group Inc. of our report dated April 13, 1999, included in the
1998 Annual Report to stockholders of Semele Group Inc.

ERNST & YOUNG LLP

Boston, Massachusetts
April 13,1999

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEMELE GROUP
INC'S FORM 10-KSB FOR THE YEAR ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCICAL STATEMENTS INCLUDED IN SUCH REPORT.
</LEGEND>
<CURRENCY> USD

<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 7,788,124
<SECURITIES> 0
<RECEIVABLES> 2,948,767
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 7,885,814
<PP&E> 23,003,510
<DEPRECIATION> 0
<TOTAL-ASSETS> 38,168,919
<CURRENT-LIABILITIES> 1,731,103
<BONDS> 21,434,273
0
0
<COMMON> 11,281,412
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 38,168,919
<SALES> 0
<TOTAL-REVENUES> 1,158,216
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,618,063
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,459,847)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,459,847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,459,847)
<EPS-PRIMARY> (1.23)
<EPS-DILUTED> (1.23)

</TABLE>