Edgar Filing: SEMELE GROUP INC

SCHEDULE 14A INFORMATION

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934

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Semele Group Inc.

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)

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September 10, 2002

[SEMELE LETTERHEAD]

September 10, 2002

Dear Stockholder:

You are invited to attend the 2002 Annual Meeting of the Stockholders of
Semele Group Inc. ("Semele" or the "Company"), to be held at the offices of
Semele at 200 Nyala Farms, Westport, Connecticut, on October 9, 2002, at
approximately 10:00 a.m., local time.

At the Meeting, stockholders of record as of September 3, 2002, will be
asked to elect two directors to Semele's Board and to concur in the selection of
Semele's independent auditors. Details of the business to be conducted at the
Meeting are contained in the accompanying Notice of Special Meeting and Proxy
Statement, which you are encouraged to read carefully.

Whether or not you plan to attend the Meeting, please complete, sign and
date the enclosed proxy card and return it in the enclosed prepaid envelope.
You may revoke your proxy in the manner described in the Proxy Statement at any
time before it has been voted at the Meeting. If you attend the Meeting, you
may vote in person, even if you have previously returned your proxy card. Your
prompt cooperation will be greatly appreciated. This solicitation is authorized
by and is made on behalf of Semele's Board of Directors.

Sincerely,

SEMELE GROUP INC.

James A. Coyne
President and Chief Operating Officer

SEMELE GROUP INC.
200 NYALA FARMS
WESTPORT, CONNECTICUT 06880
(203) 341-0555

NOTICE OF 2002 ANNUAL MEETING OF STOCKHOLDERS

To the Stockholders of Semele Group Inc.:

Notice is hereby given that the 2002 Annual Meeting of Stockholders (the
"Meeting") of Semele Group Inc., a Delaware corporation, will be convened at the
offices of Semele at 200 Nyala Farms, Westport, Connecticut, on October 9, 2002,
at approximately 10:00 a.m., local time for the following purposes:

1. To elect two directors to hold office, each for a three year term, or
otherwise as provided in Semele's By-Laws;

2. To concur in the selection of Ernst & Young LLP as Semele's independent
auditor for the year ending December 31, 2002; and

3. To transact any other business as may properly come before the Meeting,
or any adjournment or postponement thereof.

Only stockholders of record at the close of business on September 3, 2002,
are entitled to receive notice of and to vote at the Meeting or any adjournment
or postponement of the Meeting. A list of these stockholders will be available
for inspection at Semele's offices for at least ten days prior to the Meeting.

A Proxy Statement and form of proxy are enclosed. Also enclosed is
Semele's 2001 Annual Report for the year ended December 31, 2001. Whether or
not you expect to attend the Meeting, it is important that you fill in, sign,
date and mail in the proxy in the enclosed envelope so that your shares may be
voted for you.

September 10, 2002 By order of the Board of Directors:

James A. Coyne,
Corporate Secretary

TABLE OF CONTENTS
PAGE NO.
--------
PRINCIPAL HOLDERS OF SEMELE COMMON STOCK 3
MATTERS TO BE CONSIDERED BY STOCKHOLDERS 5
PROPOSAL 1: ELECTION OF DIRECTORS 5
NOMINEES 5
CONTINUING DIRECTORS 6
RECOMMENDATION OF THE BOARD 7
PROPOSAL 2: SELECTION OF INDEPENDENT AUDITOR 7
AUDIT FEES. 7
FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. 7
ALL OTHER FEES. 7
RECOMMENDATION OF THE BOARD 7
EXECUTIVE OFFICERS 8
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS 8
DIRECTOR COMPENSATION 8
EXECUTIVE COMPENSATION 8
EXECUTIVE AND DIRECTOR STOCK OPTION PLAN 11
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 10
REPORT OF THE AUDIT COMMITTEE 15
STOCKHOLDER PROPOSALS 15
OTHER MATTERS 15

PROXY STATEMENT
FOR
2002 ANNUAL MEETING OF STOCKHOLDERS OF
SEMELE GROUP INC.

OCTOBER 9, 2002

This Proxy Statement is furnished to the holders of shares of the Common
Stock, par value $.10, of Semele Group Inc., ("Semele"), a Delaware
corporation, in connection with the solicitation of proxies by Semele's Board of
Directors for use at the 2002 Annual Meeting of Stockholders. The Meeting will
be convened on October 9, 2002, at approximately 10:00 a.m., local time, and any
adjournment or postponement of the Meeting will be announced at the Meeting.
Copies of this Proxy Statement, and the enclosed form of proxy, were first sent
or given to stockholders on or about September 10, 2002.

Shares represented by properly executed proxies in the enclosed form
received by the Board of Directors prior to the Meeting will be voted at the
Meeting. Shares not represented by properly executed proxies will not be voted.
If a stockholder specifies a choice with respect to any proposal to be acted on
at the Meeting, the shares represented by that proxy will be voted as specified.
If a stockholder does not specify a choice, in an otherwise properly executed
proxy, with respect to any proposal to be acted on, the shares represented by
that proxy will be voted on that proposal in accordance with the recommendation
of the Board of Directors as described in this Proxy Statement. A stockholder
who signs and returns a proxy in the enclosed form may revoke it by: (i) giving
written notice of revocation to Semele before the proxy is voted at the Meeting;
(ii) executing and delivering a later-dated proxy before the proxy is voted at
the Meeting; or (iii) attending the Meeting and voting the shares in person.
Merely attending the Meeting will not be sufficient to revoke a proxy.

Semele will bear all costs in connection with the solicitation of proxies,
including the cost of preparing, printing and mailing this Proxy Statement. In
addition to the use of the mails, proxies may be solicited by Semele's directors
and officers and by employees of Equis Financial Group Limited Partnership,
("EFG"), which provides administrative services to Semele. None of these
individuals will be additionally compensated, but they may be reimbursed for
out-of-pocket expenses in connection with the solicitation. Arrangements will
also be made with brokerage houses, banks and other custodians, nominees and
fiduciaries for the forwarding of proxies and proxy materials to the beneficial
owners of the Common Stock held of record by those persons, and Semele may
reimburse those custodians, nominees and fiduciaries for their expenses in so
doing.

The close of business on September 3, 2002, has been fixed as the date for
determining those stockholders entitled to notice of and to vote at the Meeting
(the "Record Date"). At the Record Date, Semele had 2,078,718 shares
outstanding, each of which entitles the holder to one vote at the Meeting. Only
stockholders of record at the Record Date will be entitled to vote at the
Meeting. The presence of a majority of the outstanding shares of Common Stock,
represented in person or by proxy at the Meeting, will constitute a quorum. For
the proposal to elect two directors, the nominees receiving the greatest number
of votes cast by holders of Semele's Common Stock present in person or by proxy
at the Meeting and entitled to vote will be elected as directors of Semele. The
proposal to concur in the selection of Semele's auditors requires the
affirmative vote of a majority of the shares present in person or by proxy at
the Meeting and entitled to vote on the matter. Abstentions, withheld votes and
broker non-votes (i.e., shares held by brokers that are present but not voted
because the brokers are prohibited from exercising discretionary authority) will
be counted in calculating the number of shares present in person or by proxy at
the Meeting for purposes of establishing a quorum for the transaction of
business. Abstentions will be counted in calculating the number of shares
entitled to vote on a matter, whereas broker non-votes will be excluded.

PRINCIPAL HOLDERS OF SEMELE COMMON STOCK PRINCIPAL HOLDERS OF SEMELE COMMON
STOCK

The following table sets forth certain information regarding beneficial
owners of Common Stock at the Record Date by: (i) each person or entity who is
known by Semele to own more than 5% of the Common Stock (together with such
person's address); (ii) each director and each executive officer of Semele 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 of the
Record Date. However, those 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. Neither, Mr. Brock, Vice
President & Chief Financial Officer, nor Mr. Butterfield, former Vice President
& Chief Financial Officer own any shares of common stock of the Company.

PERCENT OF
NAME OF PERSON OR ENTITY NUMBER OF SHARES TOTAL SHARES
------------------------------------------ ----------------- -------------

AFG Hato Arrow Limited Partnership 198,700 (1) 9.6%
AFG Dove Arrow Limited Partnership
AIP/Larkfield Limited Partnership
c/o Equis Financial Group LP
1050 Waltham Street, Suite 310
Lexington, MA 02421

Gary D. Engle, Chairman, Chief 836,794 (2) 40.3%
Executive Officer, Director

James A. Coyne, President, Chief
Operating Officer, Director 366,747 (3) 17.6%

Walter E. Auch, Sr., Director 6,100 (4) Less than 1%

Joseph W. Bartlett, Director 5,000 (4) Less than 1%

Robert M. Ungerleider, Director 5,600 (4) Less than 1%

All Directors and Officers of Semele as a 1,220,241 58.3%
group (seven persons)

(1) Based upon reports filed with the Securities and Exchange Commission
(the "SEC") by certain affiliates of Equis Financial Group Limited Partnership
("EFG") pursuant to Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), indicating ownership of 5% or more of the
outstanding Common Stock. At the Record Date: (i) AFG Hato Arrow Limited
Partnership owns 63,544 shares, amounting to 3.1% of the outstanding Common
Stock; (ii) AFG Dove Arrow Limited Partnership owns 61,673 shares, amounting to
3% of the outstanding Common Stock; and (iii) AIP/Larkfield Limited Partnership
owns 73,483 shares, amounting to 3.5% of the outstanding Common Stock. Gary D.
Engle, Chairman, Chief Executive Officer and a director of Semele, has effective
control over the operation of each of these limited partnerships.
(2) Includes 1,100 shares owned directly, 454,854 shares owned by a family
corporation over which Mr. Engle has control and 82,140 shares owned by the
trustee of a rabbi trust for the benefit of Mr. Engle over which Mr. Engle has
voting control. The shares held by such trustee represent salary deferred by
Mr. Engle through the Record Date pursuant to Semele's Incentive Compensation
Plan. Includes 100,000 shares owned by the Family Trust and transferred to the
benefit of his children over which Mr. Engle has voting control but disclaims
beneficial ownership. 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 the 198,700 shares
owned by those partnerships.

(3) Includes 284,608 shares owned directly and 82,139 shares owned by the
trustee of a rabbi trust for the benefit of Mr. Coyne over which Mr. Coyne has
voting control. The shares held by such trustee represent salary deferred by
Mr. Coyne through the Record Date pursuant to Semele's Incentive Compensation
Plan.

(4) Includes 5,000 shares underlying currently exercisable options granted
under Semele's 1994 Executive and Director Stock Option Plan.

Semele is not aware of any other person who, alone or as part of a group,
beneficially owns more than 5% of the outstanding shares of Common Stock at the
Record Date. Semele is not aware of any arrangements, the operation of which
may at a subsequent date result in a change of control of Semele.

Section 16(a) of the Exchange Act requires Semele's officers and directors,
and persons who own more than 10% of a registered class of Semele's equity
securities, to file initial statements of beneficial ownership (Form 3), and
statements of changes in beneficial ownership (Forms 4 or 5), of Common Stock
and other equity securities of Semele with the SEC and the National Association
of Securities Dealers, Inc. (the "NASD"). The SEC requires officers, directors
and greater than 10% stockholders to furnish Semele with copies of all these
forms filed with the SEC or the NASD.

To Semele'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, Semele believes that
all filing requirements applicable to its officers, directors and greater than
10% beneficial owners were complied with for 2001

MATTERS TO BE CONSIDERED BY STOCKHOLDERS MATTERS TO BE CONSIDERED BY
STOCKHOLDERS

PROPOSAL 1 ELECTION OF DIRECTORS
Two individuals will be elected at the Meeting to serve as a director of
Semele for a three-year term expiring at the 2005 Annual Meeting. The nominees
are Joseph W. Bartlett, and Robert M. Ungerleider, who are being nominated for
re-election. If the nominees should become unavailable for any reason, the
votes for the nominee will be cast for a substitute nominee designated by the
Board of Directors. The directors have no reason to believe that Mr. Bartlett
or Mr. Ungerleider will be unavailable to serve.

NOMINEES.
The nominees for directors are as follows:

YEAR DURING WHICH
INDIVIDUAL FIRST OTHER PRINCIPAL OCCUPATION(S) DURING PAST 5
NAME AGE BECAME A DIRECTOR YEARS
--------------------- --- ----------------- --------------------------------------------------

Joseph W. Bartlett 69 1997 Mr. Bartlett has been a partner in the law firm of
.. . Morrison & Foerster, LLP since March 1996.
.. . From July 1991 until March 1996, Mr. Bartlett
.. . was a partner in the law firm of Mayer, Brock &
.. . Platt. He also is a director of Simon Worldwide
.. . Inc., which designs, manufacturers and
.. . distributes custom-designed sports apparel and
.. . accessories and other products for promotional
.. . programs.
Robert M. Ungerleider 61 1987 Mr. Ungerleider is of counsel to the law firm of
.. . Felcher Fox & Litner, in New York City. He has
.. . founded, developed and sold a number of startup
.. . ventures, including Verifone Finance, an
.. . equipment leasing company, Smartpage, a
.. . paging service company, and Financial Risk
.. . Underwriting Agency, Inc., an insurance firm
.. . specializing in financial guarantee transactions.

CONTINUING DIRECTORSCONTINUING DIRECTORS.

The continuing directors of Semele are as follows:

Walter E. Auch, Sr. 81 1987 Prior to retiring, Mr. Auch was the Chairman and
.. . Chief Executive Officer of the Chicago Board
.. . Options Exchange. Previously, Mr. Auch was
.. . Executive Vice President, director and a member
.. . of the Executive Committee of Paine Webber.
.. . Mr. Auch is a director of Smith Barney Concert
.. . Series Funds, Smith Barney Trak Fund, The
.. . Brinson Partners Funds, Nicholas Applegate
.. . Funds and Union Bank of Switzerland. He is a
.. . trustee of Banyan Strategic Realty Trust, as well
.. . as a trustee of Hillsdale College and the Arizona
.. . Heart Institute. Mr. Auch's term expires at the
.. . 2003 Annual Meeting.
Gary D. Engle 54 1997 Mr. Engle has been Chairman and Chief
.. . Executive Officer of the Company since
.. . November 1997. Mr. Engle serves as Director
.. . and President of various subsidiaries and
.. . affiliates of the Company including Equis II
.. . Corporation, Ariston Corporation, AFG ASIT
.. . Corporation, and as Director and Chairman of
.. . PLM International, Inc. ("PLM"). Mr. Engle is
.. . sole stockholder, Director, President and Chief
.. . Executive Officer of Equis Corporation, general
.. . partner of EFG. Mr. Engle's term expires at the
.. . 2003 Annual Meeting
James A. Coyne 42 1997 Mr. Coyne has been President and Chief
.. . Operating Officer of the Company since May
.. . 1997. Mr. Coyne serves as Senior Vice President
.. . of various Company subsidiaries and affiliates
.. . including, Equis II Corporation, AFG ASIT
.. . Corporation and AFG Realty Corporation. Mr.
.. . Coyne is a Director and Vice President of PLM.
.. . Mr. Coyne has served as Senior Vice President
.. . of Equis Corporation, the general partner of EFG
.. . since December 1996. Mr. Coyne's term expires
.. . at the 2004 Annual Meeting.

The Board met three times during 2001. The directors have established two
standing committees of the Board, an Audit Committee and a Compensation
Committee. The Audit Committee, which is composed of Messrs. Auch, Bartlett and
Ungerleider, met once during 2001. The Audit Committee reviews the scope of and
the results of the audit by the independent public accountants and reviews the
adequacy of Semele's internal accounting and financial controls. The
Compensation Committee, which is composed of Messrs. Bartlett and Ungerleider,
did not meet during 2001. The Compensation Committee is responsible for
reviewing and making recommendations to the Board on matters concerning the
compensation of executive officers. All directors attended at least 75% of the
total number of meetings of the Board of Directors and each committee on which
they served during 2001. The directors have not established a Nominating
Committee or other Committee performing a similar function. On February 6, 2002,
the Board established a Special Committee composed of Messrs. Auch, Bartlett and
Ungerleider to negotiate and evaluate on behalf of the Company its
participation, if any, in a proposed transaction concerning the Rancho Malibu
property.

RECOMMENDATION OF THE BOARDRECOMMENDATION OF THE BOARD.

The Board hereby recommends and nominates the following nominees for
election as directors of Semele by the stockholders at the Meeting to serve
until the 2005 Annual Meeting of Stockholders: Joseph W. Bartlett, and Robert
M. Ungerleider.

Vote Required. The nominees receiving the highest vote total will be
--------------
elected as directors of Semele.

PROPOSAL 2: SELECTION OF INDEPENDENT AUDITOR PROPOSAL 2 SELECTION OF
INDEPENDENT AUDITOR

Semele's financial statements, including those for the year ended December
31, 2001, are included in the Annual Report being furnished to all stockholders
with this Proxy Statement. The year-end statements have been audited by the
independent firm of Ernst & Young LLP, ("Ernst & Young"), which has served as
Semele's independent auditor since the year ended December 31, 1989. The Board
believes that Ernst & Young is knowledgeable about Semele's operations and
accounting practices and is well qualified to act in the capacity of independent
auditor. Therefore, the Board has selected Ernst & Young as Semele's
independent auditor to examine its financial statements for the year ending
December 31, 2002. Although the selection of an auditor does not require a
stockholder vote, the Board believes it is desirable to obtain the concurrence
of the stockholders to this selection. In the event of a negative vote, the
Board will reconsider its selection.
Representatives of Ernst & Young are not expected to be present at the
Meeting.

AUDIT FEES.AUDIT FEES.

The aggregate fees billed by Ernst & Young for professional services
rendered for the audit of Semele's financial statements for the year ended
December 31, 2001, and for Ernst & Young's reviews of the financial statements
included in Semele's quarterly reports on Form 10-QSB during such year were
approximately $250,000

FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES.FINANCIAL
INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES.

Ernst & Young did not provide any financial design or implementation
services to Semele in the year ended December 31, 2001.

ALL OTHER FEES.ALL OTHER FEES.

There were no fees billed by Ernst & Young for professional services, other
than services related to the audit of Semele's financial statements, during the
year ended December 31, 2001.

RECOMMENDATION OF THE BOARDRECOMMENDATION OF THE BOARD.

The Board considers Ernst & Young to be well qualified, and recommends that
the stockholders adopt the following resolution, which will be presented for a
vote of the stockholders at the Meeting:

RESOLVED, that the stockholders concur in the appointment, by the Board, of
Ernst & Young LLP to serve as Semele's independent auditor for the year ending
December 31, 2002.

Vote Required. The affirmative vote of a majority of the shares present in
-------------
person or by proxy at the Meeting is required for the adoption of the foregoing
resolution.

EXECUTIVE OFFICERS EXECUTIVE OFFICERS

The following table sets forth information with respect to Semele's
executive officers. Each officer is elected annually by the directors and
serves until his successor is elected and qualified or until his death,
resignation or removal by the directors:

NAME AGE PRINCIPAL OCCUPATIONS DURING PAST 5 YEARS OFFICE
---------------------- --- ----------------------------------------------- --------------------------------

Gary D. Engle 54 See "Proposal 1 - Election of Directors - Chairman and Chief Executive
.. . Continuing Directors" above Officer

James A. Coyne 42 See "Proposal 1 - Election of Directors - President and Chief Operating
.. . Continuing Directors" above Officer

Michael J. Butterfield 43 Mr. Butterfield was Chief Financial Officer of Chief Financial Officer and
.. . the Company from June 2000 until August 21, Treasurer -until his resignation
.. . 2002. He also served as Treasurer of the August 21, 2002
.. . Company from November 1997 until August
.. . 21, 2002. Mr. Butterfield was Treasurer and
.. . Secretary of various Company subsidiaries and
.. . affiliates, including Equis II Corporation, AFG
.. . ASIT Corporation and AFG Realty
.. . Corporation. He was also Vice President-
.. . Finance and Treasurer and in December 2000,
.. . assumed the additional position of Chief
.. . Financial Officer of Equis Corporation, EFG's
.. . general partner.
Richard K. Brock 40 Mr. Brock was appointed Vice President and Vice President and Chief
.. . Chief Financial Officer of the Company on Financial Officer effective
.. . August 22, 2002. Prior to that he served as August 22, 2002
.. . Vice President and Chief Financial Officer of
.. . PLM from January 2000 through its
.. . acquisition by a subsidiary of the Company in
.. . February 2002. Prior to that, Mr. Brock had
.. . served in various financial capacities to PLM
.. . and certain of its affiliates.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS COMPENSATION OF DIRECTORS AND
EXECUTIVE OFFICERS

DIRECTOR COMPENSATIONDIRECTOR COMPENSATION.

Semele's non-employee 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 per hour for each
Board meeting, including meetings of the Compensation, Audit and Special
Committees , attended via telephonic conference call. In addition, each
director is reimbursed for out-of-pocket expenses incurred in attending meetings
of the Board. Mr. Engle and Mr. Coyne, as employees of the Company, do not
receive director compensation.

Mr. Bartlett's law firm, Morrison & Foerster LLP was paid $54,527.40 by Semele
for legal services in 2001. The firm has billed $125,005.39 for legal services
to Semele in 2002.

EXECUTIVE COMPENSATIONEXECUTIVE COMPENSATION.

Compensation paid to Messrs. Engle and Coyne for the years ended December
31, 2001, 2000, and 1999, is as follows:

LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------- ------ -------
OTHER
ANNUAL RESTRICTED ALL OTHER
NAME AND PRINCIPAL COMPEN- STOCK OPTIONS LTIP COMPEN-
POSITION YEAR SALARY BONUS SATION AWARDS SARS (#) PAYOUTS SATION
------------------------- ---- ----------- ----- ------- ---------- -------- ------- ---------

Gary D. Engle, Chairman 2001 $120,000(1) n/a n/a n/a n/a n/a n/a
and Chief Executive 2000 $120,000(1) n/a n/a n/a n/a n/a n/a
Officer 1999 $120,000(1) n/a n/a n/a n/a n/a n/a

James A. Coyne, President 2001 $120,000(1) n/a n/a n/a n/a n/a n/a
and Chief Operating 2000 $120,000(1) n/a n/a n/a n/a n/a n/a
Officer 1999 $120,000(1) n/a n/a n/a n/a n/a n/a

(1) Payment of these amounts for 1999 and 2000 have been made in the form of
common stock. The shares issued are held in a rabbi trust for the benefit of
the executive. In 2001, the Company accrued Mr. Engle and Mr. Coyne's annual
compensation but did not issue any shares to the rabbi trust. Mr. Engle and Mr.
Coyne waived the Company's requirement to fund the rabbi trust with shares of
the Company's common stock. See discussion below.
(2) Total compensation for each of the next three highest paid executive
officers did not exceed $100,000 in 2001, 2000 or 1999.

Mr. Engle serves as Chairman and Chief Executive Officer of the Company
pursuant to an executive employment agreement dated November 10, 1997. Mr.
Coyne serves as President and Chief Operating Officer of the Company pursuant to
an executive employment agreement dated May 1, 1997. The provisions of the two
agreements (hereafter referred to as the "Compensation Agreements") are
identical.

Pursuant to the Compensation Agreements, the Company pays each executive a
base salary of $120,000 per year, subject to adjustment by the Board of
Directors. In addition, the executives are entitled to receive such incentive
or performance cash bonuses as the Board of Directors may determine from time to
time. Both Mr. Engle and Mr. Coyne have chosen to have their annual base
salaries of $120,000 paid in the form of common stock pursuant to the terms of
an Incentive Compensation Plan established for their benefit. Mr. Engle and Mr.
Coyne waived the Company's requirement to fund the Plan for the year ended
December 31, 2001, and as such, no shares were issued in fiscal 2001. The
Compensation Agreements also provide that the Company will defer, under the
Incentive Compensation Plan, an incentive bonus equal to 6% of the Company's
pre-tax profits for each fiscal year, excluding results attributable to the
Company's Rancho Malibu property. With respect to the Rancho Malibu property,
the Compensation Agreements provide that the Company will defer for the benefit
of each executive an incentive bonus amount equal to 10% of the amounts that the
Company realizes in excess of its carrying value for the property. Finally, the
Company, acting through the compensation committee of the Board of Directors,
may defer additional discretionary bonuses for the executives from time to time
as the compensation committee shall determine. To date, no such incentive bonus
amounts have been paid to or deferred on account of either executive.

Incentive stock options issued to Mr. Engle and Mr. Coyne, representing
options to purchase 40,000 shares of the Company's common stock at an exercise
price of $9.25 per share that were granted to each executive on December 30,
1997, were cancelled in 1999 in connection with the Company's acquisition of
Equis II Corporation.

As discussed above, pursuant to the Compensation Agreements, the base
salaries of Mr. Engle and Mr. Coyne are generally paid in the form of common
stock. Mr. Engle and Mr. Coyne waived the Company's requirement to fund the
Plan for the year ended December 31, 2001 and as such, no shares were issued in
fiscal 2001. As of December 31, 2001, the Company had issued 82,140 and 82,139
shares of common stock to Mr. Engle and Mr. Coyne, respectively, for such
compensation. The shares are held in a rabbi trust established by the Company
for the benefit of each executive. Beginning in 1998, the number of shares of
common stock held for the account of each executive is determined by dividing
the dollar amount of salary deferred each month, by the average of the closing
prices of the Company's shares for the last ten trading days of the month. For
fiscal 1997, the number of shares of common stock held for the account of each
executive was determined by dividing the dollar amount of the salary deferred by
the closing price of a share of the Company's common stock on December 30, 1997,
the effective date of the Incentive Compensation Plan. Common stock issued to
an executive in lieu of salary is not subject to forfeiture. However, shares or
other amounts deferred in consideration of an executive's bonuses are forfeited
upon the Company's termination of the executive for cause under the Compensation
Agreements. All shares or other amounts forfeited are returned to the Company.

Following an initial term that ended on December 31, 2000, the Compensation
Agreements automatically renew each year 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 renewal term that the party does not wish to renew his contract.
The Company may terminate the Compensation Agreements for cause, and the
executives may terminate their respective agreements at any time upon 60 days'
prior written notice. In addition, the executives may terminate their
agreements within 60 days of a change-in-control, and, in that event, the
Company must continue the executive's salary and fringe benefits under a
separate agreement, the Incentive Compensation Plan, for a period of 18 months.
For purposes of the Compensation Agreements, "change-in-control" means an
occurrence whereby (i) any person, partnership, corporation, entity or group (as
that term is used in the Securities Exchange Act of 1934), in any single
transaction or series of related transactions, directly or indirectly acquires
beneficial ownership of more than 50% of the Company's voting securities or
substantially all of the Company's assets, or (ii) individuals who were members
of the Board of Directors immediately prior to a meeting of stockholders
involving a contest for the election of 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. If the Company terminates an executive or the Company elects not to
renew an executive's Compensation 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 renewal term of his agreement. If the
Company terminates the employment of an executive without cause, all payments
under his Compensation Agreement continue through the end of the then renewal
term. If the Company elects not to renew an executive's Compensation Agreement
at the end of 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 case, the executive will receive the
benefits prescribed for a change-in-control event.

If Mr. Engle ceases to be Chief Executive Officer and a director of the
Company or if Mr. Coyne ceases to be President and a director of the Company,
except if either executive resigns voluntarily or is terminated for cause, the
notes issued by the Company for the purchase of Equis II Corporation, ("Equis
II"), having a principal balance of $13,002,000 at December 31, 2001, will
become immediately due and payable.

EXECUTIVE AND DIRECTOR STOCK OPTION PLAN.

No stock options were granted to, or exercised under the Company's 1994
Executive and Director Stock Option Plan by, executive officers in 2001 and
2000. During 1999, in connection with the acquisition of Equis II, Mr. Engle
and Mr. Coyne forfeited and the Company cancelled, the options that each of them
held to purchase 40,000 shares of common stock of the Company at an exercise
price of $9.25 per share. Currently, no executive officer holds any stock
options.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

In December 1999, Semele purchased, for approximately $19.6 million, 85% of the
stock of Equis II from Gary D. Engle, James A. Coyne and certain trusts
established for the benefit of Mr. Engle's children. During the first quarter
of 2000, Semele obtained shareholder approval for the issuance of 510,000 shares
of Common Stock to Messrs. Engle and Coyne and the trusts to purchase the
remaining 15% of Equis II. The market value of the shares issued was $2,358,750
($4.625 per share) based upon the closing price of Semele's Common Stock on
April 20, 2000, the date of issuance. Equis II owns Class B Interests in four
(4) Delaware Business Trusts, ("the Trusts") that are engaged in the equipment
leasing and real estate business. The Trusts are consolidated affiliates of the
Company and are managed by AFG ASIT Corporation ("Managing Trustee"), which is
controlled by Mr. Engle. One of the Trusts indirectly owns 20,969 shares of
Semele's Common Stock and indirectly holds a note receivable from Semele in the
amount of $462,353 that matures in April 2003. Through its ownership of Class B
Interests, Equis II holds approximately 62% of the voting interests in each of
the Trusts, although it is a not entitled to vote on certain matters,
principally those involving transactions with related parties. Equis II also
owns the Managing Trustee of the Trusts. The Managing Trustee has a 1% carried
interest in the Trusts and significant influence over the operations of the
Trusts.

In connection with the purchase of Equis II, Semele also purchased from EFG,
which is controlled by Mr. Engle, the Special Beneficiary Interests in the
Trusts for approximately $9.7 million. Semele purchased the Special Beneficiary
Interests from EFG for $9,652,500 by delivery of a non-recourse note having a
10-year term that bears interest at 7% per year. Interest and principal
payments are required to be paid only out of and to the extent of cash
distributions paid to Semele on account of the Special Beneficiary Interests.
At June 30, 2001, Semele had received cash distributions of $3,189,168 on
account of the Special Beneficiary Interests and paid an equal amount of
principal and accrued interest on the note. The outstanding balance of the note
was $6,634,544 at December 31, 2001.

Semele purchased 85% of the stock of Equis II by delivery of promissory
notes to the selling Equis II stockholders having a total principal value of
$19,586,000. In connection with the acquisition, Messrs. Engle and Coyne
delivered back to Semele, and Semele canceled, the options that each of them
held to purchase 40,000 shares of Common Stock of Semele at an exercise price of
$9.25 per share that were granted to them on December 30, 1997. A portion of
the notes, having an aggregate principal amount of $14,600,000, mature on
October 31, 2005, and bear interest at the annual rate of 7%, of which 3% is
payable on a current quarterly basis and 4% accrues to the maturity date. The
Company paid principal and interest of approximately $1,598,000 and $99,600
respectively, by issuing 326,462 shares of common stock on November 3, 2000, as
permitted by authorization of the Company's shareholders obtained on November 2,
2000. The agreed upon share price for the issuance was $5.20 per share, and,
accordingly, 326,462 shares were issued to Messrs. Engle and Coyne and the Engle
family trusts. The next installment on the note was scheduled for January
2002. In December, 2001, the notes were amended. The annual maturities of the
notes are scheduled to be paid as follows: $4,000,000 in 2002, $6,002,000 in
2003 and $3,000,000 in 2005.

The balance of the promissory notes issued to the Equis II stockholders in
connection with the purchase of 85% of Equis II, which have a total principal
value of $4,986,000, have terms identical to the terms of promissory notes
payable by Messrs. Engle and Coyne to Equis II ($1,901,000) and to Old North
Capital Limited Partnership ($3,085,000). (Semele, through its subsidiary
Ariston Corporation, has a 98% limited partnership interest in Old North Capital
Limited Partnership.) Therefore, Semele is effectively the payee of notes and
accrued interest from Messrs. Engle and Coyne of $4,986,000, and it is the
payor of notes to Messrs. Engle and Coyne and the Engle family trusts in the
same amount. Of the $4,986,000 of promissory notes issued by Semele to the
selling Equis II stockholders, promissory notes having a total principal value
of $1,901,000 have terms identical to promissory notes payable to Equis II from
Messrs. Engle and Coyne. These notes bear interest at the annual rate of 7.5%
payable quarterly, and all outstanding principal and interest is due on August
8, 2007. The $3,085,000 balance of the promissory notes issued by Semele to the
selling Equis II stockholders have terms identical to a promissory note payable
to Old North Capital Limited Partnership by Messrs. Engle and Coyne, which bears
interest at the annual rate of 11.5% and is payable on demand. Semele intends
to make the payments on the $4,986,000 of promissory notes from the proceeds of
payments made by Messrs. Engle and Coyne on their indebtedness to Equis II and
Old North Capital Limited Partnership. If either individual fails to make
timely payments, Semele will be relieved of its obligations on the $4,986,000 of
notes until the default is cured. On January 26, 2000, Messrs. Engle and Coyne
paid principal and accrued interest of $2,082,302 to Old North Capital Limited
Partnership in partial payment of their respective notes. On the same date,
Semele paid principal and accrued interest to Messrs. Engle and Coyne of
$2,082,302 in partial payment of the notes issued to them by Semele in
connection with the Equis II transaction. The outstanding balance on all the
promissory notes issued to the Equis II stockholders was $2,937,205 at December
31, 2001.

The $19,586,000 of promissory notes are general obligations of Semele
secured by a pledge to the selling Equis II stockholders of the shares of Equis
II owned by Semele. In the case of the $14,600,000 of promissory notes, those
notes issued to Mr. Engle and to the Engle family trusts become immediately due
and payable if Mr. Engle ceases to be the Chief Executive Officer and a director
of Semele, except if he resigns voluntarily or is terminated for cause, and
those notes issued to Mr. Coyne become immediately due and payable if Mr. Coyne
ceases to be the President and a director of Semele, except if he resigns
voluntarily or is terminated for cause, as cause is defined in the executives'
employment agreements with Semele. In December 2000, Mr. Engle and the Engle
family trusts transferred the notes and shares of Semele Common Stock issued to
them in the Equis II transaction to a family corporation controlled by Mr.
Engle.

On May 1, 1999, Semele and the Trusts formed a joint venture, EFG Kirkwood
LLC, ("EFG Kirkwood"), a Delaware limited liability company, for the purpose of
acquiring preferred and common stock interests in Kirkwood Associates Inc.
("KAI"). Semele purchased 100% of the Class B membership interests in EFG
Kirkwood and the Trusts collectively purchased 100% of the Class A membership
interests in EFG Kirkwood. Generally, the holders of Class A interests are
entitled to certain preferred returns before distributions are paid to the
holders of Class B interests. The Trusts' interests in EFG Kirkwood constitute
50% of the voting securities of EFG Kirkwood under its operating agreement,
which gives equal voting rights to the Class A and Class B interests.

On April 30, 2000, KAI's ownership interests in certain assets and substantially
all of its liabilities were transferred to Mountain Resort Holdings LLC,
("Mountain Resort"). On May 1, 2000, EFG Kirkwood exchanged its interest in KAI
for a 37.9% membership interest in Mountain Resort. Mountain Resort, through
four wholly owned subsidiaries, owns and operates Kirkwood Mountain Resort, a
ski resort located in northern California, a public utility that services the
local community, and land that is held for residential and commercial
development.

Subsequent to acquiring its interest in Mountain Resort, EFG Kirkwood acquired
50% of the membership interests in Mountain Springs Resorts LLC, ("Mountain
Springs"). Mountain Springs, through a wholly owned subsidiary, owns 80% of the
common member interests and 100% of the Class B Preferred member interests in an
entity that owns Purgatory Ski resort in Durango, Colorado. Semele's ownership
interest in Mountain Resort and Mountain Springs had an original cost of
approximately $7.3 million and $3.4 million, respectively, including acquisition
fees of $64,865 and $34,000 respectively that was paid to EFG and the AFG
Trusts. Semele's ownership interest in Mountain Resort and Mountain Springs is
accounted for using the equity method. Semele recorded income of $28,979 and a
loss of approximately $2.5 million, net of amortization, from its interest in
Mountain Resort and Mountain Springs for the years ended December 31, 2001 and
2000, respectively.

On March 1, 1999, Semele and two of the Trusts formed EFG/Kettle Development
LLC, a Delaware limited liability company, for the purpose of acquiring a 49.9%
indirect ownership interest in a real estate development project in Kelowna,
British Columbia, Canada, called Kettle Valley. The project, which is being
developed by Kettle Valley Development Limited Partnership, consists of
approximately 270 acres of land that is zoned for 1,120 residential units in
addition to commercial space. To date, 108 residential units have been
constructed and sold and 10 additional units are under construction. A
subsidiary of Semele is the sole general partner of Kettle Valley Development
Limited Partnership. The remaining equity interests in the project are owned by
a third party. Semele's ownership interest had a cost of $8,837,500, of which
$6,204,347 was paid in cash and $2,633,153 was paid with a non-recourse
installment note. The Company has paid the note in full as of December 31,
2001. During the years ended December 31, 2001 and 2000, Semele decreased its
investment in Kettle Valley by $657,442 and $189,146 respectively, to reflect
its share of the development's net loss.

On August 31, 1998, Semele acquired all the Common Stock of Ariston Corporation,
("Ariston"), a Delaware corporation, for $12,450,000, of which $10.45 million
was paid with a note. Semele acquired Ariston from EFG, which is controlled by
Mr. Engle. Ariston is a holding company with two investments, (i) an equity
interest in AFG International Partners Limited Partnership I, which owns two
commercial buildings leased to a major educational institution, and (ii) a 98%
limited partnership interest in Old North Capital Limited Partnership, ("ONC"),
which owns equity interests in the Trusts and eleven other limited partnerships
established by EFG's predecessor. The remaining 2% of ONC, including the
general partner interest, is owned by Messrs. Engle and Coyne and a third party
and controlled by Mr. Engle. The note bears interest at the annual rate of 7%,
but requires principal amortization and payment of interest only to the extent
of cash distributions paid to Semele in connection with the partnership
interests owned by Ariston. The note matures on August 31, 2003, and is secured
by a pledge of the Common Stock of Ariston. In October 1998, Ariston declared
and paid a cash distribution of $2,020,000 to Semele; however, future cash
distributions by Ariston require the consent of EFG until Semele's obligation to
EFG under the note is repaid. On January 26, 2000, Semele made principal and
interest payments of $2,031,504 and $50,798, respectively, on the note. The
outstanding principal balance at December 31, 2001, was $8,418,496.

Effective May 6, 1997, EFG entered into an agreement to provide
administrative services to Semele. Administrative costs, primarily salaries and
general and administrative expenses were incurred by EFG on behalf of Semele for
services provided by EFG personnel on Semele-related matters of $153,474 and
$176,614 during the years ended December 31, 2001 and 2000 respectively. As one
of its administrative services, EFG serves as the paying agent for general and
administrative costs of Semele. As part of providing this payment service, EFG
maintains a bank account on behalf of Semele. EFG also provides asset
management and administrative services to the Trusts and is compensated for
those services based upon the nature of the underlying transactions. The Trusts
reimburse EFG for administrative services provided to them by EFG employees.
Included in such reimbursements in 2001 was an aggregate of $240,396 in
reimbursement for services provided to the Trusts by Mr. Coyne. For equipment
reinvestment acquisition services, EFG is paid an acquisition fee equal to 1% of
base purchase price. For management services, EFG is paid a management fee
equal to 5% of lease revenues earned from operating leases and 2% of lease
revenues earned from full-payout leases. In 2001 the Trusts paid or accrued
$992,318, and in 2000, $1,686,893, to EFG for such services. Operating expenses
incurred by the Trusts to third parties are paid by EFG on behalf of the Trusts
and EFG is reimbursed at its actual cost for such expenditures.

On April 30, 1997, Semele entered into an Exchange Agreement (as amended
August 7, 1997) with Equis Exchange LLC, EFG and three partnerships managed by
EFG, AFG Hato Arrow Limited Partnership, AFG Dove Arrow Limited Partnership and
AIP/Larkfield Limited Partnership (the "Partnerships"). The Partnerships are
effectively controlled by Mr. Engle. Pursuant to the Agreement, Semele issued
198,700 shares of Semele's Common Stock to the Partnerships at a price of $15.00
per share and received cash proceeds of $2,480,500, net of related costs of
$500,000. In addition, the Partnerships made a three-year loan to Semele in the
amount of $4,419,500. The loan, which originally matured on April 30, 2000, and
which has been extended to April 30, 2003, bears interest at the rate of 10% per
annum with mandatory principal reductions prior to maturity if and to the extent
net proceeds are received from the sale or refinancing of Semele's Rancho Malibu
property. One of the Trusts had an interest in one of the Partnerships and,
accordingly, indirectly owns $462,353 of the loan and 20,969 of the shares of
Semele Common Stock owned by the Partnerships.

On December 22, 2000, an affiliate of Semele, MILPI Acquisition Corp.,
entered into an agreement and plan of merger to acquire PLM International, Inc.,
a San Francisco-based equipment leasing and asset management-company. The plan
of merger involved a tender offer by MILPI Acquisition Corp. to purchase all of
the outstanding Common Stock of PLM for cash. MILPI Acquisition Corp. is a
wholly owned subsidiary of MILPI Holdings LLC, ("MILPI Holdings"), which is
owned by the trusts that are engaged in the equipment leasing and real estate
businesses.

The Trusts collectively paid $1.2 million for their membership interests in
MILPI Holdings, and MILPI Holdings purchased the Common Stock of MILPI
Acquisition Corp, ("MILPI"). for an aggregate purchase price of $1.2 million.
MILPI Acquisition Corp. then entered into the agreement to acquire up to 100% of
the outstanding Common Stock of PLM, for an approximate purchase price of up to
$27 million. Pursuant to the agreement, on December 29, 2000, MILPI Acquisition
Corp. commenced a tender offer to purchase any and all of PLM's outstanding
Common Stock.

Pursuant to the cash tender offer, MILPI Acquisition Corp. acquired 83% of
PLM's common stock in February 2001 for a total purchase price of approximately
$21.8 million. Under the terms of the Agreement, with the approval of the
holders of 50.1% of the outstanding common stock of PLM, MILPI would merge into
PLM, with PLM the surviving entity. Subsequent to December 31, 2001, MILPI
completed its acquisition of the remaining 17% of the outstanding PLM common
stock, at a purchase price of approximately $4.4 million. After a special
meeting of the PLM stockholders, the merger was consummated on February 6, 2002.
Concurrent with the completion of the merger, PLM ceased public trading. On
February 7, 2002 MILPI Acquisition Corp. merged into PLM, with PLM becoming the
surviving entity. The Managing Trustee of the Trusts has been engaged in
discussions with the staff of the SEC regarding whether or not the Trusts may be
an inadvertent investment company by virtue of their recent acquisition
activities. The SEC staff informed the Managing Trustee of the Trusts that it
believes that AFG Investment Trust A and AFG Investment Trust B (collectively
"Trusts A and B") may be unregistered investment companies within the meaning of
the Investment Company Act of 1940, ("1940 Act"). Although the Managing Trustee
of the Trusts, after consulting with counsel, does not believe that Trusts A and
B are unregistered investment companies, the managing trustee of Trusts A and B
has agreed to liquidate their assets in order to resolve the matter with the
SEC. Accordingly, as of December 6, 2001, the Managing Trustee of Trusts A and
B resolved to cause the disposal of their assets prior to the scheduled
termination date for both Trusts A and B of December 31, 2003. Upon
consummation of the sale of their assets, Trusts A and B will be dissolved and
the proceeds applied and distributed in accordance with the terms of the Trusts'
operating agreements. The Managing Trustee of the Trusts also does not believe
that AFG Investment Trust C and AFG Investment Trust D (collectively, Trusts C
and D") are unregistered investment companies under the 1940 Act. If necessary,
the Managing Trustee intends for Trust C and Trust D to avoid being deemed to be
investment companies by disposing of or acquiring certain assets that they might
not otherwise dispose of or acquire.

Prior to March, 2002, Semele owned 1.05% of a partnership known as the
Rancho Malibu partnership and 100% of BSLF II Rancho Malibu Corp., which owned
98.95% of the Rancho Malibu partnership. The Rancho Malibu partnership owns
approximately 270 acres of land in Malibu, California, which is being developed
as a residential subdivision. The Rancho Malibu property was acquired by the
predecessor of Semele in 1992.

On March 1, 2002, AFG Investment Trust C and AFG Investment Trust D formed
the C & D Joint Venture as a 50%/50% owned and managed joint venture for the
purpose of contributing $2 million for a 25% ownership interest in the Rancho
Malibu partnership as a co-managing general partner pursuant to the terms of an
Amendment to Partnership Agreement (the "Agreement").

The C & D Joint Venture contribution was made in anticipation of, and
conditioned on, the consummation of the sale of Semele's and Rancho Malibu
Corp.'s interest in the Rancho Malibu partnership to RMLP Inc., an affiliate of
PLM ("RMLP"), as contemplated by the Agreement, and on the condition that Semele
contribute to the Rancho Malibu partnership 100% of the membership interests it
held in RM Financing LLC, a Delaware limited liability company, the sole asset
of which is a Note dated December 31, 1990, having an original principal amount
of $12,750,000, increased to $14,250,000, with a 15.3% interest rate, made by
the Rancho Malibu partnership in favor of Semele (the Note had been held by
Semele's predecessor when it took a deed in lieu of foreclosure on the property
from the original owner).

The C & D Joint Venture possesses the right to demand the return of the C & D
Joint Venture contribution from the Rancho Malibu partnership if the
transactions contemplated by the Agreement have not been consummated within 90
days of the receipt by the Rancho Malibu partnership of notice from the C & D
Joint Venture that the requisite consent of the Beneficiaries of Trust C and
Trust D have, or have not, been received. This right of the C & D Joint Venture
is secured by a pledge of 50% of the capital stock of Rancho Malibu Corp. and
50% of the interests in the Rancho Malibu partnership held by Semele and Rancho
Malibu Corp.

The Agreement provides that cash proceeds from the sale and/or development
of the Rancho Malibu property will be distributed 80% to the C & D Joint Venture
and 20% to Semele until the C & D Joint Venture has received an aggregate of $2
million plus a 6% cumulative compounded annual rate of return thereon.
Thereafter, any cash proceeds will be distributed 100% to Rancho Malibu Corp.
until Rancho Malibu Corp. has received an aggregate of $9 million plus a 6%
cumulative compounded annual rate of return thereon and then 25% to the C & D
Joint Venture and 75% to Rancho Malibu Corp.

If the transactions contemplated by the Agreement are consummated, RMLP will be
entitled, by virtue of the assignment of the interests in the Rancho Malibu
partnership by Semele and Rancho Malibu Corp. to RMLP, to receive the
distributions described above that would previously have been paid to Semele and
Rancho Malibu Corp. RMLP will also succeed Rancho Malibu Corp. as a co-managing
general partner of the Rancho Malibu partnership with the C & D Joint Venture.

RMLP will receive a capital contribution from Semele of its limited partnership
interests and of the general partnership interests of its wholly owned
subsidiary, Rancho Malibu Corp., in the Rancho Malibu partnership, constituting
a 75% interest in the partnership. In exchange for such contribution, RMLP will
pay total consideration consisting of $5.5 million in cash, $2.5 million in the
form of a promissory note in favor of Rancho Malibu Corp., and 182 shares of
common stock of RMLP constituting 15.4% of the outstanding shares of the
affiliate, valued at $1 million.

REPORT OF THE AUDIT COMMITTEEREPORT OF THE AUDIT COMMITTEE.

The Audit Committee reviews the scope of and the results of the audit by
the independent public accountants and review the adequacy of the Company's
internal accounting and financial controls.

The current members of the Audit Committee are Messrs. Auch, Bartlett and
Ungerleider. All are independent as that term is defined in Section 4200(a)(14)
of the National Association of Securities Dealers' listing standards. The Audit
Committee operates under a written charter approved by the Board of Directors.

In fulfilling its oversight responsibilities regarding Semele's financial
statements for the year ended December 31, 2001, the Audit Committee reviewed
with management and the independent auditors the audited financial statements
included in Semele's annual report on Form 10-KSB. This review included a
discussion of the quality, and not just the acceptability, of Semele's
accounting principles, the reasonableness of significant judgments, the clarity
of disclosures in the financial statements, and other matters required for
discussion under Statement on Auditing Standards No. 61.

The Audit Committee received and reviewed the written disclosure and the
letter from the independent auditors required by Independence Standards Board
Standard No. 1. Further, the Audit Committee recommended to Semele's Board of
Directors, and the Board approved, that Semele's audited financial statements
for the year ended December 31, 2001, be included in the annual report.

Audit Committee:

Walter E. Auch, Sr.
Joseph W. Bartlett
Robert M. Ungerleider

STOCKHOLDER PROPOSALSSTOCKHOLDER PROPOSALS

Stockholder proposals for the 2003 Annual Meeting of Stockholders must
be received by Semele at its executive office in Westport, Connecticut, on or
prior to May 14, 2003, for inclusion in Semele's Proxy Statement for that
meeting. Any stockholder proposal must also meet the other requirements for
stockholder proposals as set forth in the rules of the SEC relating to
stockholder proposals.

OTHER MATTERSOTHER MATTERS

As of the date of this Proxy Statement, no business other than that
discussed above is to be acted upon at the Meeting. If other matters not known
to the Board should, however, properly come before the Meeting, the persons
appointed by the signed proxy intend to vote it in accordance with their best
judgment.

YOUR VOTE IS IMPORTANT. THE PROMPT RETURN OF PROXIES WILL SAVE SEMELE THE
EXPENSE OF FURTHER REQUESTS FOR PROXIES. PLEASE PROMPTLY MARK, SIGN, DATE AND
RETURN THE ENCLOSED PROXY IN THE ENCLOSED ENVELOPE.

------

SEMELE GROUP INC.
200 NYALA FARMS
WESTPORT, CONNECTICUT 06880

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

The undersigned hereby appoints Gary D. Engle and James A. Coyne, and each
of them, as Proxies, with the power to appoint their substitutes, and hereby
authorizes them to represent and vote, as designated below, all the shares of
Common Stock, par value $.10 per share, of Semele Group Inc. held of record by
the undersigned on September 3, 2002, at the Annual Meeting of Stockholders when
convened on October 9, 2002, and any adjournment thereof.

THIS PROXY, IF PROPERLY EXECUTED AND RECEIVED IN TIME FOR VOTING, WILL BE
VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO
DIRECTION IS MADE, THIS PROXY, IF PROPERLY EXECUTED AND RECEIVED IN TIME FOR
VOTING, WILL BE VOTED FOR PROPOSALS 1 AND 2, AND IN ACCORDANCE WITH THE JUDGMENT
OF THE PERSONS ACTING UNDER THE PROXIES ON OTHER MATTERS PRESENTED FOR A VOTE.

[X] PLEASE MARK YOUR
VOTES AS IN THIS
EXAMPLE.

1. Election of FOR WITHELD PROPOSAL to elect two directors to hold office until
Directors [ ] [ ] the 2005 Annual Meeting of Stockholders, or otherwise
.. . . as provided in Semele's By-Laws (check one box).
.. . . NOMINEES: Joseph W. Bartlett and Robert M.
.. . . Ungerleider.

For, except vote withheld from the following nominee(s):

2. Ratification of PROPOSAL to ratify the appointment of Ernst &
Independent Young LLP as Semele's independent auditor for the
Auditor year ending December 31, 2002 (check one box).

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

3. To transact such other business as may properly come before the meeting or
any adjournments thereof.

PLEASE PROMPTLY MARK, DATE, SIGN AND RETURN THIS CARD USING THE
ENCLOSED ENVELOPE

SIGNATURE(S)_______________________
DATE_______________________________

NOTE: Sign exactly as name appears above. If joint tenant, both should
sign. If attorney, executor, administrator, trustee or guardian, give full
title as such. If corporation, please sign in corporate name by President or
authorized officer. If partnership, sign in full partnership name by authorized
person.

Voters Card:

SEMELE GROUP INC.
200 NYALA FARMS
WESTPORT, CONNECTICUT 06880

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.

The undersigned hereby appoints Gary D. Engle and James A. Coyne, and each of
them, as Proxies, with the power to appoint their substitutes, and hereby
authorizes them to represent and vote, as designated below, all the shares of
Common Stock, par value $.10 per share, of Semele Group Inc. held of record by
the undersigned on September 3, 2002, at the Annual Meeting of Stockholders when
convened on October 9, 2002, and any adjournment thereof.

THIS PROXY, IF PROPERLY EXECUTED AND RECEIVED IN TIME FOR VOTING, WILL BE VOTED
IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS
MADE, THIS PROXY, IF PROPERLY EXECUTED AND RECEIVED IN TIME FOR VOTING, WILL BE
VOTED FOR PROPOSALS 1 AND 2, AND IN ACCORDANCE WITH THE JUDGMENT OF THE PERSONS
ACTING UNDER THE PROXIES ON OTHER MATTERS PRESENTED FOR A VOTE.

1. Election of
Directors

For, except vote withheld from the following nominee(s):

FOR WITHHELD
[ ] [ ]

Please mark your
votes as in this
example. X

NOMINEES:
(01) Joseph W. Bartlett
(02) Robert M. Ungerleider

2. Ratification of the selection of
Ernst & Young LLP as independent
auditor for the year ending

FOR AGAINST ABSTAIN
[ ] [ ] [ ]

December 31, 2002.

3. To transact such other business as may properly come before the
meeting or any adjournments thereof.

Change of
Address/Comments [ ]

The Board of Directors recommends a vote FOR Proposals 1, 2 and 3.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ALL
PROPOSALS.

NOTE: Sign exactly as name appears above. If joint tenant, both should
sign. If attorney, executor, administrator, trustee or guardian, give
full title as such. If corporation, please sign in corporate name by
President or authorized officer. If partnership, sign in full partnership
name by authorized person.

SIGNATURE(S)

DATE

Annual Report:

SEMELE GROUP INC.

ANNUAL REPORT TO SECURITY HOLDERS

FOR THE YEAR ENDED DECEMBER 31, 2001

TABLE OF CONTENTS

ITEM 1 DESCRIPTION OF BUSINESS
ITEM 2 DESCRIPTION OF PROPERTY
ITEM 3 LEGAL PROCEEDINGS
ITEM 4 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
ITEM 5 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
ITEM 6 DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
ITEM 8 FINANCIAL STATEMENTS

ITEM 1. DESCRIPTION OF BUSINESS

(a) Business Development.
---------------------

Semele Group Inc. ("Semele" or the "Company") is a Delaware corporation
organized on April 14, 1987 as Banyan Strategic Land Fund II to invest primarily
in short-term, junior, pre-development, and construction mortgage loans.
Subsequently, the Company became owner of various real estate assets through
foreclosure proceedings in connection with its mortgages. For the years 1993,
1994 and 1995, the Company elected to be treated as a real estate investment
trust ("REIT") for income tax purposes. Effective January 1, 1996, the Company
revoked its REIT status and became a taxable "C" corporation. Since then, the
Company has evaluated alternatives to maximize shareholder value and take
advantage of investment opportunities where its significant loss carryforwards
for federal income tax purposes (approximately $105 million at December 31,
2001) could make it a value-added buyer. In recent years, the Company made
certain investments with affiliated parties where its income tax loss
carryforwards could be utilized and which permitted the Company to diversify its
asset mix beyond its principal real estate asset, consisting of approximately
270 acres of land located in Southern California known as Rancho Malibu.
Currently, the Company is engaged in various real estate activities, including
residential property development. The Company also holds investments in other
companies operating in niche financial markets, principally involving real
estate and equipment leasing.

The Company's common stock is listed on the OTC Bulletin Board, commonly
referred to as the "over the counter market" under the trading symbol VSLF.OB.
In order to preserve the benefits of the Company's existing net operating loss
carryforwards, the Restated Bylaws of the Company include a provision that
prohibits any person from acquiring more than 4.9% of the outstanding shares of
common stock of the Company.

PENDING AND RECENT ACQUISITIONS

On December 22, 2000, an affiliate of the Company, MILPI Acquisition Corp.
("MILPI"), entered into a definitive agreement (the "Agreement") with PLM
International, Inc. ("PLM"), a publicly traded equipment leasing and asset
management company, for the purpose of acquiring up to 100% of the outstanding
common stock of PLM for an approximate purchase price of up to $27 million.
MILPI is a wholly-owned subsidiary of MILPI Holdings, LLC, which is owned by
four Delaware business trusts (collectively referred to as the "AFG Trusts" or
the "Trusts") that are engaged predominantly in the equipment leasing business.
The AFG Trusts are consolidated affiliates of the Company.

Pursuant to a cash tender offer, MILPI acquired approximately 83% of PLM's
outstanding common stock in February 2001 for a total purchase price of
approximately $21.8 million. Under the terms of the Agreement, with the approval
of the holders of 50.1% of the outstanding common stock of PLM, MILPI would
merge into PLM, with PLM the surviving entity. Subsequent to December 31, 2001,
MILPI completed its acquisition of the remaining 17% of the outstanding PLM
common stock, at a purchase price of approximately $4.4 million. After a
special meeting of the PLM stockholders, the merger was consummated on February
6, 2002. Concurrent with the completion of the merger, PLM ceased public
trading. The operating results in MILPI are reflected in the accompanying
consolidated financial statements from February 7, 2001 (date of acquisition)
through December 31, 2001.

During the fourth quarter of 1999, the Company issued $19.586 million of
promissory notes to acquire an 85% equity interest in Equis II Corporation
("Equis II"), a Massachusetts corporation having a controlling interest in the
AFG Trusts. During the first quarter of 2000, the Company obtained shareholder
approval for the issuance of 510,000 shares of common stock to purchase the
remaining 15% equity interest of Equis II. On April 20, 2000, the Company
issued 510,000 shares of common stock to purchase the remaining 15% equity
interest in Equis II. The market value of the shares issued was approximately
$2.4 million ($4.625 per common share) based upon the closing price of the
Company's common stock on April 20, 2000.

In November 1999, the Company purchased certain equity interests, referred to as
Special Beneficiary Interests, in the AFG Trusts. The Special Beneficiary
Interests consist of an 8.25% non-voting interest in each of the trusts. The
Company purchased the Special Beneficiary Interests for $9.7 million under the
terms of a non-recourse purchase money note, payable over 10 years and bearing
interest at 7% per year. Amortization of principal and payment of interest are
required only to the extent of cash distributions paid to the Company as owner
of the Special Beneficiary Interests.

On August 31, 1998, the Company acquired Ariston Corporation from Equis
Financial Group Limited Partnership ("EFG") for $12.45 million, consisting of
cash of $2 million and a purchase-money note of $10.45 million. Ariston owns
limited partner and beneficiary interests in 16 entities that are primarily
engaged in equipment leasing. The purchase-money note bears interest at an
annualized rate of 7%, but requires principal amortization and payment of
interest only to the extent of cash distributions paid to the Company in
connection with the partnership interests owned by Ariston.

(b) Business Activities.
--------------------

GENERAL

The Company has no employees other than its two primary officers; however, an
affiliate of the Company, EFG, serves as adviser to the AFG Trusts and PLM. EFG
is a Massachusetts limited partnership controlled by the Company's Chairman and
Chief Executive Officer, Gary D. Engle. EFG and its subsidiaries are engaged in
various aspects of the equipment leasing business, including EFG's role as
manager or adviser to several direct-participation equipment leasing programs in
addition to the AFG Trusts and PLM. EFG arranges to broker or originate
equipment leases, acts as remarketing agent and asset manager and provides
leasing support services, such as billing, collecting, and asset tracking.

At December 31, 2001, the Company was actively engaged in two industry segments:
i) real estate ownership, development and management and ii) equipment leasing
and management.

For accounting purposes, the Company considers affiliates to be persons and/or
entities that directly, or indirectly through one or more intermediaries,
control or are controlled by, or are under the common control with, the Company.
All other entities are considered to be non-affiliates.

REAL ESTATE

The Company owns equity interests in companies that are engaged in real estate
leasing or development activities, as well as winter resorts. These interests
consist of the following:

Rancho Malibu
--------------

The Company owns approximately 270 acres of undeveloped land north of Malibu,
California called Rancho Malibu. Prior to May 10, 2000, the Company had owned a
98.6% interest in the partnership, with the remaining 1.4% interest owned by an
affiliate, Legend Properties, Inc. ("Legend"). On May 10, 2000, the Company
purchased Legend's ownership interest for nominal consideration and a mutual
general release. Approximately 40 acres of the property are zoned for
development of a 46-unit residential community. The remainder is divided as
follows: (i) 167 acres are dedicated to a public agency, (ii) 47 acres are deed
restricted within privately-owned lots, and (iii) 20 acres are preserved as
private open space. The Company is seeking a joint venture partner to
participate in the project.

Land and Buildings
--------------------

The Company has ownership interests in two commercial properties, consisting of
land and buildings, which are leased to a major university. The buildings are
used in connection with the university's international education programs and
include both classroom and dormitory space. One building is located in
Washington, D.C. and the other is located in Sydney, Australia.

Resorts - EFG Kirkwood LLC
------------------------------

The Company owns 100% of the Class B membership interests of EFG Kirkwood LLC
("EFG Kirkwood"). The AFG Trusts collectively own 100% of the Class A
membership interests of EFG Kirkwood. EFG Kirkwood is a member in two joint
ventures, Mountain Resort Holdings LLC ("Mountain Resort") and Mountain Springs
Resorts LLC ("Mountain Springs").

Mountain Resort, through four wholly-owned subsidiaries, owns and operates
Kirkwood Mountain Resort, a ski resort located in northern California, a public
utility that services the local community, and land that is held for residential
and commercial development. Mountain Springs, through a wholly-owned
subsidiary, owns a controlling interest in the Purgatory Ski Resort in Durango,
Colorado.

Residential Community - EFG/Kettle Development LLC
-------------------------------------------------------

The Company, through two of the AFG Trusts, owns EFG/Kettle Development LLC
("Kettle Valley"), a Delaware limited liability company. Kettle Valley was
formed for the purpose of acquiring a 49.9% indirect ownership interest in a
real estate development project in Kelowna, British Columbia, Canada. The real
estate development, which is being developed by Kettle Valley Development
Limited Partnership, consists of approximately 270 acres of land under
development. The development is zoned for 1,120 residential units in addition
to commercial space. A subsidiary of the Company is the sole general partner of
Kettle Valley Development Limited Partnership. An unaffiliated third party has
retained the remaining 50.1% indirect ownership in the development.

The risks generally associated with real estate include, without limitation, the
existence of senior financing or other liens on the properties, general or local
economic conditions, property values, the sale of properties, interest rates,
real estate taxes, other operating expenses, the supply and demand for
properties involved, zoning and environmental laws and regulations, and other
governmental rules.

The Company's involvement in real estate development also introduces financial
risks, including the potential need to borrow funds to develop the real estate
projects. While the Company's management presently does not foresee any unusual
risks in this regard, it is possible that factors beyond the control of the
Company, its affiliates and joint venture partners, such as a tightening credit
environment, could limit or reduce its ability to secure adequate credit
facilities at a time when they might be needed in the future. Alternatively,
the Company could establish joint ventures with other parties to share
participation in its development projects.

The ski resorts are subject to a number of risks, including weather-related
risks. The ski resort business is seasonal in nature and insufficient snow
during the winter season can adversely effect the profitability of a given
resort. Many operators of ski resorts have greater financial resources and
experience in the industry than either the Company or its partners.

The Company's real estate activities involve several risks, including, but not
limited to, market factors that could influence the demand for and pricing of
the Company's residential development projects. Rancho Malibu is intended to be
a high-end residential community with individual home prices in excess of $1
million. Kettle Valley is a large-scale community, offering single-family homes
priced from approximately $250,000 (CDN) to $350,000 (CDN). This project is
located in British Columbia, Canada and, therefore, subject to economic and
market factors not necessarily similar to those in the United States. Adverse
developments in general economic conditions could have a negative affect on the
marketability of either Rancho Malibu or Kettle Valley.

One of the Company's commercial buildings is located in Sydney, Australia and,
therefore, like Kettle Valley, is subject to the regulations of a foreign
government. The Company's management believes these risks to be minimal. The
Company is currently evaluating the marketability of its two commercial
buildings, both of which are subject to lease agreements with a large,
educational institution.

EQUIPMENT LEASING AND MANAGEMENT

AFG Investment Trusts
-----------------------

The Company also has ownership interests in several limited partnerships and
business trusts that are engaged primarily in the business of equipment leasing
and management. The Company's largest equity stake consists of a Class B equity
interest, representing approximately 62% of the voting interests, in the AFG
Trusts, which were established by an affiliate between 1992 and 1995. The AFG
Trusts are limited life entities that have scheduled dissolution dates ranging
from December 31, 2003 to December 31, 2006. As of December 6, 2001, the
managing trustee of Trusts A and B resolved to cause the disposal of their
assets prior to the scheduled termination date for both Trusts A and B of
December 31, 2003. Upon consummation of the sale of their assets, Trusts A and
B will be dissolved and the proceeds will be applied and distributed in
accordance with the terms of the Trusts' operating agreements.

The Company's investment in leased equipment is, and will continue to be,
subject to various risks, including physical deterioration, technological
obsolescence, the credit quality of lessees, and potential defaults by lessees.
A principal business risk of owning and leasing equipment is the possibility
that aggregate lease revenues and equipment sale proceeds will be insufficient
to provide an acceptable rate of return on invested capital after payment of all
debt service costs and operating expenses. Another risk is that the credit
worthiness of a lessee may decline after lease commencement. In addition, the
leasing industry is very competitive. Upon the expiration of each primary lease
term, the managing trustee of the AFG Trusts (AFG ASIT Corporation, a
wholly-owned subsidiary of the Company) must determine whether to sell or
re-lease the equipment, depending on the economic advantages of each
alternative. Each trust is subject to considerable competition when equipment
is re-leased or sold. The AFG Trusts must compete with lease programs offered
directly by manufacturers and other equipment leasing companies, including
similarly organized and managed business trusts and limited partnerships that
include affiliated partnerships and trusts that may seek to re-lease or sell
equipment within their own portfolios to the same customers as the trusts. Many
competitors have greater financial resources and more experience than the
Company, the AFG Trusts, the managing trustee, and their adviser, EFG. In
addition, default by a lessee under a lease agreement may cause equipment to be
returned to the AFG Trusts at a time when the managing trustee or the adviser is
unable to arrange the sale or re-lease of such equipment. This could result in
the loss of potential lease revenues and weaken the AFG Trusts' ability to repay
related indebtedness.

Over time, each of the AFG Trusts will begin to liquidate their portfolios of
equipment. Similarly, the Managing Trustee will seek to liquidate any
non-equipment investments as the AFG Trusts near their scheduled dissolution
dates.

Revenue from major individual lessees which account for 10% or more of the
Company's consolidated lease revenues during the years ended December 31, 2001
and 2000 is incorporated herein by reference to Note 5 to the financial
statements included in Item 7. Refer to Item 13(b) for lease agreements filed
with the Securities and Exchange Commission.

MILPI Holdings, LLC
---------------------

As discussed above, on December 22, 2000, a subsidiary of the Company, MILPI,
entered into a definitive agreement with PLM, for the purpose of acquiring up to
100% of the outstanding common stock of PLM for an approximate purchase price of
up to $27 million. MILPI is a wholly-owned subsidiary of MILPI Holdings, LLC,
which is owned by the AFG Trusts. The AFG Trusts are consolidated subsidiaries
of the Company.

Pursuant to the cash tender offer, MILPI acquired approximately 83% of PLM's
outstanding common stock in February 2001 for a total purchase price of
approximately $21.8 million. Subsequent to December 31, 2001, MILPI completed
its acquisition of the remaining 17% of the outstanding PLM common stock, at a
purchase price of approximately $4.4 million. After a special meeting of the
PLM stockholders, MILPI merged into PLM on February 6, 2002. Concurrent with
the completion of the merger, PLM ceased publicly trading.

PLM Financial Services, Inc. ("FSI"), a wholly-owned subsidiary of PLM, provides
management services to investment programs, including a limited liability
company, a limited partnership and private placement programs, which acquire and
lease primarily used transportation and related equipment. FSI has entered into
management agreements with these programs.

From 1986 through 1995, FSI offered the PLM Equipment Growth Fund investment
series ("EGF Funds"). From 1995 through 1996, FSI offered the Professional
Lease Management Income Fund I, a limited liability company ("Fund I") with a no
front-end fee structure. The Fund I program and the EGF Funds are designed to
invest primarily in used transportation and related equipment for lease in order
to generate current operating cash flow for distribution to investors and for
reinvestment into additional transportation and related equipment. An objective
of the programs is to maximize the value of the equipment portfolio and provide
cash distributions to investors by acquiring and managing equipment for the
benefit of the investors.

Management fees are earned by FSI for managing the equipment portfolios and
administering investor programs as provided for in the various agreements, and
are recognized as revenue as they are earned. FSI is also entitled to
reimbursement for providing certain administrative services.

With the termination of syndication activities in 1996, management fees,
acquisition fees, lease negotiation fees, and debt placement fees from the older
programs have decreased and are expected to continue to decrease as the programs
liquidate their equipment portfolios.

As compensation for organizing a partnership investment program, PLM was granted
an interest (between 1% and 5%) in the earnings and cash distributions of the
program, in which FSI is the General Partner. PLM recognizes as partnership
interests its equity interest in the earnings of the partnerships, after
adjusting such earnings to reflect the effect of special allocations of the
programs' gross income allowed under the respective partnership agreements.

PLM, on behalf of its affiliated investment programs, leases its transportation
equipment primarily on mid-term operating leases and short-term rentals. Leases
of aircraft are net operating leases. In net operating leases, expenses such as
insurance, taxes, and maintenance are the responsibility of the lessees. The
effect of entering into net operating leases is to reduce lease rates, compared
to full-service lease rates for comparable lease terms. Railcar leases are
full-services leases. Marine vessel leases may be either net operating leases
or full-service leases. In both a full-service lease and a per diem rental, the
lessor absorbs the maintenance costs, which allows PLM to insure proper
maintenance of the equipment.

Lessees of the investment programs' equipment range from Fortune 1000 companies
to small, privately held corporations and entities. All equipment acquisitions,
equipment sales, and lease renewals relating to equipment having an original
cost basis in excess of $1.0 million must be approved by a credit committee.
Deposits, prepaid rents, corporate and personal guarantees, and letters of
credit are utilized, when necessary, to provide credit support for lessees who
do not satisfy the underwriting.

When marketing operating leases for transportation assets owned by the managed
investment programs, PLM encounters considerable competition from lessors
offering full payout leases on new equipment. In comparing lease terms for the
same equipment, full payout leases provide longer lease periods and lower
monthly rents than PLM offers. In comparison, the shorter length of operating
leases provides lessees with flexibility in their equipment and capital
commitments. PLM competes with transportation equipment manufacturers who offer
operating leases and full payout leases. Manufacturers may provide ancillary
services that FSI cannot offer such as specialized maintenance services
(including possible substitution of equipment), warranty services, spare parts,
training, and trade-in privileges. PLM competes with many transportation
equipment lessors, including GE Capital Railcar Services, Inc., GATX, GE Capital
Aviation Services, Inc., International Lease Finance Corporation, Union Tank Car
Company, international banks, and certain limited partnerships.

The transportation industry, in which the majority of the equipment managed by
PLM operates, is subject to substantial regulation by various federal, state,
local, and foreign government authorities. It is not possible to predict the
positive or negative effects of future regulatory changes in the transportation
industry.

POTENTIAL EFFECTS OF SEPTEMBER 11, 2001

The events of September 11, 2001 adversely affected market demand for both new
and used commercial aircraft and weakened the financial position of several
airlines. No direct damage occurred to any of the Company's assets as a result
of these events and while it currently is not possible for the Company to
determine the ultimate long-term economic consequences of these events to the
AFG Trusts, PLM or to the Company, management expects that the resulting decline
in air travel will suppress market prices for used aircraft in the short-term
and could inhibit the viability of some airlines. In the event of a lease
default by an aircraft lessee, the Company could experience material losses. At
December 31, 2001, the AFG Trusts have collected substantially all rents owed to
them from aircraft lessees. In addition, its membership interest in the two ski
resorts could be aversely affected by potential declines in vacation travel
resulting from the events of September 11, 2001. The Company is monitoring
developments in the airline and resort industries and will continue to evaluate
potential implications to the Company's financial position and future liquidity.

INVESTMENT COMPANY ACT CONSIDERATIONS

The Investment Company Act of 1940 ("1940 Act") places restrictions on the
capital structure and business activities of companies registered thereunder.
The Company and its consolidated affiliates have active business operations in
two industry segments: i) real estate ownership, development and management and
ii) equipment leasing and management. The Company and its consolidated
affiliates do not intend to engage in investment activities in a manner or to an
extent that would require the Company or any of its consolidated affiliates to
register as an investment company under the 1940 Act. However, it is possible
that the Company or one of its consolidated affiliates might unintentionally
engage in an activity or activities that could be construed to fall within the
scope of the 1940 Act. If the Company or any of its consolidated affiliates
were determined to be an investment company, their businesses would be adversely
affected. The managing trustee of the AFG Trusts has been engaged in
discussions with the staff of the Securities and Exchange Commission ("SEC")
regarding whether or not the AFG Trusts may be an inadvertent investment company
by virtue of their recent acquisition activities. The SEC staff informed the
managing trustee of the AFG Trusts that it believes that AFG Investment Trust A
and AFG Investment Trust B (collectively "Trusts A and B") may be unregistered
investment companies within the meaning of the 1940 Act. Although the managing
trustee of the AFG Trusts, after consulting with counsel, does not believe that
Trusts A and B are unregistered investment companies, the managing trustee of
Trusts A and B has agreed to liquidate their assets in order to resolve the
matter with the staff. Accordingly, as of December 6, 2001, the managing
trustee of Trusts A and B resolved to cause the disposal of their assets prior
to the scheduled termination date for both Trusts A and B of December 31, 2003.
Upon consummation of the sale of their assets, Trusts A and B will be dissolved
and the proceeds applied and distributed in accordance with the terms of the
Trusts' operating agreements. The managing trustee of the Trusts also does not
believe that AFG Investment Trust C and AFG Investment Trust D (collectively
"Trusts C and D") are unregistered investment companies under the 1940 Act. If
necessary, the managing trustee intends for Trust C and Trust D to avoid being
deemed to be investment companies by disposing of or acquiring certain assets
that it might not otherwise dispose of or acquire.

SMALL BUSINESS ISSUER

The Company's consolidated financial statements contained in the 2001 annual
report have been prepared in accordance with the requirements for a Small
Business Issuer as prescribed by Regulation S-B under the Securities Exchange
Act of 1934. Generally, a Small Business Issuer is a company with annual
revenues of less than $25 million and a public float of less than $25 million
for two consecutive years. As a result of the Company's recent and pending
acquisitions, it may not qualify as a Small Business Issuer in the future.

ITEM 2. DESCRIPTION OF PROPERTY

Rancho Malibu
--------------

The Company owns approximately 270 acres of undeveloped land north of Malibu,
California called Rancho Malibu. Prior to May 10, 2000, the Company had owned a
98.6% interest in the partnership, with the remaining 1.4% interest owned by an
affiliate, Legend Properties, Inc. On May 10, 2000, the Company purchased
Legend's ownership interest for nominal consideration and a mutual general
release. Approximately 40 acres of the property are zoned for development of a
46-unit residential community. The remainder is divided as follows: (i) 167
acres are dedicated to a public agency, (ii) 47 acres are deed restricted within
privately-owned lots, and (iii) 20 acres are preserved as private open space.
The Company believes it has obtained all permits necessary to commence
development of Rancho Malibu and is seeking a joint venture partner to
participate in the project.

Land and Buildings
--------------------

Resorts - EFG Kirkwood LLC
------------------------------

The Company directly owns 100% of the Class B membership interests of EFG
Kirkwood LLC ("EFG Kirkwood"). The AFG Trusts collectively own 100% of the
Class A membership interests of EFG Kirkwood. EFG Kirkwood is a member in two
joint ventures with unaffiliated parties, Mountain Resort and Mountain Springs.

Residential Community - EFG/Kettle Development LLC
-------------------------------------------------------

The Company and two of the AFG Trusts own EFG/Kettle Development LLC ("Kettle
Valley"), a Delaware limited liability company. Kettle Valley was formed for
the purpose of acquiring a 49.9% indirect ownership interest in a real estate
development project in Kelowna, British Columbia, Canada. The real estate
development, which is being developed by Kettle Valley Development Limited
Partnership, consists of approximately 270 acres of land under development. The
development is zoned for 1,120 residential units in addition to commercial
space. A subsidiary of the Company is the sole general partner of Kettle Valley
Development Limited Partnership. An unaffiliated third party has retained the
remaining 50.1% indirect ownership in the development.

ITEM 3. LEGAL PROCEEDINGS

The Company or its consolidated affiliates have been involved in certain legal
and administrative claims as either plaintiffs or defendants in connection with
matters that generally are considered incidental to its business. Management
does not believe that any of these actions will be material to the financial
condition or results of operations of the Company.

Two class action lawsuits which were filed against PLM and various of its
wholly-owned subsidiaries in January 1997 in the United States District Court
for the Southern District of Alabama, Southern Division (the court), Civil
Action No. 97-0177-BH-C (the Koch action), and June 1997 in the San Francisco
Superior Court, San Francisco, California, Case No. 987062 (the Romei action),
were fully resolved during the fourth quarter 2001 as summarized below.

The named plaintiffs were individuals who invested in PLM Equipment Growth Fund
IV ("Fund IV"), PLM Equipment Growth Fund V ("Fund V"), PLM Equipment Growth
Fund VI ("Fund VI"), and PLM Equipment Growth & Income Fund VII ("Fund VII"),
(collectively the "Partnerships"), each a California limited partnership for
which FSI acts as the General Partner. The complaints asserted causes of action
against all defendants for fraud and deceit, suppression, negligent
misrepresentation, negligent and intentional breaches of fiduciary duty, unjust
enrichment, conversion, conspiracy, unfair and deceptive practices and
violations of state securities law. Plaintiffs alleged that each defendant owed
plaintiffs and the class certain duties due to their status as fiduciaries,
financial advisors, agents, and control persons. Based on these duties,
plaintiffs asserted liability against defendants for improper sales and
marketing practices, mismanagement of the Partnerships, and concealing such
mismanagement from investors in the Partnerships. Plaintiffs sought unspecified
compensatory damages, as well as punitive damages.

In February 1999, the parties to the Koch and Romei actions agreed to monetary
and equitable settlements of the lawsuits, with no admission of liability by any
defendant, and filed a Stipulation of Settlement with the court. The court
preliminarily approved the settlement in August 2000, and information regarding
the settlement was sent to class members in September 2000. A final fairness
hearing was held on November 29, 2000, and on April 25, 2001, the federal
magistrate judge assigned to the case entered a Report and Recommendation
recommending final approval of the monetary and equitable settlements to the
federal district court judge. On July 24, 2001, the federal district court
judge adopted the Report and Recommendation, and entered a final judgment
approving the settlements. No appeal has been filed and the time for filing an
appeal has run.

The monetary settlement provides for a settlement and release of all claims
against defendants in exchange for payment for the benefit of the class of up to
$6.6 million, consisting of $0.3 million deposited by PLM and the remainder
funded by an insurance policy. The final settlement amount of $4.9 million (of
which PLM's share was approximately $0.3 million) was paid out in the fourth
quarter of 2001 and was determined based upon the number of claims filed by
class members, the amount of attorneys' fees awarded by the court to plaintiffs'
attorneys, and the amount of the administrative costs incurred in connection
with the settlement.

The equitable settlement provides, among other things, for: (a) the extension
(until January 1, 2007) of the date by which FSI must complete liquidation of
the Funds' equipment, except for Fund IV, (b) the extension (until December 31,
2004) of the period during which FSI can reinvest the Funds' funds in additional
equipment, except for Fund IV, (c) an increase of up to 20% in the amount of
front-end fees (including acquisition and lease negotiation fees) that FSI is
entitled to earn in excess of the compensatory limitations set forth in the
North American Securities Administrator's Association's Statement of Policy;
except for Fund IV, (d) a one-time purchase by each of Funds V, VI and VII of up
to 10% of that partnership's outstanding units for 80% of net asset value per
unit at September 30, 2000; and (e) the deferral of a portion of the management
fees paid to an affiliate of FSI until, if ever, certain performance thresholds
have been met by the Funds. The equitable settlement also provides for payment
of additional attorneys' fees to the plaintiffs' attorneys from Fund funds in
the event, if ever, that certain performance thresholds have been met by the
Funds. Following a vote of limited partners resulting in less than 50% of the
limited partners of each of Funds V, VI and VII voting against such amendments
and after final approval of the settlement, each of such Fund's limited
partnership agreement was amended to reflect these changes. During the fourth
quarter of 2001, the respective Funds repurchased limited partnership units from
those equitable class members who submitted timely requests for repurchase.

ITEM 4. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market Information.
-------------------

In April 2001, the Company received a letter from the Nasdaq Stock Market, Inc.
wherein the staff determined that the Company had failed to meet certain minimum
standards for continued listing on the Nasdaq SmallCap Market. The Company
appealed this decision and requested an oral hearing before the Nasdaq Listing
Qualifications Panel, which was held on June 28, 2001. On August 7, 2001,
Nasdaq notified the Company of the panel's decision to de-list the Company's
stock from the Nasdaq SmallCap Market effective at the opening of business on
August 8, 2001. As a result of the foregoing, the Company's stock is traded on
the OTC Bulletin Board, commonly referred to as the "over-the-counter" market.
The Company's trading symbol on that exchange is "VSLF.OB." This change
could have an adverse effect on the Company's share price and stockholders'
liquidity.

QUARTER SHARE PRICE
ENDED 2001 2000
----------- ------ -------

3/31 High $3.750 $6.1875
Low $3.313 $5.3750

6/30 High $ 3.50 $5.6250
Low $ 2.85 $4.3750

9/30 High $ 3.00 $5.0000
Low $ 2.50 $4.3125

12/31 High $ 2.40 $4.6250
Low $ 1.66 $3.8125

(b) Approximate Number of Security Holders.
------------------------------------------

At March 1, 2002, there were 1,434 record holders of the Company's shares of
common stock.

The Company did not declare a dividend in 2001 or 2000 and the Company's
management does not anticipate that dividends will be paid in the foreseeable
future. The Company's purchases of Equis II Corporation, the Special
Beneficiary Interests and Ariston Corporation were highly leveraged transactions
which included non-recourse purchase-money notes and, therefore, substantially
all of the cash flow generated by these investments in the near term will be
used to retire corresponding acquisition indebtedness. In addition, the Company
expects that its development of Rancho Malibu will require additional sources of
capital. The extent of the Company's liquidity needs for Rancho Malibu will
depend on the terms of any joint venture arrangement that the Company might
establish in connection with this development. With consideration to the
foregoing, the Company's ability to pay future dividends to its stockholders
will depend on, among other things, the level of liquidity required to repay its
current debt obligations and to manage its real estate development and general
operating expenses.

ITEM 5. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

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

ITEM 6. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The directors and executive officers of the Company is as follows:

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
Michael J. Butterfield Chief Financial Officer and Treasurer

WALTER E. AUCH, SR., age 80 was, prior to retiring, the Chairman and Chief
Executive officer of the Chicago Board Options Exchange. Previously, Mr. Auch
was Executive Vice President, director and a member of the Executive Committee
of Paine Webber. Mr. Auch is a director of Smith Barney Concert Series Funds,
Smith Barney Trak Fund, The Brinson Partners Funds, the Nicholas Applegate Funds
and Union Bank of Switzerland. He also is a trustee of Banyan Strategic Realty
Trust, as well as a trustee of Hillsdale College and the Arizona Heart
Institute, and a former director of Legend Properties, Inc. (f/k/a Banyan
Mortgage Investment Fund).

ROBERT M. UNGERLEIDER, age 60, is of counsel to the law firm of Felcher Fox &
Litner, in New York City. Mr. Ungerleider has founded, developed and sold a
number of startup ventures, including Verifone Finance, an equipment leasing
company, Smartpage, a paging service company, and Financial Risk Underwriting
Agency, Inc., an insurance firm specializing in financial guarantee
transactions. Previously, Mr. Ungerleider practiced real estate and corporate
law in New York City for ten years and served as a director of Legend
Properties, Inc. (f/k/a Banyan Mortgage Investment Fund). He received his B.A.
degree from Colgate University and his J. D. degree from Columbia University Law
School.

JOSEPH W. BARTLETT, age 68, has been a partner in the law firm of Morrison &
Foerster LLP since March 1996. From July 1991 until March 1996, Mr. Bartlett was
a partner in the law firm of Mayer, Brown & Platt. He also is a director of
Simon Worldwide Inc., which designs, manufactures and distributes
custom-designed sports apparel and accessories and other products for
promotional programs.

GARY D. ENGLE, age 53, has been Chairman and Chief Executive Officer of the
Company since November 1997. Mr. Engle holds the following positions with
affiliates and subsidiaries of the Company: Director, President and Chief
Executive Officer of Equis Corporation, general partner of EFG; Director and
President of AFG ASIT Corporation; President of AFG Realty Corporation; Chairman
of the Board of PLM International, Inc.; Board of Managers of Echelon
Development Holdings LLC. In addition to his positions in the Company, Mr.
Engle also co-founded Cobb Partners Development, Inc., a real estate and
mortgage banking company, where he was a principal from 1987 to 1989. From 1980
to 1987, Mr. Engle was Senior Vice President and Chief Financial Officer of
Arvida Disney Company, a large-scale community development organization owned by
Walt Disney Company. Prior to 1980, Mr. Engle served in various management
consulting and institutional brokerage capacities. Mr. Engle has an M.B.A.
degree from Harvard University and a B.S. degree from the University of
Massachusetts (Amherst).

JAMES A. COYNE, age 42, has been President and Chief Operating Officer of the
Company since May 1997. Mr. Coyne holds the following positions with
subsidiaries of the Company: Executive Vice President of Equis Corporation, the
general partner of EFG; Senior Vice President of both AFG Realty Corporation and
AFG ASIT Corporation, subsidiaries of EFG; Director, Vice President and Chief
Financial Officer of PLM International, Inc.; equity member and manager of
Echelon Residential Holdings LLC; President, Chief Executive Officer and
Treasurer of Equis/Echelon Management Corporation, the Manager of Echelon
Residential LLC which is wholly-owned by Echelon Residential Holdings LLC;
member of the Board of Managers of Echelon Development Holdings LLC. In
addition to his positions in the Company, Mr. Coyne has been an Executive Vice
President of Equis Financial Group since 1994 where over the last five years he
has had divers mergers and acquisition, equipment leasing and real estate
experience.

MICHAEL J. BUTTERFIELD, age 42, has been Chief Financial Officer of the Company
since June 2000 and Treasurer of the Company since November 1997. Mr.
Butterfield is Executive Vice President, Chief Operating Officer, Treasurer and
Clerk of the general partner of EFG and certain of its affiliates. He is
Treasurer of AFG ASIT Corporation and Vice President, Finance and Clerk of
Equis/Echelon Management Corporation, the manager of Echelon Residential LLC.
Mr. Butterfield joined EFG in June 1992 and was appointed Vice President,
Finance, and Treasurer in April 1996, Senior Vice President in July 1999 and
Executive Vice President and Chief Operating Officer in June 2000. 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, England, 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 C.P.A. requirements in the United States. Mr. Butterfield holds a Bachelor
of Commerce degree from the University of Otago, Dunedin, New Zealand.

SEMELE GROUP INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Report of Independent Certified Public Accountants

Consolidated Balance Sheets as of December 31, 2001 and 2000

Consolidated Statements of Operations
For the Years Ended December 31, 2001 and 2000

Consolidated Statements of Stockholders' Capital (Deficit)
For the Years Ended December 31, 2001 and 2000

Consolidated Statements of Cash Flows
For the Years Ended December 31, 2001 and 2000

Notes to Consolidated Financial Statements

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Subsequent to the issuance of the Company's financial statements as of and for
the year ended December 31, 2000, the Company restated the amount recorded as
its share of loss on its interest in EFG Kirkwood LLC ("EFG Kirkwood"), a
wholly-owned subsidiary. As a result, the Company's financial statements as of
and for the year ended December 31, 2000 have been restated from amounts
previously reported. The effects of the restatement are presented in Note 1 to
the accompanying consolidated financial statements and have been reflected
herein. The following discussion compares the December 31, 2001 financial
condition and results of operations to the restated December 31, 2000 financial
condition and results of operations.

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 growth-oriented business plan. Actual results could
differ materially from those described in any forward-looking statements.

GENERAL

Semele Group Inc. ("Semele" or the "Company") is a Delaware corporation
organized on April 1987 as Banyan Strategic Land Fund II to invest primarily in
short-term, junior, pre-development, and construction mortgage loans.
Subsequently, the Company became owner of various real estate assets through
foreclosure proceedings in connection with its mortgages. For the years 1993
though 1995, the Company elected to be treated as a real estate investment trust
("REIT") for income tax purposes. Effective January 1, 1996, the Company
revoked its REIT status and became a taxable "C" corporation. Since then, the
Company evaluated alternatives ways to maximize shareholder value and take
advantage of investment opportunities where its significant loss carryforwards
for federal income tax purposes (approximately $105 million at December 31,
2001) could make it a value-added buyer. In recent years, the Company has made
certain investments with affiliated parties where its income tax loss
carryforwards could be utilized and which permitted the Company to diversify its
asset mix beyond its principal real estate asset, consisting of approximately
270 acres of land located in Southern California known as Rancho Malibu.
Currently, the Company is engaged in various real estate activities, including
the residential property development of Rancho Malibu. The Company also and
holds investments in other companies operating in niche financial markets,
principally involving real estate and equipment leasing.

PENDING AND RECENT ACQUISITIONS

PLM International, Inc.
-------------------------

On December 22, 2000, a subsidiary of the Company, MILPI Acquisition Corp.
("MILPI"), entered into a definitive agreement (the "Agreement") with PLM
International, Inc. ("PLM"), a publicly traded equipment leasing and asset
management company, for the purpose of acquiring up to 100% of the outstanding
common stock of PLM for an approximate purchase price of up to $27 million.
Until February 6, 2002, when it merged into PLM, MILPI was a wholly-owned
subsidiary of MILPI Holdings, LLC, which is owned by four Delaware business
trusts (collectively referred to as the "AFG Trusts" or the "Trusts") that are
engaged predominantly in the equipment leasing business. The AFG Trusts are
consolidated subsidiaries of the Company.

Pursuant to the cash tender offer, MILPI acquired approximately 83% of PLM's
outstanding common stock in February 2001 for a total purchase price of
approximately $21.8 million. Under the terms of the Agreement, with the
approval of the holders of 50.1% of the outstanding common stock of PLM, MILPI
would merge into PLM, with PLM being the surviving entity. Subsequent to
December 31, 2001, MILPI completed its acquisition by merger of the remaining
17% of the outstanding PLM common stock, at a purchase price of approximately
$4.4 million. After a special meeting of the PLM stockholders, the merger was
consummated on February 6, 2002. Concurrent with the completion of the merger,
PLM ceased to be publicly traded. The operating results of MILPI are reflected
in the accompanying consolidated financial statements from February 7, 2001
(date of acquisition) through December 31, 2001.

Equis II Corporation
----------------------

Special Beneficiary Interests
-------------------------------

In November 1999, the Company purchased certain equity interests, referred to as
Special Beneficiary Interests, in the AFG Trusts controlled by Equis II. The
Special Beneficiary Interests were purchased from EFG, an affiliate, and consist
of an 8.25% non-voting interest in each of the trusts. The Company purchased
the Special Beneficiary Interests for $9.7 million under the terms of a
non-recourse note, payable over 10 years and bearing interest at 7% per year.
Amortization of principal and payment of interest are required only to the
extent of cash distributions paid to the Company as owner of the Special
Beneficiary Interests.

Ariston Corporation
--------------------

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires the Company to make estimates
and assumptions that affect the amounts reported in the financial statements. On
a regular basis, the Company reviews these estimates and assumptions including
those related to revenue recognition, asset lives and depreciation, allowance
for doubtful accounts, allowance for loan loss, impairment of long-lived assets
and contingencies. These estimates are based on the Company's historical
experience and on various other assumptions believed to be reasonable under the
circumstances. Actual results may differ from these estimates under different
assumptions or conditions. The Company believes, however, that the estimates,
including those for the above-listed items, are reasonable.

The Company believes the following critical accounting policies, among others,
are subject to significant judgments and estimates used in the preparation of
these financial statements:

Buildings and Equipment for Lease
-------------------------------------

Buildings and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the underlying assets,
generally 40 years for buildings. Expenditures that extend the life of an asset
and that are significant in amount are capitalized and depreciated over the
remaining useful life of the asset.

The Company's depreciation policy is intended to allocate the cost of equipment
over the period during which it produces economic benefit. The principal period
of economic benefit is considered to correspond to each asset's primary lease
term, which term generally represents the period of greatest revenue potential
for each asset. Accordingly, to the extent that an asset is held on primary
lease term, the Company depreciates the difference between (i) the cost of the
asset and (ii) the estimated residual value of the asset on a straight-line
basis over such term. For purposes of this policy, estimated residual values
represent estimates of equipment values at the date of the primary lease
expiration. To the extent that an asset is held beyond its primary lease term,
the Company continues to depreciate the remaining net book value of the asset on
a straight-line basis over the asset's remaining economic life. The ultimate
realization of residual value for any type of equipment is dependent upon many
factors, including EFG's ability to sell and re-lease equipment. Changing
market conditions, industry trends, technological advances, and many other
events can converge to enhance or detract from asset values at any given time.
EFG attempts to monitor these changes in order to identify opportunities which
may be advantageous to the Company and which will maximize total cash returns
for each asset.

Depreciation expense for buildings and equipment was approximately $10.2 million
and $10.8 million during the years ended December 31, 2001 and 2000,
respectively.

Goodwill
--------

Goodwill is calculated as the excess of the aggregate purchase price over the
fair market value of identifiable net assets acquired in accordance with
Accounting Principles Bulletin ("APB") No. 16, "Business Combinations ("APB No.
16"). In accordance with APB No. 16, the Company allocates the total purchase
price to the assets acquired and liabilities assumed based on the respective
estimated fair market values at the date of acquisition.

The Company recorded goodwill of approximately $5.8 million in conjunction with
the acquisition of approximately 83% of the common stock of PLM in February 2001
(See Note 4 to the financial statements). This goodwill included approximately
$2.0 million of total costs estimated for severance of PLM employees and
relocation costs in accordance with management's formal plan to involuntarily
terminate employees, which plan was developed in conjunction with the
acquisition. During the fourth quarter of 2001, the estimates for severance and
relocation costs were reduced by $0.5 million based on actual costs incurred
related to these activities and, therefore, total goodwill was reduced by $0.5
million. Goodwill is amortized using the straight-line method over the
estimated life of PLM, 7 years. Amortization expense for fiscal 2001 was
approximately $765,000.

Long-Lived Assets
------------------

In accordance with Statement of Financial Accounting Standards (SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of," the Company evaluates long-lived assets for impairment whenever
events or circumstances indicate that the carrying bases of such assets may not
be recoverable. Losses for impairment are recognized when the undiscounted cash
flows estimated to be realized from a long-lived asset are determined to be less
than the carrying basis of the asset. The determination of net realizable value
for a given investment requires several considerations, including but not
limited to, income expected to be earned from the investment, estimated sales
proceeds, and holding costs excluding interest.

Minority Interests
-------------------

Certain equity interests in the Company's consolidated subsidiaries are owned by
third parties or by affiliates of the Company that are not included in the
consolidated financial statements. Such interests are referred to as "minority
interests" on the accompanying consolidated financial statements. The Company's
minority interests consist primarily of the Class A Beneficiaries' investment in
the AFG Trusts. The AFG Trusts' income is allocated quarterly first, to
eliminate any Participant's negative capital account balance and second, 1% to
the AFG Trusts' managing trustee (a wholly-owned subsidiary), 8.25% to the
Special Beneficiary (directly owned by the Company) and 90.75% collectively to
the Class A and Class B Beneficiaries (the Company owns the majority of the
Class B interests while the majority of the Class A interests are owned by
non-affiliated beneficiaries). The latter is allocated proportionately between
Class A and Class B Beneficiaries based upon the ratio of cash distributions
declared and allocated to the Class A and Class B Beneficiaries during the
period. Net losses are allocated quarterly first, to eliminate any positive
capital account balance of the AFG Trusts' managing trustee, the Special
Beneficiary and the Class B Beneficiaries; second, to eliminate any positive
capital account balance of the Class A Beneficiaries; and third, any remainder
to the AFG Trusts' managing trustee.

In 2001, the remaining minority interests primarily relates to approximately 17%
of the outstanding common stock of PLM.

Revenue Recognition
--------------------

PLM earns revenues in connection with the management of limited partnerships and
private placement programs (See Note 8 to the financial statements). Equipment
acquisition and lease negotiation fees are earned through the purchase and
initial lease of equipment, and are recognized as revenue when PLM completes all
of the services required to earn the fees, typically when binding commitment
agreements are signed.

Management fee income is earned for managing the equipment portfolios and
administering investor programs as provided for in various agreements, and is
recognized as revenue over time as it is earned. In 2001, three of the
equipment funds, Professional Lease Management Fund 1, LLC, PLM Equipment Growth
Fund VI and PLM Equipment Growth and Income Fund VII, accounted for
approximately 26% of Management Fee Revenue.

New Accounting Pronouncements
-------------------------------

Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141"), requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company believes the adoption of SFAS No. 141
has not had a material impact on its financial statements.

Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and
Other Intangible Assets" ("SFAS No. 142"), was issued in July 2001 and is
effective January 1, 2002. SFAS No. 142 requires, among other things, the
discontinuance of goodwill amortization. SFAS No. 142 also includes provisions
for the reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill, and
the identification of reporting units for purposes of assessing potential future
impairments of goodwill. SFAS No. 142 requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption. The
Company is evaluating the potential impact of SFAS No. 142 on its consolidated
financial statements.

Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), was issued in
October 2001 and replaces Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". The accounting model for long-lived assets to be disposed of
by sale applies to all long-lived assets, including discontinued operations, and
replaces the provisions of Accounting Principles Bulletin Opinion No. 30,
"Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business", for the disposal of segments of a business. SFAS No.
144 requires that those long-lived assets be measured at the lower of the
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. SFAS No. 144 also broadens the
reporting of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of SFAS No. 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, are to be applied prospectively. Early application is encouraged.
The Company believes that the adoption of SFAS No. 144 will not have a material
impact on its financial statements.

RESULTS OF OPERATIONS

EQUIPMENT LEASING OPERATIONS
------------------------------

LEASE REVENUE. During the years ended December 31, 2001 and 2000, the Company
recognized lease revenue of approximately $13.4 million and $17.0 million,
respectively. Lease revenue represents rental revenue recognized from the
leasing of the equipment owned by the AFG Trusts. The decrease in lease revenue
from equipment leasing operations was primarily attributable to expiration of
leases and equipment sales. The level of lease revenue to be recognized by the
Company in the future may be impacted by future reinvestment, however, the
extent of such impact cannot be determined at this time. Future lease
expirations and equipment sales will result in a reduction in lease revenue
recognized.

MANAGEMENT FEE INCOME - AFFILIATE. Management fees of approximately $5.2
million were earned by PLM during 2001 based on the gross revenues generated by
the equipment under management of several affiliated investment programs. As
the acquisition of PLM occurred in February 2001, there were no management fees
recorded during fiscal 2000. Management fees are expected to decrease as the
older investment programs liquidate their equipment portfolios.

ACQUISITION AND LEASE NEGOTIATION FEES - AFFILIATE. PLM, on behalf of the EGF
Programs, purchases transportation and other equipment. The equipment is
subsequently sold to the affiliated programs at cost. Acquisition and lease
negotiation fees are earned by PLM based on a specified percentage of the
purchase price of the respective equipment and totaled approximately $2.0
million in fiscal 2001. As the acquisition of PLM occurred in February 2001,
there were no acquisition and lease negotiation fees recorded during fiscal
2000. Acquisition and lease negotiation fees are expected to decline in the
future as the older investment programs liquidate their equipment portfolios.

INTEREST AND INVESTMENT INCOME. Interest and investment income for the year
ended December 31, 2001 was $884,387, compared to approximately $2.0 million in
2000. Generally, interest income is generated from the temporary investment of
rental receipts, notes from related parties and equipment sale proceeds in
short-term instruments. The decrease in interest income from 2000 to 2001 is
primarily the result of the significant decrease in the cash balances of the AFG
Trusts in 2001 as compared to 2000. In February 2001, the AFG Trusts, through
MILPI, acquired an approximately 83% interest in PLM's outstanding stock for a
total purchase price of approximately $21.8 million. The amount of future
interest income is expected to fluctuate as a result of changing interest rates
and the amount of cash available for investment, among other factors.

GAIN ON SALES OF EQUIPMENT. During the year ended December 31, 2001, the
Company sold equipment having a net book value of approximately $338,000 to
existing lessees and third parties, resulting in a net gain, for financial
statement purposes of $535,415. During December 31, 2000, the Company sold
equipment having a net book value of approximately $3.5 million to existing
lessees and third parties, resulting in a net gain, for financial statement
purposes of approximately $4.0 million.

It cannot be determined whether future sales of equipment will result in a net
gain or a net loss to the Company, as such transactions will be dependent upon
the condition and type of equipment being sold and its marketability at the time
of sale. In addition, the amount of gain or loss reported for financial
statement purposes is partly a function of the amount of accumulated
depreciation with the equipment being sold.

The ultimate residual value for any type of equipment is dependent upon many
factors, including EFG's ability to sell and re-lease equipment. Changing
market conditions, industry trends, technology advances, and many other events
can converge to enhance or detract from asset values at any given time. EFG
attempts to monitor these changes in order to identify opportunities which may
be advantageous to the Company and which will maximize total cash returns for
each asset.

EQUITY INCOME IN AFFILIATED COMPANIES. Equity income in affiliated companies of
$2.1 million recognized in 2001 consists primarily of PLM's investment in 10
affiliated equipment leasing programs. As compensation for organizing these
programs, PLM was granted an interest (between 1% and 5%) in the earnings and
cash distributions of the individual investment programs, in which PLM Financial
Services, Inc., a wholly-owned subsidiary of PLM, is the general partner. PLM
records as a partnership interest its equity interest in the earnings of the
partnerships, after adjusting such earnings to reflect the effect of special
allocation of the program's gross income allowed under the respective
partnership agreements. The increase in equity income in affiliated companies
for the year ended December 31, 2001 is due to the purchase of PLM in February
2001.

OTHER INCOME. Other income increased $718,513 from approximately $1.0 million
for the year ended December 31, 2000 to approximately $1.7 million in 2001. The
net increase in other income primarily reflects a $1.1 million increase in other
income recognized by PLM offset by a decrease in certain guarantee fees recorded
by the AFG Trusts of $609,560. PLM's other income consists primarily of the
reimbursement of general and administrative and supporting costs for the year
ended December 31, 2001.

In March 2000, the AFG Trusts entered into a guarantee agreement whereby the AFG
Trusts, jointly and severally, guaranteed the payment obligations under a master
lease agreement between Echelon Commercial LLC, as lessee, and Heller Affordable
Housing of Florida, Inc. and two other entities, as lessor ("Heller"). During
the year ended December 31, 2001, the requirements of the guarantee agreement
were met and the AFG Trusts received payment for all outstanding amounts
including $249,620 of income recognized in 2001 as compared to $859,180 in 2000.
The AFG Trusts have no further obligations under the guarantee agreement as of
December 31, 2001.

DEPRECIATION AND AMORTIZATION. Depreciation expense was approximately $9.8 and
$10.5 million in the years ended December 31, 2001 and 2000, respectively. The
decrease in depreciation expense is the result of significant sales of
equipment during fiscal 2000. During the year ended December 31, 2001, the
Company also recorded $764,000 of amortization expense associated with the
goodwill resulting from the acquisition of 83% of PLM's common stock in
February 2001.

For financial reporting purposes, to the extent that an asset is held on primary
lease term, the Company depreciates the difference between (i) the cost of the
asset and (ii) the estimated residual value of the asset on a straight-line
basis over such term. For purposes of this policy, estimated residual values
represent estimates of equipment values at the date of the primary lease
expiration. To the extent that an asset is held beyond its primary lease term,
the Company continues to depreciate the remaining net book value of the asset on
a straight-line bases over the asset's estimated remaining useful life.

WRITE-DOWN OF IMPAIRED ASSETS. The Company periodically reviews its assets for
impairment in accordance with SFAS No. 121. During the year ended December 31,
2001, the Company recorded a write-down of approximately $11.5 million,
comprised of a charge of approximately $11.0 million related to the Company's
interest in a Boeing 767-300ER aircraft and $511,000 related to PLM's equity
interest in several affiliated equipment leasing programs. The Company is
monitoring developments in the airline and peripheral industries and will
continue to evaluate potential implications to the Company's financial position
and future liquidity.

INTEREST EXPENSE. Interest expense was approximately $6.3 million and $7.5
million for the years ended December 31, 2001 and 2000, respectively. Interest
expense associated with equipment leasing consists of interest associated with
corporate debt, equipment leasing debt and indebtedness to affiliates. Total
interest expense decreased by approximately $1.2 million for the year ended
December 31, 2001 compared to 2000. The decrease is the result of a decrease in
the total outstanding balance of notes payable for equipment.

OPERATING EXPENSES AND MANAGEMENT FEES. Operating expenses and management fees
increased by approximately $5.5 million from $3.9 million for the year ended
December 31, 2000 to $9.4 million in 2001. The increase in operating expenses
is primarily due to the acquisition of PLM in February 2001 and an increase in
the operating expenses of the AFG Trusts. PLM's operating expenses consisted
primarily of $3.3 million of general and administrative expenses and
approximately $800,000 of supporting expenses, which include salary and office
related expenses for operating activities. The AFG Trusts' operating expenses
increased by approximately $1.7 million due primarily to an increase of
approximately $907,000 associated with the re-release of an aircraft in June
2001 and $492,000 for legal costs associated with the AFG Trusts' ongoing
discussions with the Securities Exchange Commission regarding its investment
company status.

Fees and other costs paid to affiliates during the fiscal years ended December
31, 2001 and 2000 are as follows:

2001 2000
---------- ----------

Acquisition fees $ -- $ 39,210
Equipment management fees 992,318 800,172
Administrative charges 582,401 662,087
Reimbursable operating expenses
due to third parties 2,845,853 1,436,349
---------- ----------

Total $4,420,572 $2,937,818
========== ==========

Acquisition fees are capitalized to the cost of the equipment acquired.

PROVISION FOR INCOME TAXES. The provision for income taxes includes earnings
attributable to the operations of PLM for the period February 7, 2001 (date of
inception) through December 31, 2001. The MILPI provision reflects expected
income taxes at the federal rate and state income tax rates, net of benefit.
The effective tax rate for the Company was 11% in 2001.

ELIMINATION OF MINORITY INTERESTS. Elimination of minority interests increased
by approximately $12.9 million for the year ended December 31, 2001 compared to
2000. The increase is primarily due to the allocation of losses in the AFG
Trusts to the Class A Beneficiaries. The Company directly or indirectly owns
the managing trustee, the Special Beneficiary and the majority of the Class B
interest in the AFG Trusts. The AFG Trusts' income is allocated quarterly
first, to eliminate any Participant's negative capital account balance and
second, 1% to the Managing Trustee, 8.25% to the Special Beneficiary and 90.75%
collectively to the Class A and Class B Beneficiaries. The latter is allocated
proportionately between Class A and Class B Beneficiaries based upon the ratio
of cash distributions declared and allocated to the Class A and Class B
Beneficiaries during the period. Net losses are allocated quarterly first, to
eliminate any positive capital account balance of the Managing Trustee, the
Special Beneficiary and the Class B Beneficiaries; second, to eliminate any
positive capital account balance of the Class A Beneficiaries; and third, any
remainder to the Managing Trustee. The remaining minority interests consist of
approximately 17% of the outstanding equity shareholders of PLM and various
other consolidated subsidiaries.

REAL ESTATE OPERATIONS
------------------------

LEASE REVENUE. During both of the years ended December 31, 2001 and 2000, the
Company recognized lease revenue of approximately $1.2 million from real estate
operations. Lease revenue from real estate operations is earned from its
ownership interest in two commercial properties, consisting of land and
buildings, which are leased to a major university. The buildings are used in
connection with the university's international education programs and include
both classroom and dormitory space. One building is located in Washington, D.C.
and the other is located in Sydney, Australia. The properties are leased under
long-term contracts which expire over the next 10 years.

EQUITY INCOME IN NON-AFFILIATED COMPANIES. The Company has an indirect equity
ownership interest in three real estate companies:

Mountain Resort Holdings LLC ("Mountain Resort")
Mountain Springs Resort LLC ("Mountain Springs")
EFG/Kettle Valley Development LLC ("Kettle Valley")

Mountain Resort, through four wholly-owned subsidiaries, owns and operates the
Kirkwood Mountain Resort ("Kirkwood"). Kirkwood is primarily a ski and mountain
resort with more than 2,000 acres of terrain. The resort receives approximately
70% of its revenues from winter ski operations, primarily ski, lodging, retail
and food and beverage services with the remainder of the revenues generated from
summer outdoor activities, including mountain biking, hiking and other
activities. Other operations include a real estate development division, which
has developed and is managing a 40-unit condominium residential and commercial
building, an electric and gas utility company, which operates as a regulated
utility company and provides electric and gas services to the Kirkwood
community, and a real estate brokerage company. The Company recorded equity
income from its interest in Mountain Resort of $260,451 in 2001 compared to an
equity loss of $156,120 in 2000. The increase in equity income from the prior
year is attributable to an increase in ski-related revenues which resulting from
improved weather conditions during the winter season, which attracted more
skiers. Improved weather conditions resulted in the resort supporting
approximately 336,000 skiers for the year ended 2001 as compared to
approximately 291,000 skiers in 2000.

Mountain Springs, through a wholly-owned subsidiary, owns a controlling interest
in DCS/Purgatory LLC ("Purgatory") in Durango, Colorado. Purgatory is a ski and
mountain recreation resort covering 2,500 acres, situated on 40 square miles of
terrain with 75 ski trails. Purgatory receives the majority of its revenues
from winter ski operations, primarily ski, lodging, retail and food an beverage
services, with the remainder of revenues generated from summer outdoor
activities, such as alpine sliding and mountain biking. The Company recorded
equity losses on its interest in Mountain Springs of $231,472 and $2.4 million
in 2001 and 2000, respectively. The equity loss in 2000 was caused primarily by
losses reported by Purgatory for the period May 1, 2000 to December 31, 2000.
Mountain Springs became an equity participant in Purgatory on May 1, 2000.
Consequently, Mountain Springs did not participate in the operating results of
Purgatory for the period January 1, 2000 to April 30, 2000, generally the period
of Purgatory's peak income activity. Accordingly, losses incurred in 2000 do
not reflect a full year's operating activities. In 2001, Purgatory created two
new real estate divisions which will develop and market condominium and single
family housing. Revenues associated with these divisions will not be recognized
until development is completed.

Kettle Valley is a real estate development company located in Kelowna, British
Columbia, Canada. The project, which is being developed by Kettle Valley
Development Limited Partnership, consists of approximately 270 acres of land
that is zoned for 1,120 residential units in addition to commercial space. To
date, 108 residential units have been constructed and sold and 10 additional
units are under construction. The Company recorded an equity loss of $657,442
and $319,146 during fiscal 2001 and 2000, respectively, on its investment. The
increase in loss from the prior year is attributable to the decrease in the
number of lot and home sales from the prior year.

DEPRECIATION AND AMORTIZATION EXPENSE. Depreciation and amortization expense
was approximately $462,000 and $516,000 for the years ended December 31, 2001
and 2000, respectively. Depreciation expense results from the depreciation of
the two commercial buildings owned by the Company which are discussed above.
The Company had no amortization expense in either 2001 or 2000 related to its
real estate operations. The Company also owns approximately 270 acres of
undeveloped land nor the Malibu California, called Rancho Malibu. There was no
depreciation or amortization was recognized on this property as it remains under
development at December 31, 2001.

WRITE-DOWN OF IMPAIRED ASSETS. During 2001, the Company recorded a write-down
or approximately $2.5 million associated with the Malibu property. In
accordance with SFAS No. 121, it is the Company's policy to reduce the carrying
value of real estate held for development and sale when events or circumstances
indicate that future undiscounted cash flows are estimated to be insufficient to
recover the carrying value of the real estate. The amount of the write-down is
equivalent to the difference between the estimated fair value of the property
confirmed less cost to sell and its unadjusted carrying value.

OPERATING EXPENSES. Operating expenses were $169,422 for the year ended
December 31, 2001 compared to $188,924 in 2000. Operating expenses consist
primarily of general and administrative expenses, which include salary,
management fees and office related expenses resulting from the Company's
ownership of two commercial leasing buildings located in Washington, DC and
Sydney, Australia.

INTEREST EXPENSE. Interest expense was $462,185 and $515,706 in 2001 and 2000,
respectively, relates to the interest on indebtedness acquired to finance the
original construction of the Company's two commercial buildings. Interest
expense decreased by $53,521 due to the repayment of existing loan obligations.

LIQUIDITY AND CAPITAL RESOURCES

The Company owns a controlling interest in several different corporations,
partnerships and trusts including the AFG Trusts, MILPI Holdings, LLC and AFG
International Limited Partnership. The availability to Semele of cash held by
the AFG Trusts, MILPI Holdings, LLC and AFG International Limited Partnership is
subject to terms and conditions over the use and disbursement of cash and other
matters contained in the respective agreements that govern those entities.
Moreover, the Company has voting control over most matters concerning these
entities, including the declaration, authorization, and amount of cash
distributions.

EQUIPMENT LEASING OPERATIONS
------------------------------

The Company's acquisition of Equis II Corporation and the resulting
consolidation of the AFG Trusts has significantly changed the nature of the
Company's consolidated operations. Each of the AFG Trusts is a Delaware
business trust whose form of organization and management is similar to that of a
limited partnership. The AFG Trusts are limited-life entities and have the
following scheduled dissolution dates:

AFG Investment Trust A- December 31, 2003 (*)
AFG Investment Trust B- December 31, 2003 (*)
AFG Investment Trust C- December 31, 2004
AFG Investment Trust D- December 31, 2006

(*) In December 2001, each of the Trusts filed Form 8-Ks with the Securities
Exchange Commission ("SEC"), stating that the managing trustee of the Trusts had
resolved to cause the Trust to dispose of its assets prior to December 31, 2003.
Upon consummation of the sale of its assets, the Trusts will be dissolved and
the proceeds thereof will be applied and distributed in accordance with the
terms of the Trusts' operating agreements.

AFG TRUSTS: The AFG Trusts' principal operating activities have been derived
from asset rental transactions. Accordingly, the AFG Trusts' principal source
of cash from operations is provided by the collection of periodic rents. These
cash inflows are used to satisfy debt service obligations associated with
leveraged leases, and to pay management fees and operating costs. The AFG
Trusts' operating activities generated net cash inflows of approximately $6.1
million and $15.9 million for the years ended December 31, 2001 and 2000,
respectively. Future renewal, re-lease and equipment sale activities will
continue to cause a decline in the AFG Trusts' lease revenue and corresponding
sources of operating cash. Expenses associated with rental activities, such as
management fees, will also decline as the AFG Trusts experience a higher
frequency of remarketing events. The amount of future interest income is
expected to fluctuate as a result of changing interest rates and the level of
cash available for investment, among other factors.

At lease inception, the AFG Trusts' equipment was leased by a number of
creditworthy, investment-grade companies and, to date, the AFG Trusts have not
experienced any material collection problems and have not considered it
necessary to provide an allowance for doubtful accounts. Notwithstanding a
positive collection history, there is no assurance that all future contracted
rents will be collected or that the credit quality of the AFG Trusts' lessees
will be maintained. The credit quality of an individual lease may deteriorate
after the lease is entered into. Collection risk could increase in the future,
particularly as the AFG Trusts remarket their equipment and enter re-lease
agreements with different lessees. The AFG Trusts' managing trustee will
continue to evaluate and monitor the AFG Trusts' experience in collecting
accounts receivable to determine whether a future allowance for doubtful
accounts may become appropriate.

At December 31, 2001, the AFG Trusts were due aggregate future minimum lease
payments of approximately $18.5 million from contractual lease agreements, a
portion of which will be used to amortize the principal balance of notes payable
of approximately $47.3 million. Additional cash inflows will be realized from
future remarketing activities, such as lease renewals and equipment sales, the
timing and extent of which cannot be predicted with certainty. This is because
the timing and extent of equipment sales is often dependent upon the needs and
interests of the existing lessees. Some lessees may choose to renew their lease
contracts, while others may elect to return the equipment. In the latter
instances, the equipment could be re-leased to another lessee or sold to a third
party. Accordingly, the cash flows of the AFG Trusts will become less
predictable as the Trusts remarket their equipment.

In the future, the nature of the AFG Trusts' operations and principal cash flows
will continue to shift from rental receipts to equipment sale proceeds. As this
occurs, the AFG Trusts' cash flows resulting from equipment investments may
become more volatile in that certain of the AFG Trusts' equipment leases will be
renewed and certain of its assets will be sold. In some cases, the AFG Trusts
may be required to expend funds to refurbish or otherwise improve the equipment
being remarketed in order to make it more desirable to a potential lessee or
purchaser. The AFG Trusts' advisor, EFG, and the AFG Trusts' managing trustee
will attempt to monitor and manage these events in order to maximize the
residual value of the Trust's equipment and will consider these factors, in
addition to the collection of contractual rents, the retirement of scheduled
indebtedness, and the AFG Trusts' future working capital requirements, in
establishing the amount and timing of future cash distributions.

During 2001 and 2000, the AFG Trusts realized net cash proceeds from equipment
disposals of approximately $873,555 and approximately $7.5 million,
respectively. Sale proceeds in 2000 includes $4.1 million related to the AFG
Trusts' interest in certain rail equipment, which was sold in July 2000.

Future inflows of cash from equipment disposals will vary in timing and amount
and will be influenced by many factors including, but not limited to, frequency
and timing of lease expirations, the type of equipment being sold, its condition
and age, and future market conditions.

The AFG Trusts obtained long-term financing in connection with certain equipment
leases. The origination of such indebtedness and the subsequent repayments of
principal are reported as components of financing activities in accompanying
Consolidated Statements of Cash Flows. During 2000, the AFG Trusts obtained
financing of approximately $6.1 million in connection with a lease renewal with
Emery Worldwide ("Emery"). Generally, each note payable is recourse only to the
specific equipment financed and to minimum rental payments contracted to be
received during the debt amortization period, which period generally coincides
with the lease term. As rental payments are collected, a portion or all of the
rental payments is used to repay the associated indebtedness. The amount of
cash used to repay debt obligations may fluctuate in the future due to the
financing of assets, which may be required. In addition, the AFG Trusts
collectively have a balloon payment obligation of $21.1 million and $15.8
million at the expiration of the lease terms related to aircraft lease to
Scandavian Airlines system ("SAS") and Emery, respectively. Repayment of the
balloon debt obligations will be dependent upon the negotiation of future lease
contracts or future sale of these assets or, alternatively, the use of working
capital.

In December 2000, the AFG Trusts formed MILPI Holdings, LLC, which formed MILPI,
a wholly-owned subsidiary. The Trusts collectively paid $1.2 million for their
membership interest in MILPI Holdings, LLC and MILPI Holdings, LLC purchased the
shares of MILPI for an aggregate purchase price of $1.2 million at December 31,
2000. MILPI entered into a definitive agreement (the "Agreement") with PLM, a
publicly traded equipment leasing and asset management company, for the purpose
of acquiring up to 100% of the outstanding common stock of PLM, for an
approximate purchase price of up to $27 million. In connection with the
acquisition, on December 29, 2000, MILPI commenced a tender offer to purchase
any and all of PLM's outstanding common stock.

In February 2002, two of the AFG Trusts, Trust C and Trust D, provided an
additional $4.4 million to enable MILPI to acquire the remaining 17% of PLM's
outstanding common stock through the merger. The funds were obtained from
existing resources and internally generated funds and by means of a 364 day,
unsecured loan to each of Trusts C and D from PLM. These promissory notes total
$1.3 million and bear an interest rate at LIBOR plus 200 basis points (subject
to an interest rate cap).

Since 1997, the Company has effected several highly leveraged purchase
transactions with related parties. Most significantly, the Company purchased
Equis II Corporation for $21.945 million from the Company's Chief Executive
Officer, Gary D. Engle, certain trusts established for the benefit of Mr.
Engle's children, and James A. Coyne, the Company's President. A significant
portion of the purchase price, or $19.586 million, was financed under
installment debt owed to the sellers. In 2000, a portion of this indebtedness
was retired by issuing 326,462 shares of common stock, as permitted by the
authorization of shareholders obtained on November 2, 2000. The Company's other
principal purchase transactions since 1997, involving Ariston Corporation, the
Special Beneficiary Interests, and AFG ASIT Corporation were acquired from EFG,
a limited partnership that is controlled by Mr. Engle. At December 31, 2001 and
2000, the Company owed Mr. Engle, Mr. Coyne or their affiliates approximately
$35 million. The Company expects that all of the purchase price indebtedness
for Equis II Corporation, Ariston Corporation, and the Special Beneficiary
Interests will be repaid through the collection of future cash distributions
generated in connection with these assets and the collection of amounts due from
Mr. Engle and Mr. Coyne in connection with their respective debt obligations to
certain subsidiaries of the Company. The purchase price indebtedness for AFG
ASIT Corporation was repaid in 1999. One of the Company's debt obligations to
related parties, totaling approximately $4 million, is due to several limited
partnerships controlled by Mr. Engle. The Company expects to repay this debt
using a portion of the proceeds generated by developing Rancho Malibu.

Mr. Engle controls the timing and authorization of cash distributions to be paid
from all of the affiliates upon which amortization of the Company's related
party debt obligations is predominantly dependent. Moreover, as a result of the
issuance of common stock in connection with the Equis II acquisition, voting
control of the Company is vested in Mr. Engle and Mr. Coyne. At December 31,
2001, Mr. Engle owns or controls 35.4% and Mr. Coyne owns or controls 17.6% of
the Company's outstanding common stock.

Looking forward, the Company does not anticipate any near term incremental free
cash flow as a result of its acquisitions from related parties described above.
Substantially all of the net cash flow generated by these acquisitions will be
used to repay corresponding purchase price indebtedness.

MILPI HOLDINGS, LLC: As described above, at December 31, 2001, MILPI Holdings,
LLC, through a wholly-owned subsidiary, owned approximately 83% of the
outstanding common stock of PLM. PLM's cash requirements have historically been
satisfied through cash flow from operations, borrowings, and the sale of
equipment and business segments. The level of liquidity in 2002 and beyond will
depend, in part, on the management of existing sponsored programs and the
effectiveness of cost control programs. Management believes PLM will have
sufficient liquidity and capital resources for the future.

During the period from February 7, 2001 (date of inception) to December 31,
2001, the cash and cash equivalents of MILPI Holdings, LLC increased
approximately $9.6 million from approximately $4.4 million to approximately
$14.0 million. The increase during the period primarily resulted from
approximately $13.8 million of net cash provided by PLM's investing activities
offset by approximately $3.4 million of net cash used in PLM's operating
activities. The net cash provided by investing activities primarily reflects
PLM's receipt of proceeds of approximately $10.3 million from the sale to its
affiliated programs of certain equipment held for sale.

In April 2001, PLM entered into a $15.0 million warehouse facility, which is
shared by PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund VII,
and Professional Lease Management Income Fund I, LLC, which allows PLM to
purchase equipment prior to its designation to a specific program. Borrowings
under this facility by the other eligible borrowers reduced the amount available
to be borrowed by PLM. This facility was amended in December 2001 to lower the
amount available to be borrowed to $10.0 million. This facility expires in July
2002. As of December 31, 2001, PLM had no borrowings outstanding under this
facility and there were no borrowings outstanding under this facility by any
other eligible borrower.

In March 2001, the Internal Revenue Service notified PLM that it would conduct
an audit regarding PLM's tax withholding of payments to foreign entities. The
audit occurred in 2001 and related to two partnerships in which PLM formerly
held interests as the 100% direct and indirect owner. One audit relates to the
years between 1997 and 1999, while the other audit relates to the years 1998 and
1999. PLM is awaiting the results of the audit from the Internal Revenue
Service. Management believes that the positions taken on the withholding tax
returns will be upheld by the Internal Revenue Service upon audit. If PLM's
position is not upheld by the Internal Revenue Service, the foreign entities are
legally obligated to indemnify PLM for any losses. If the Internal Revenue
Service does not uphold the PLM's position and the foreign entities do not honor
the indemnification, PLM's financial condition, results of operations, and
liquidity would be materially impacted.

REAL ESTATE OPERATIONS
------------------------

The Company owns approximately 270 acres of undeveloped land north of Malibu,
California called Rancho Malibu. Prior to May, 2000, the Company owned a 98.6%
interest in the property, with the remaining 1.4% interest owned by an
affiliate, Legend Properties, Inc ("Legend"). In May, 2000, the Company
purchased Legend's ownership interest for nominal consideration and a mutual
general release. Approximately 40 acres of the property are zoned for
development of a 46-unit residential community. The remainder is divided as
follows: (i) 167 acres are dedicated to a public agency, (ii) 47 acres are deed
restricted within privately-owned lots, and (iii) 20 acres are preserved as
private open space. The Company capitalized approximately $2.4 million and $1.3
million of costs during fiscal 2001 and 2000, respectively. At December 31,
2001, the Company has obtained all transfer development credits and has began
development of the property. As described above, at December 31, 2001, MILPI
Holdings, LLC, through a wholly owned subsidiary, owned approximately 83% of the
outstanding common stock of PLM.

During 2001, the Company recorded an impairment of approximately $2.5 million in
connection with the Malibu property. Consistent with SFAS No. 121, it is the
Company's policy to reduce the carrying value of real estate held for
development and sale when future undiscounted cash flows are estimated to be
insufficient to recover the carrying value. The amount of the write-down is
equivalent to the difference between the estimated future cash flows of the
property and its unadjusted carrying value. Estimated future cash flows were
based on management's current development plans and assessment of the current
real estate market. Actual values could differ from management's estimates.

Through December 31, 2001, the AFG Trusts and Semele collectively expended
approximately $10.7 million to acquire their respective interests in EFG
Kirkwood LLC ("EFG Kirkwood"), a wholly-owned subsidiary which has an indirect
ownership interest in two winter resorts: Mountain Resort Holdings LLC
("Mountain Resort") and Mountain Springs Resort LLC ("Mountain Springs").
Mountain Resort, through four wholly-owned subsidiaries, owns and operates the
Kirkwood Mountain Resort, a ski resort located in northern California, a public
utility that services the local community, and land that is held for residential
and commercial development. Mountain Springs, through a wholly-owned
subsidiary, owns a controlling interest in Purgatory Ski resort in Durango,
Colorado.

The Company's involvement in real estate development also introduces financial
risks, including the potential need to joint venture and/or borrow funds to
develop the real estate projects. While the Company's management presently does
not foresee any unusual risks in this regard, it is possible that factors beyond
the control of the Company, its affiliates and joint venture partners, such as a
tightening credit environment, could limit or reduce its ability to secure
adequate credit facilities at a time when they might be needed in the future.

The ski resorts are subject to a number of risks, including weather-related
risks. The ski resort business is seasonal in nature and insufficient snow
during the winter season can adversely affect the profitability of a given
resort. Many operators of ski resorts have greater financial resources and
experience in the industry than either the Company or its partners.

Potential effects of September 11, 2001
--------------------------------------------

The events of September 11, 2001 adversely affected market demand for both new
and used commercial aircraft and weakened the financial position of several
airlines. No direct damage occurred to any of the Company's assets as a result
of these events and while it currently is not possible for the Company to
determine the ultimate long-term economic consequences of these events to the
AFG Trusts, PLM or to the Company, management expects that the resulting decline
in air travel will suppress market prices for used aircraft in the short-term
and could inhibit the viability of some airlines. In the event of a lease
default by an aircraft lessee, the Company could experience material losses. At
December 31, 2001, the AFG Trusts have collected substantially all rents owed to
them from aircraft lessees. In addition, the Company's membership interest in
two ski resorts could be aversely affected by potential declines in vacation
travel resulting from the events of September 11, 2001. The Company is
monitoring developments in the airline and resort industries and will continue
to evaluate potential implications to the Company's financial position and
future liquidity.

ITEM 8. FINANCIAL STATEMENTS

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Stockholders of Semele Group Inc.

We have audited the accompanying consolidated balance sheets of Semele Group
Inc. as of December 31, 2001 and 2000, and the related consolidated statements
of operations, stockholders' capital (deficit) 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 did not audit the consolidated financial
statements of MILPI Holdings, LLC, a majority-owned subsidiary, which statements
reflect total assets of $43,399,000 as of December 31, 2001 and total revenues
of $10,376,000 for the period February 7, 2001 (date of inception) through
December 31, 2001. Those financial statements were audited by other auditors
whose report has been furnished to us, and our opinion, insofar as it relates to
data included for MILPI Holdings, LLC, is based solely on the report of other
auditors.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 and the report of other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of Semele Group Inc. at December 31, 2001
and 2000, and the consolidated results of its operations and its cash flows for
the years then ended in conformity with accounting principles generally accepted
in the United States.

The accompanying financial statements for the year ended December 31, 2000 have
been restated as discussed in Note 1.

Tampa, Florida
April 9, 2002

SEMELE GROUP INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000

2001 2000
(Restated)
-------------- --------------

ASSETS
Cash and cash equivalents $ 19,953,899 $ 27,830,365
Restricted cash 452,370 -
Rents and other receivables 1,183,127 1,749,074
Due from affiliates 4,624,498 4,201,307
Equipment held for lease, net of accumulated depreciation
of $62,491,363 and $53,615,656 at December 31, 2001 and
2000, respectively 53,385,432 73,577,695
Real estate held for development and sale 11,279,856 11,388,698
Land 1,929,000 1,929,000
Buildings, net of accumulated depreciation of $1,884,896 and $1,530,263
at December 31, 2001 and 2000, respectively 10,048,101 10,402,733
Interests in affiliated companies 24,321,861 2,934,186
Interests in non-affiliated companies 16,471,490 17,417,275
Other assets 3,648,170 2,556,728
Goodwill, net of accumulated amortization of $764,762 at
December 31, 2001 4,590,299 -
-------------- --------------

Total assets $ 151,888,103 $ 153,987,061
-------------- --------------

LIABILITIES
Accounts payable and accrued expenses $ 8,811,499 $ 2,859,713
Deferred rental income 583,535 77,771
Other liabilities 3,154,507 3,013,207
Indebtedness 52,918,296 60,418,448
Indebtedness and other obligations to affiliates 39,408,049 36,609,568
Deferred income taxes 9,751,000 -
-------------- --------------
Total liabilities 114,626,886 102,978,707
-------------- --------------

Minority interests 55,408,679 65,226,735
-------------- --------------

Commitments and contingencies

STOCKHOLDERS' CAPITAL (DEFICIT)
Common stock, $0.10 par value; 5,000,000 shares authorized;
2,916,647 shares issued at December 31, 2001 and December 31, 2000 291,665 291,665
Additional paid in capital 144,680,487 144,680,487
Accumulated deficit (148,886,608) (144,957,527)
Deferred compensation, 164,279 shares at December 31, 2001 and 2000 (816,767) (816,767)
Treasury stock at cost, 837,929 shares at December 31, 2001 and 2000 (13,416,239) (13,416,239)
-------------- --------------
Total stockholders' deficit (18,147,462) (14,218,381)
-------------- --------------
Total liabilities, minority interests and stockholders' deficit $ 151,888,103 $ 153,987,061
-------------- --------------

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

SEMELE GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

2001 2000
(Restated)
------------- -----------

REVENUES

Lease revenue $ 14,558,714 $18,260,855
Management fee income - affiliates 5,216,909 -
Acquisition and lease negotiation fees - affiliates 2,032,000 -
Interest and investment income 884,387 2,045,814
Interest income - affiliates 262,343 248,914
Gain on sales of marketable securities - 175,238
Gain on sales of equipment 535,415 4,028,354
Loss from real estate held for development or sale - (181,453)
Equity income in affiliated companies 2,155,675 -
Equity loss in non-affiliated companies (628,463) (2,866,789)
Other income 1,736,487 1,017,974
------------- -----------
Total revenues 26,753,467 22,728,907

EXPENSES

Depreciation and amortization expense 10,991,750 10,889,061
Write-down of impaired assets 14,061,732 -
Interest on indebtedness 4,895,012 5,715,850
Interest on indebtedness and other obligations- affiliates 1,850,616 2,289,405
General and administrative expenses 5,120,796 1,179,406
Fees and expenses - affiliates 4,420,572 2,898,608
------------- -----------
Total expenses 41,340,478 22,972,330

Loss before income taxes and minority interests (14,587,011) (243,423)

Provision for income taxes 1,611,000 -
Elimination of consolidated subsidiaries' minority interests (12,268,930) 665,742
------------- -----------

Net loss $ (3,929,081) $ (909,165)
------------- -----------

Net loss per common share - basic and diluted
Net loss $ (1.89) $ (0.56)
------------- -----------
Basic and diluted weighted average number of common
shares outstanding 2,078,718 1,622,887
------------- -----------

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

SEMELE GROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

Common Additional Accumulated Deferred Treasury
Stock Paid in Capital Deficit Compensation Stock
-------- ---------------- -------------- --------------- -------------

Balance at December 31, 1999 $259,019 $ 143,667,489 $(144,048,362) $ (576,767) $(14,308,195)

Deferred compensation 52,468 shares
of treasury stock - (651,956) - (240,000) 891,956

Issuance of common stock 32,646 1,664,954 - - -

Net loss (restated) - - (909,165) - -
-------- ---------------- -------------- --------------- -------------

Balance at December 31, 2000 (restated) 291,665 144,680,487 (144,957,527) (816,767) (13,416,239)

Net loss - - (3,929,081) - -
-------- ---------------- -------------- --------------- -------------

Balance at December 31, 2001 $291,665 $ 144,680,487 $(148,886,608) $ (816,767) $(13,416,239)
-------- ---------------- -------------- --------------- -------------

Total
------------

Balance at December 31, 1999 $(15,006,816)

Deferred compensation 52,468 shares
of treasury stock -

Issuance of common stock 1,697,600

Net loss (restated) (909,165)
------------

Balance at December 31, 2000 (restated) (14,218,381)

Net loss (3,929,081)
------------

Balance at December 31, 2001 $(18,147,462)
------------

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

SEMELE GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001 AND 2000

2001 2000
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES (Restated)
------------- -------------

Net loss $ (3,929,081) $ (909,165)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization expense 10,991,750 10,889,061
Accretion of bond discount - (16,260)
Provision for impaired assets 14,061,732 -
Gain on sale of marketable securities - (175,238)
Gain on sale of equipment, net (535,415) (4,028,354)
Deferred income taxes 867,000 -
Equity income in affiliated companies (2,155,675) -
Equity loss in non-affiliated companies 628,463 2,866,789
Elimination of consolidated subsidiaries minority interests (12,268,930) 665,742
Changes in assets and liabilities:
Decrease (increase) in:
Rents and other receivables 1,787,948 542,566
Other assets 1,588,877 (1,064,374)
Due from affiliates 920,810 5,616,245
Increase (decrease) in:
Accounts payable and accrued expenses (9,068,402) 848,879
Distributions declared and payable -- (9,374,323)
Deferred rental income 505,764 (614,701)
Other liabilities 141,300 -
------------- -------------
Net cash provided by operating activities 3,536,141 5,246,867
------------- -------------

CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES

Proceeds from equipment sales 873,555 7,538,707
Purchase of ownership interests in non-affiliated companies - (3,168,344)
Decrease in restricted cash 1,295,630 -
Proceeds from assets held for sale 10,250,000 -
Cash distribution from PLM investment programs 1,591,000 -
Proceeds from sale of marketable securities - 1,226,520
Deposit on MILPI Acquisition - (1,200,000)
Purchase of PLM, net of cash acquired (17,385,000) -
Costs capitalized to real estate held for development or sale (2,417,120) (1,343,205)
------------- -------------
Net cash provided by (used in) investing activities (5,791,935) 3,053,678
------------- -------------

CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES

Redemption of PLM stock options (919,000) -
Proceeds from indebtedness 1,884,140 6,141,738
Principal payments on indebtedness (9,384,293) (31,187,377)
Indebtedness and other obligations to affiliates 2,798,481 (9,992,629)
------------- -------------
Net cash used in financing activities (5,620,672) (35,038,268)
------------- -------------

Net decrease in cash and cash equivalents (7,876,466) (26,737,723)
Cash and cash equivalents at beginning of year 27,830,365 54,568,088
Cash and cash equivalents at end of year $ 19,953,899 $ 27,830,365
------------- -------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest (net of capitalized interest
of $770,689 and $557,419 at December 31, 2001 and 2000, respectively $ 5,926,273 $ 8,058,479
------------- -------------

Cash paid during the year for taxes $ 6,216,000 $ --
------------- -------------

SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY:
See Note 14 to the consolidated financial statements

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

SEMELE GROUP INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1- RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS

After Semele Group Inc. ("Semele" or the "Company") filed its Annual Report on
Form 10-KSB (the "2000 10-KSB") for the year ended December 31, 2000 with the
United States Securities and Exchange Commission ("SEC"), the Company determined
that the amount recorded as its share of loss on its direct and indirect
ownership interest in EFG Kirkwood LLC ("EFG Kirkwood"), a wholly-owned
subsidiary which has an ownership interest in two winter resorts, required
revision. The Company determined that the amount previously recorded as a loss
on its interest in EFG Kirkwood was understated by approximately $2.1 million.
Accordingly, the Company recorded an additional loss on its interest in EFG
Kirkwood of approximately $2.1 million, resulting in a decrease in minority
interest expense of $1.16 million and an increase in the Company's net loss for
the year ended December 31, 2000 of $882,338 or $0.54 per share. As a result,
the accompanying financial statements for the year ended December 31, 2000 have
been restated from the amounts previously reported.

NOTE 2 - ORGANIZATION AND NATURE OF OPERATIONS

The Company is engaged in various real estate activities, including residential
property development, and holds interests in other companies operating in niche
financial markets, principally involving real estate and equipment leasing.
Semele was organized as a Delaware corporation on April 14, 1987. The Company's
common stock is listed on the OTC Bulletin Board, commonly referred to as the
"over-the-counter market". The Company's trading symbol on that exchange is
"VSLF.OB".

On November 2, 2000, the Company issued 326,462 shares of common stock in
partial payment for an installment debt obligation for the purchase of Equis II
Corporation. The debt is owed to the Company's Chairman and Chief Executive
Officer, Gary D. Engle, its President and Chief Operating Officer, James A.
Coyne, and a family corporation controlled by Gary D. Engle. As a result of the
termination of a voting trust in November 2000 and due to the control position
of Mr. Engle over the Company and Equis II Corporation ("Equis II"), the Company
obtained full ownership and control of Equis II and control of four Delaware
business trusts (collectively referred to as the "AFG Trusts" or the "Trusts").
As such, the acquisition of Equis II has been accounted for as a combination of
businesses under common control, similar to a pooling of interests.
Accordingly, the Company's consolidated financial statements as of December 31,
2001 and 2000 and for the years then ended include the consolidated financial
statements of Equis II. The purchase price of Equis II of approximately $21.9
million was treated as a deemed distribution that directly reduced the balance
of stockholders' equity

NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------

Use of Estimates
------------------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosures contained in the financial
statements. Actual results could differ from those estimates and changes in
such estimates could affect amounts reported in future periods and could be
material.

Principles of Consolidation
-----------------------------

The consolidated financial statements include the accounts of all entities in
which the Company has a controlling interest. All material intercompany
transactions have been eliminated in consolidation. Investments in which the
Company has the ability to exercise significant influence, but not control, are
accounted for under the equity method of accounting. Under the equity method of
accounting, the Company's investment is (i) increased or decreased to reflect
the Company's share of income or loss of the investee and (ii) decreased to
reflect any cash distributions or dividends paid by the investee to the Company.
All other investments are accounted for using the cost method of accounting.

Cash and Cash Equivalents and Restricted Cash
---------------------------------------------------

The Company considers all short-term investments with an original maturity of
three months or less to be cash equivalents. Generally, excess cash is invested
in either (i) reverse repurchase agreements with overnight maturities at large
institutional banks or (ii) domestic money market funds that invest in
high-quality U.S. dollar denominated securities, including U.S. government
securities. The composition of the Company's consolidated cash position at
December 31, 2001 is summarized in the table below.

2001 2000
----------- -----------

Semele Group Inc. and wholly-owned subsidiaries $ 479,224 $ 1,797,445
AFG Investment Trust A 587,819 2,764,972
AFG Investment Trust B 899,569 5,126,793
AFG Investment Trust C 1,716,588 8,848,816
AFG Investment Trust D 1,887,691 9,042,889
MILPI Holdings, LLC 14,037,000 --
AFG International Limited Partnership 346,008 249,450
----------- -----------

Total $19,953,899 $27,830,365
=========== ===========

The availability of cash held by the AFG Trusts, MILPI Holdings, LLC and AFG
International Limited Partnership to Semele is subject to terms and conditions
over the use and disbursement of cash and other matters contained in the
agreements that govern the AFG Trusts, MILPI Holdings, LLC and AFG
International. Moreover, the Company has voting control over most matters
concerning these entities, including the declaration, authorization, and amount
of cash distributions.

Restricted cash of $452,370 at December 31, 2001 consists of bank accounts and
short-term investments that are primarily subject to withdrawal restrictions per
legally binding agreements.

Development Costs and Capitalized Interest
----------------------------------------------

For financial statement purposes, expenditures for the development of real
estate are capitalized as incurred. In addition, a portion of the Company's
interest cost is capitalized in accordance with Statement of Financial
Accounting Standards ("SFAS") No. 34, "Capitalization of Interest Cost." SFAS
No. 34 requires the capitalization of interest costs in an amount equal to the
amount of interest that could have been avoided if funds invested in assets held
for development were otherwise used to repay existing borrowings on assets not
held for development. Capitalized interest was $770,689 and $557,419 during the
years ended December 31, 2001 and 2000, respectively.

Buildings and Equipment for Lease
-------------------------------------

Depreciation expense for buildings and equipment was approximately $10.2 million
and $10.8 million during the years ended December 31, 2001 and 2000,
respectively.

Goodwill
--------

Goodwill is calculated as the excess of the aggregate purchase price over the
fair market value of net identifiable assets acquired in accordance with
Accounting Principles Board ("APB") No. 16, "Business Combinations" ("APB No.
16"). In accordance with APB No. 16, the Company allocates the total purchase
price to the assets acquired and liabilities assumed based on the respective
estimated fair market values at the date of acquisition.

Goodwill of approximately $5.8 million was originally recorded in the first
quarter of 2001 in conjunction with the acquisition of approximately 83% of the
common stock of PLM International Inc. ("PLM"). (See Note 4). This goodwill
included approximately $2.0 million of total costs estimated for severance of
PLM employees and relocation costs in accordance with management's formal plan
to involuntarily terminate employees, which plan was developed in conjunction
with the acquisition. During the fourth quarter of 2001, the estimates for
severance and relocation costs were reduced by $0.5 million based on actual
costs incurred related to these activities and, therefore, total goodwill was
reduced by $0.5 million. Goodwill is amortized using the straight-line method
over the estimated life of PLM, 7 years. Amortization expense for fiscal 2001
was approximately $765,000.

Impairment OF Long-Lived Assets
----------------------------------

In accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed of," the Company evaluates
long-lived assets, including goodwill, for impairment whenever events or
circumstances indicate that the carrying bases of such assets may not be
recoverable. Losses for impairment are recognized when the undiscounted cash
flows estimated to be realized from a long-lived asset are determined to be less
than the carrying basis of the asset. The determination of net realizable value
for a given investment requires several considerations, including but not
limited to, income expected to be earned from the asset, estimated sales
proceeds, and holding costs excluding interest. The Company recorded a
write-down of approximately $13.5 million on its long-lived assets during the
year ended December 31, 2001. The write-down was comprised of approximately
$11.0 related to an impairment in the carrying value of a Boeing 767-300ER
aircraft and approximately $2.5 million related to an impairment in the carrying
value of real estate held for development and sale.

The Company and its subsidiaries periodically review the carrying value of their
investments accounted for under the equity method for recoverability. To the
extent that declines in carrying value are determined to be other than
temporary, the investment balance is written-down to its estimated fair value.
During the period February 7, 2001 through December 31, 2001, the Company
recorded an impairment of $511,000 on its equity interest in affiliated
companies due to a change in market conditions, primarily in the airline
industry, after the events of September 11, 2001.

Minority Interests
-------------------

Certain equity interests in the Company's consolidated subsidiaries are owned by
third parties or by affiliates of the Company that are not included in the
consolidated financial statements. Such interests are referred to as "minority
interests" on the accompanying consolidated financial statements. The Company's
minority interests consist primarily of the Class A Beneficiaries investment in
the AFG Trusts. The AFG Trusts' income is allocated quarterly first, to
eliminate any Participant's negative capital account balance and second, 1% to
the managing trustee (a wholly-owned subsidiary), 8.25% to the Special
Beneficiary (directly owned by the Company) and 90.75% collectively to the Class
A and Class B Beneficiaries (the Company owns the majority of the Class B
interests while the majority of the Class A interests are owned by
non-affiliated beneficiaries). The latter is allocated proportionately between
Class A and Class B Beneficiaries based upon the ratio of cash distributions
declared and allocated to the Class A and Class B Beneficiaries during the
period. Net losses are allocated quarterly first, to eliminate any positive
capital account balance of the AFG Trusts' managing trustee, the Special
Beneficiary and the Class B Beneficiaries; second, to eliminate any positive
capital account balance of the Class A Beneficiaries; and third, any remainder
to the AFG Trusts' managing trustee.

In 2001, the remaining minority interests primarily relates to approximately 17%
of the outstanding common stock of PLM.

Distributions Declared and Payable
-------------------------------------

Certain of the Company's consolidated subsidiaries are limited partnerships or
business trusts that make periodic or special cash distributions in connection
with their business operations. At December 31, 2001 and 2000, distributions
declared and payable were $52,063. Generally, cash distributions are paid
within 45 days of declaration.

Valuation of Stock Options
-----------------------------

Stock options are awarded in accordance with the Company's 1994 Executive and
Director Stock Option Plan and are accounted for in accordance with APB No. 25,
"Accounting for Stock Issued to Employees" and related interpretations.

Earnings Per Share
--------------------

The Company calculates earnings per share of common stock in accordance with
SFAS No. 128, "Earnings Per Share". As a result of the Company's net loss for
each of the years ended December 31, 2001 and 2000, the effect of stock options
outstanding would be antidilutive and, therefore, excluded from the earnings per
share calculation.

The consolidated financial statements present basic per share measures of common
stock based upon the weighted average number of common shares outstanding during
each year. The weighted average number of shares of common stock issued and
outstanding for 2001 and 2000 was 2,078,718 and 1,622,887, respectively.

The weighted average number of shares of common stock issued and outstanding for
2000 includes 510,000 shares issued on April 20, 2000 for the purchase of Equis
II Corporation. These shares are considered issued and outstanding for the
entire year as a result of the restatement of the Company's consolidated
financial statements to reflect the purchase of Equis II Corporation.

On November 2, 2000, the Company obtained shareholder approval to issue 711,462
additional shares of common stock to repay a portion of its purchase price
indebtedness for Equis II Corporation. On November 3, 2000, the Company issued
such shares, but later rescinded the issuance of 385,000 of the shares effective
on November 3, 2000. The number of shares of common stock issued and
outstanding at December 31, 2000, therefore, includes 326,462 shares that were
issued on November 3, 2000 and whose issuance was not rescinded. The 326,462
shares were considered outstanding from November 3, 2000. The rescinded shares
are treated as never issued.

Revenue Recognition
--------------------

Effective January 1, 2000, the Company adopted the provisions of Securities and
Exchange Commission Staff Accounting Bulletin No. 101, "Revenue Recognition in
Financial Statements" ("SAB No. 101"). SAB No. 101 provides guidance for the
recognition, presentation and disclosure of revenue in financial statements.
The adoption of SAB No. 101 had no impact on the Company's consolidated
financial statements.

The Company earns rental income from a diversified portfolio of equipment held
for lease and from two special-purpose commercial buildings. Rents are due
monthly, quarterly or semi-annually and no significant amounts are earned based
on factors other than the passage of time. Substantially all of the Company's
leases are triple net, non-cancelable leases and are accounted for as operating
leases in accordance with SFAS No. 13, "Accounting for Leases." Rents received
prior to their due dates are deferred. Deferred rental income was $583,535 and
$77,771 at December 31, 2001 and 2000, respectively.
PLM earns revenues in connection with the management of limited partnerships and
private placement programs. Equipment acquisition and lease negotiation fees
are earned through the purchase and initial lease of equipment, and are
recognized as revenue when PLM completes all of the services required to earn
the fees, typically when binding commitment agreements are signed.

Management fee income is earned by FSI for managing the equipment portfolios and
administering investor programs as provided for in various agreements, and is
recognized as revenue over time as it is earned. In 2001, Professional Lease
Management Fund 1, LLC, PLM Equipment Growth Fund VI and PLM Equipment Growth
and Income Fund VII, accounted for approximately 26% of Management Fee Income.

Income Taxes
-------------

The Company accounts for income taxes in accordance with the provisions of SFAS
No. 109 "Accounting for Income Taxes." Under SFAS No. 109, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax bases of assets and liabilities using current tax
rates, or if applicable, enacted rates for the year in which the differences are
expected to reverse.

Reclassification
----------------

Certain amounts shown in the 2000 financial statements have been reclassified to
confirm with 2001 presentation. These reclassifications did not have any effect
on total assets, total liabilities, stockholders' equity or net income.

New Accounting Pronouncements
-------------------------------

Statement of Financial Accounting Standards No. 141, "Business Combinations"
("SFAS No. 141"), requires the purchase method of accounting for business
combinations initiated after June 30, 2001 and eliminates the
pooling-of-interests method. The Company believes the adoption of SFAS No. 141
will not have a material impact on its financial statements.

Statement of Financial Accounting Standards No. 142, "Goodwill and Other
Intangible Assets" ("SFAS No. 142"), was issued in July 2001 and is effective
January 1, 2002. SFAS No. 142 requires, among other things, the discontinuance
of goodwill amortization. SFAS No. 142 also includes provisions for the
reclassification of certain existing recognized intangibles as goodwill,
reassessment of the useful lives of existing recognized intangibles,
reclassification of certain intangibles out of previously reported goodwill, and
the identification of reporting units for purposes of assessing potential future
impairments of goodwill. SFAS No. 142 requires the Company to complete a
transitional goodwill impairment test six months from the date of adoption. The
Company is currently evaluating the potential impact of SFAS No. 142 on its
consolidated financial statements.

Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), was issued in
October 2001 and replaces Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of". The accounting model for long-lived assets to be disposed of
by sale applies to all long-lived assets, including discontinued operations, and
replaces the provisions of Accounting Principles Board Opinion No. 30,
"Reporting Results of Operations - Reporting the Effects of Disposal of a
Segment of a Business", for the disposal of segments of a business. SFAS No.
144 requires that those long-lived assets be measured at the lower of the
carrying amount or fair value less cost to sell, whether reported in continuing
operations or in discontinued operations. Therefore, discontinued operations
will no longer be measured at net realizable value or include amounts for
operating losses that have not yet occurred. SFAS No. 144 also broadens the
reporting of discontinued operations to include all components of an entity with
operations that can be distinguished from the rest of the entity and that will
be eliminated from the ongoing operations of the entity in a disposal
transaction. The provisions of SFAS No. 144 are effective for financial
statements issued for fiscal years beginning after December 15, 2001 and,
generally, are to be applied prospectively. Early application is encouraged.
The Company believes that the adoption of SFAS No. 144 effective January 1, 2002
will not have a material impact on its financial statements.

NOTE 4 - ACQUISITIONS

PLM International, Inc.
-------------------------

On December 22, 2000, a subsidiary of the Company, MILPI Acquisition Corp.
("MILPI"), entered into a definitive agreement (the "Agreement") with PLM , a
publicly traded equipment leasing and asset management company, for the purpose
of acquiring up to 100% of the outstanding common stock of PLM for an
approximate purchase price of up to $27 million. MILPI is a wholly-owned
subsidiary of MILPI Holdings, LLC, which is engaged predominantly in the
equipment leasing business. MILPI Holdings, LLC is collectively owned by the
AFG Trusts. The AFG Trusts are consolidated subsidiaries of the Company.

Pursuant to the cash tender offer, MILPI acquired approximately 83% of PLM's
outstanding common stock in February 2001 for a total purchase price of
approximately $21.8 million, including cash and cash equivalents of
approximately $4.4 million. Under the terms of the Agreement, with the approval
of the holders of 50.1% of the outstanding common stock of PLM, MILPI would
merge into PLM, with PLM being the surviving entity. Subsequent to December 31,
2001, MILPI completed its acquisition of the remaining 17% of the outstanding
PLM common stock, at a purchase price of approximately $4.4 million. After a
special meeting of the PLM stockholders, the merger was consummated on February
6, 2002. Concurrent with the completion of the merger, PLM ceased to be publicly
traded.

The acquisition of the common stock of PLM was accounted for as a business
combination in accordance with APB 16. In accordance with APB 16, MILPI
allocated the total purchase price to the assets acquired and liabilities
assumed based on the estimated fair market values at the date of acquisition.
There are no known contingencies or other matters that could materially affect
the allocation of the purchase price. The operating results of MILPI Holdings,
LLC are included in the accompanying financial statements for the period from
February 7, 2001 (date of inception) through December 31, 2001.

MILPI Holdings, LLC's consolidated balance sheet, reflecting the above business
combination, as of February 7, 2001 was as follows (in thousands of dollars):

ASSETS

Cash and cash equivalents $ 4,391
Restricted cash and cash equivalents 1,748
Receivables 1,222
Receivables from affiliates 1,344
Equity interest in affiliates 21,334
Assets held for sale 10,250
Other assets 3,406
Goodwill 5,840
-------
Total assets $49,535
=======

LIABILITIES
Payables and other liabilities $16,275
Deferred income taxes 8,884
-------
Total liabilities 25,159

Minority interest 2,600

SHAREHOLDERS' EQUITY
Common stock ($0.01 par value, 20 shares authorized and outstanding) -
Paid-in capital, in excess of par 21,776
-------
Total liabilities, minority interest and shareholders' equity $49,535
=======

PLM's fiscal year end is December 31.

The following unaudited pro forma consolidated results of operations for the
year ended December 31, 2000 assumes the PLM acquisition occurred as of January
1, 2000. Because PLM was acquired in February of 2001 and consequently
operating results were included from February 7, 2001 through December 31, 2001,
pro forma information for 2001 was not considered necessary.

2000
------------

Total revenues $33,979,907
===========

Loss before taxes and
discontinued operations $ (366,781)
===========

Discontinued operations $ 5,200,000
===========

Net income $ 3,285,760
===========

Earnings per share $ 2.02
===========

These amounts include PLM's actual results in 2000 adjusted for various purchase
accounting adjustments including amortization of goodwill and other
miscellaneous modifications. The amounts are based upon certain assumptions and
estimates, and do not reflect any benefit from economies which might be achieved
from combined operations. The pro forma results do not necessarily represent
results which would have occurred if the acquisition had taken place on the
basis assumed above, nor are they indicative of the results of future combined
operations.

Equis II Corporation
----------------------

During the fourth quarter of 1999, the Company issued $19.586 million of
promissory notes to acquire an 85% equity interest in Equis II Corporation, a
Massachusetts corporation having a controlling interest in the AFG Trusts.
During the first quarter of 2000, the Company sought and obtained shareholder
approval for the issuance of 510,000 shares of common stock to purchase the
remaining 15% equity interest of Equis II. On April 20, 2000, the Company
issued 510,000 shares of common stock to purchase the remaining 15% equity
interest of Equis II. The market value of the shares issued was $2,358,750
($4.625 per common share) based upon the closing price of the Company's common
stock on April 20, 2000. (See Note 14- Related Party Transactions).

Special Beneficiary Interests
-------------------------------

In November 1999, the Company purchased from an affiliate certain equity
interests, referred to as Special Beneficiary Interests, in the AFG Trusts
controlled by Equis II. The Special Beneficiary Interests were purchased from
EFG, an affiliate, and consist of an 8.25% non-voting interest in each of the
trusts. The Company purchased the Special Beneficiary Interests for
approximately $9.7 million through the issuance of a 7% fixed interest,
non-recourse note, payable over 10 years. Amortization of principal and payment
of interest are required only to the extent of cash distributions paid to the
Company as owner of the Special Beneficiary Interests. At both December 31,
2001 and 2000, the note had an outstanding principal balance of approximately
$6.63 million.

Ariston Corporation
--------------------

On August 31, 1998, the Company acquired Ariston Corporation for $12.45 million,
consisting of cash of $2 million and a purchase-money note of $10.45 million.
Ariston was purchased from Equis Financial Group Limited Partnership ("EFG") and
owns equity interests in (i) a real estate limited partnership called AFG
International Limited Partnership, which owns two commercial buildings leased to
a major educational institution (see Note 5), and (ii) a 98% limited partner
interest in Old North Capital Limited Partnership, which owns equity interests
in each of the AFG Trusts and 11 other limited partnerships established by EFG's
predecessor. The remaining 2% equity interests in Old North Capital, including
those of the general partner, are owned by Mr. Engle, Mr. Coyne, and a third
party and controlled by Mr. Engle. The acquisition of Ariston was accounted for
under the purchase method of accounting and the balance sheets and statements of
operations of Ariston were consolidated effective September 1, 1998. The
purchase-money note bears interest at an annualized rate of 7%, but requires
principal amortization and payment of interest only to the extent of cash
distributions paid to the Company in connection with the partnership interests
owned by Ariston. The note matures on August 31, 2003 and is recourse to the
common stock of Ariston. In October 1998, Ariston declared and paid a cash
distribution of $2,020,000 to the Company; however, future cash distributions by
Ariston require the consent of EFG until such time that the Company's obligation
to EFG under the note is repaid. On January 26, 2000, the Company made
principal and interest payments of $2,031,504 and $50,798, respectively, in
connection with this note. The outstanding principal balance of this obligation
at December 31, 2001 and 2000 was approximately $8.4 million. Ariston's equity
interests in the AFG Trusts are eliminated in consolidation.

NOTE 5 - EQUIPMENT

The following is a summary of all equipment in which the Company has an interest
at December 31, 2001. Substantially all of the equipment is leased under triple
net lease agreements meaning that the lessees are responsible for maintaining,
insuring and operating the equipment in accordance with the terms of the
respective lease agreements. Remaining lease term (months), as used below,
represents the number of months remaining under contracted lease terms and is
presented as a range when more than one lease agreement is contained in the
stated equipment category. A remaining lease term equal to zero reflects
equipment either held for sale or re-lease or equipment being leased on a
month-to-month basis.

Remaining
Lease Term Equipment
Equipment Type (Months) at Cost Location
--------------------------------- ----------- ------------- ------------------------------

Aircraft 6-42 $ 79,628,529 Foreign
Locomotives 0-27 12,886,831 NE/Warehouse
Materials handling 0-29 6,756,546 AR/IA/FL/IL/IN/KY/MA/MI/OH/OR/
. . PA/SC/WI/WV/CA/CO/GA/NC/NJ/TN/
. . Foreign
Manufacturing 0-20 9,095,342 IL
Construction and mining 0-20 3,744,859 MI/PA/ MV/ FL/IL/NC/PA/Foreign
0-12 3,000,433 NV/CO/GA/IN/KY/MN/OH/PQ/WI/
Computers and peripherals . Foreign/Warehouse
Other 19 764,255 WI/NJ
-------------
Total equipment cost 115,876,795
Accumulated depreciation (62,491,363)
-------------
Equipment, net of accumulated
depreciation $ 53,385,432
=============

The equipment is owned by the Company's consolidated affiliates as follows:

AFG Investment Trust A $ 2,407,523
AFG Investment Trust B 3,079,339
AFG Investment Trust C 51,726,752
AFG Investment Trust D 58,400,001
MILPI Holdings, LLC 263,180
------------
Total $115,876,795
============

The preceding summary of equipment includes leveraged equipment having an
original cost of approximately $91.5 million and a net book value of
approximately $50.3 million at December 31, 2001. Indebtedness associated with
the equipment is summarized in Note 12. Generally, indebtedness on leveraged
equipment will be amortized by the rental streams derived from the corresponding
lease contracts, although certain aircraft have balloon debt obligations that
will not be amortized by scheduled lease payments. Such obligations may result
in future refinancings to extend the repayment periods or the sale of the
associated assets to retire the indebtedness.

Generally, the costs associated with maintaining, insuring and operating the
equipment are incurred by the respective lessees pursuant to terms specified in
their individual lease agreements. However, the Company has purchased
supplemental insurance coverage for its aircraft to reduce the economic risk
arising from certain losses. Specifically, the Company is insured under
supplemental policies for "Aircraft Hull Total Loss Only" and "Aircraft Hull
Total Loss Only War and Other Perils".

As equipment is sold to third parties, or otherwise disposed of, the Company
recognizes a gain or loss to the difference between the net book value of the
equipment at the time of sale or disposition and the proceeds realized upon sale
or disposition. The ultimate realization of estimated residual value in the
equipment will be dependent upon, among other things, the Company's ability to
maximize proceeds from selling or re-leasing the equipment upon the expiration
of the primary lease terms. At December 31 , 2001, the cost and net book value
of equipment held for sale or re-lease was approximately $11.2 million and $2.8
million, respectively.

Equipment rental revenue from individual lessees which accounted for 10% or more
of the lease revenue during the years ended December 31, 2001 and 2000 is as
follows:

2001 2000
---------- ----------

Scandinavian Airlines System $6,653,333 $7,154,272

Future minimum rental payments in connection with all equipment are due as
follows:

For the year ending December 31, 2002 $10,193,499
2003 7,423,011
2004 699,673
2005 230,360
-----------

Total $18,546,543
===========

During the year ended December 31, 2001, the Company recorded a write-down of
equipment, representing an impairment to the carrying value of the Company's
interest in a Boeing 767-300ER. The resulting charge of approximately $11.0
million was based on a comparison of estimated fair value and carrying value of
the Company's interest in the aircraft.

NOTE 6 - REAL ESTATE HELD FOR DEVELOPMENT AND SALE

The Company owns approximately 270 acres of undeveloped land north of Malibu,
California called "Rancho Malibu" or the "Malibu property". Prior to May 10,
2000, the Company had owned a 98.6% interest in the property, with the remaining
1.4% interest owned by an affiliate, Legend Properties, Inc. On May 10, 2000,
the Company purchased Legend's ownership interest for nominal consideration and
a mutual general release. Approximately 40 acres of the property are zoned
for development of a 46-unit residential community. The remainder is divided as
follows: (i) 167 acres are dedicated to a public agency, (ii) 47 acres are deed
restricted within privately-owned lots, and (iii) 20 acres are preserved as
private open space. At December 31, 2001 and 2000, the Company's basis in
Rancho Malibu was approximately $11.3 million and $11.4 million, respectively.
During the year ended December 31, 2001, the Company capitalized $2.4 million of
costs, including $770,689 for interest. During the year ended December 31,
2000, the Company capitalized approximately $1.3 million of development costs,
including $557,419 for interest. As of December 31, 2001, the Company has
obtained all required transfer development credits and has began development of
the property.

During the fourth quarter of 2001, the Company recorded an impairment of
approximately $2.5 million on the Malibu property. The amount of the write-down
is equivalent to the difference between the estimated fair value of the property
supported by an appraisal less cost to sell and its unadjusted carrying value.

NOTE 7 - LAND AND BUILDINGS

The Company has ownership interests in two commercial buildings that are leased
to a major university. The buildings are used in connection with the
university's international education programs and include both classroom and
dormitory space.

Buildings 2001 2000
---------------------------------------- ------------ ------------

Washington, D.C. $ 4,954,739 $ 4,954,739
Sydney, Australia 6,978,258 6,978,257
------------ ------------
Total cost 11,932,997 11,932,996
Accumulated depreciation (1,884,896) (1,530,263)
------------ ------------

Buildings, net $10,048,101 $10,402,733
============ ============

Land 2001 2000
---------------------------------------- ------------ ------------
Washington, D.C. $ 1,729,000 $ 1,729,000
Sydney, Australia 200,000 200,000
------------ ------------

Land, total $ 1,929,000 $ 1,929,000
============ ============

Indebtedness associated with the land and buildings is summarized in Note 12.
Future minimum rental payments in connection with the leases for both buildings
are due as follows:

For the year ending December 31, 2002 $1,150,504
2003 786,504
2004 786,504
2005 786,504
2006 942,396
Thereafter 2,827,188
----------
Total $7,279,600
==========

NOTE 8 - INTERESTS IN AFFILIATED COMPANIES

The Company has equity interests in the following affiliates:

2001 2000
----------- ----------

Equity Interests in Partnerships $ 3,373,933 $2,934,186
Equity Interest in Equipment Growth Funds 20,947,928 --
----------- ----------

Total $24,321,861 $2,934,186
=========== ==========

Equity Interests in Partnerships
-----------------------------------

In 1998, the Company acquired Ariston Corporation which had an ownership
interest in 11 limited partnerships engaged primarily in the equipment leasing
business. In addition to the partnership investments, Ariston has an investment
in each of the four AFG Trusts which is eliminated in consolidation. Ariston's
percentage ownership for each investment varies from less than 1% to 16%. The
partnerships are controlled by EFG, an affiliated entity controlled by Mr.
Engle. Total equity income recognized was approximately $440,000 during 2001.

Equity Interests in Equipment Growth Funds
-----------------------------------------------

As compensation for organizing various partnership investment programs, PLM was
granted an interest (between 1% and 5%) in the earnings and cash distributions
of the individual programs, in which PLM Financial Services, Inc. ("FSI") a
wholly-owned subsidiary of PLM, is the General Partner. PLM records as a
partnership interest its equity interest in the earnings of the partnerships,
after adjusting such earnings to reflect the effect of special allocations of
the program's gross income allowed under the respective partnership agreements.

FSI is the manager of 10 investment programs ("EGF Programs"). Distributions of
the programs are allocated as follows: 99% to the limited partners and 1% to the
General Partner in PLM Equipment Growth Fund (EGF) I and PLM Passive Income
Investors 1988-II; 95% to the limited partners and 5% to the General Partner in
EGF's II, III, IV, V, VI, and PLM Equipment Growth & Income Fund VII (EGF VII);
and 85% to the members and 15% to the manager in Fund I. PLM's interest in the
cash distributions of Fund I will increase to 25% after the investors have
received distributions equal to their invested capital. Net income is allocated
to the General Partner subject to certain allocation provisions. FSI also
receives a management fee on a per railcar basis at a fixed rate each month,
plus an incentive management fee equal to 15% of "Net Earnings" over $750 per
car per quarter from Covered Hopper Program 1979-1. FSI is entitled to
reimbursement from the equipment growth funds for providing certain
administrative services.

Most of the investment program agreements contain provisions for special
allocations of the EGF Programs' gross income. The Company's total equity
income in the EGF Programs for the period February 7, 2001 (date of purchase by
MILPI) through December 31, 2001 was approximately $1.7 million.

While none of the partners or members, including the General Partner and
manager, are liable for program borrowings, and while the General Partner or
manager maintains insurance against liability for bodily injury, death, and
property damage for which an investment program may be liable, the General
Partner or manager may be contingently liable for nondebt claims against the
program that exceed asset values.

Summarized Financial Information for Equity Interests in Partnerships and
--------------------------------------------------------------------------------
Equipment Growth Funds
------------------------

The summarized combined financial information for the Company's equity interests
in Partnerships and EGF Programs as of and for the years ended December 31, 2001
and 2000 is as follows. The Company recorded equity interest in the EGF
Programs for the period February 7, 2001 (date of inception) through December
31, 2001.

2001 2000
-------- -------

Total Assets $265,526 $40,312
-------- -------
Total Liabilities 77,449 9,973
-------- -------
Partners' Equity $188,077 $30,339
======== =======

Total Revenues $ 96,712 $ 6,797
Total Expenses 80,376 6,416
-------- -------
Net Income $ 16,336 $ 381
======== =======

The Company and its subsidiaries periodically review the carrying value of their
investments accounted for under the equity method for recoverability. To the
extent that declines in carrying value are determined to bed other than
temporary, the investment balance is written-down to its fair value. During the
year ended December 31, 2001, the Company recorded an impairment of $511,000 on
its equity interest in EGF Programs due to a change in market conditions,
primarily in the airline industry, after the events of September 11, 2001.

NOTE 9 - INTERESTS IN NON-AFFILIATED COMPANIES

The Company has equity interests in the following non-affiliated companies:

2001 2000
----------- -----------

Interest in Mountain Resort Holdings LLC $ 7,327,997 $ 7,278,091

Advances to and Interest in Mountain Springs Resort LLC 777,005 1,008,477
Interest in EFG/Kettle Development LLC 7,740,101 8,527,543
Interest in other 626,387 603,164
----------- -----------

Total $16,471,490 $17,417,275
=========== ===========

Mountain Resort Holdings LLC and Mountain Springs Resort LLC - Winter Resorts
--------------------------------------------------------------------------------

On May 1, 1999, the Company and the AFG Trusts formed a joint venture, EFG
Kirkwood LLC ("EFG Kirkwood") which is consolidated in the financial statements.
The joint venture was formed to acquire preferred and common stock in Kirkwood
Associates, Inc. ("KAI"). On April 30, 2000, KAI ownership interests in certain
assets and substantially all of its liabilities were transferred to Mountain
Resort Holdings LLC ("Mountain Resort"). On May 1, 2000, EFG Kirkwood exchanged
its interests in KAI for membership interests in Mountain Resort, thereby
obtaining approximately 38% of the membership interests in Mountain Resort.
Mountain Resort, through four wholly-owned subsidiaries, owns and operates
Kirkwood Mountain Resort, a ski resort located in northern California, a public
utility that services the local community, and land that is held for residential
and commercial development.

On May 1, 2000, EFG Kirkwood acquired 50% of the membership interests in
Mountain Springs Resorts LLC ("Mountain Springs"). Mountain Springs, through a
wholly-owned subsidiary, owns 80% of the common member interests and 100% of the
Class B Preferred members interest in an entity that owns Purgatory Ski Resort
in Durango, Colorado.

The Company's ownership interest in Mountain Resort and Mountain Springs had an
original cost of approximately $7.3 million and $3.4 million, respectively,
including acquisition fees of $64,865 and $34,000, respectively, paid to EFG by
the AFG Trusts. The Company's ownership interest in Mountain Resort and
Mountain Springs is accounted for using the equity method. The Company recorded
income of $28,979 and a loss of approximately $2.5 million, net of amortization,
from its interest in Mountain Resort and Mountain Springs for the years ended
December 31, 2001 and 2000, respectively.

The table below provides comparative summarized financial information for
Mountain Resort and Mountain Springs for the years ended December 31, 2001 and
2000.

Mountain Resort has an April 30th fiscal year end and the operating results
shown below have been conformed to the twelve months ended December 31, 2001 and
2000, respectively.

Mountain Springs has a May 31st fiscal year end. The operating results shown
below have been conformed to the twelve months ended December 31, 2001. The
Company purchased its interest in Mountain Springs on May 1, 2000 and as such
the operating results below have been conformed to reflect the eight months
ended December 31, 2000.

2001 2000
------------ ------------

Mountain Resort

Total assets $51,034,148 $49,378,374
Total liabilities 26,214,327 23,800,969
------------ ------------
Total equity $24,819,821 $25,577,405
============ ============

Total revenues $30,195,000 $28,338,000
Total expenses 30,034,000 26,914,000
------------ ------------
Net income $ 161,000 $ 1,424,000
============ ============

Mountain Springs

Total assets $29,781,762 $28,767,966
Total liabilities and minority interests 28,227,749 28,789,517
------------ ------------
Total equity (deficit) $ 1,554,013 $ (21,551)
============ ============

Total revenues $15,358,818 $ 5,343,275
Total expenses 16,025,764 10,129,689
------------ ------------
Net loss $ (666,946) $(4,786,414)
============ ============

Interest in EFG/Kettle Development LLC- Residential Community
-------------------------------------------------------------------

On March 1, 1999, the Company and two of the AFG Trusts formed EFG/Kettle
Development LLC ("Kettle Valley"), a Delaware limited liability company. Kettle
Valley was formed for the purpose of acquiring a 49.9% indirect ownership
interest in a real estate development project in Kelowna, British Columbia,
Canada. The real estate development, which is being developed by Kettle Valley
Development Limited Partnership, consists of approximately 270 acres of land
under development. The development is zoned for 1,120 residential units in
addition to commercial space. To date, 108 residential units have been
constructed and sold and 10 additional units are under construction. A
subsidiary of the Company is the sole general partner of Kettle Valley
Development Limited Partnership. An unaffiliated third party has retained the
remaining 50.1% indirect ownership in the development.

The Company's interest in Kettle Valley had an original cost of $8.4 million
which was funded with cash of $6.2 million and a non-recourse installment note
of approximately $2.6 million. The Company has paid the note in full as of
December 31, 2001.

The cost of this ownership interest exceeded the Company's equity interest in
the underlying net assets of Kettle Valley by approximately $1,300,000. This
difference is being amortized on a straight-line basis over the estimated
project development period of 10 years. Amortization expense was $130,000 for
each of the years ended December 31, 2001 and 2000. This amount is included as
a component of equity loss in non-affiliated companies on the accompanying
consolidated statement of operations. The Company accounts for this ownership
interest using the equity method of accounting. During the years ended December
31, 2001 and 2000, the Company decreased its interest in Kettle Valley by
$657,442 and $189,146, respectively, to reflect its share of the development's
net loss.

The table below provides comparative summarized financial information for Kettle
Valley. Kettle Valley has a January 31 fiscal year end and the Company Trust
has a December 31 fiscal year end. The operating results of Kettle Valley shown
below have been conformed to the year ended December 31, 2001 and 2000,
respectively.

2001 2000
------------ ------------

Total assets $14,873,992 $16,340,603
Total liabilities 2,726,159 2,577,650
------------ ------------
Total equity $12,147,833 $13,762,954
============ ============

Total revenues $ 4,596,837 $ 6,250,711
Total expenses 5,967,703 7,118,553
------------ ------------
Net loss $(1,370,866) $ (867,842)
============ ============

NOTE 10 - OTHER ASSETS

At December 31, other assets consisted of the following:

2001 2000
---------- ----------

Deferred financing costs, net $1,065,447 $1,174,502
Cash surrender value of life insurance policy 2,343,000 --
Escrow deposit -- 1,200,000
Other 239,723 182,226
---------- ----------
Total $3,648,170 $2,556,728
========== ==========

The Company has capitalized certain costs incurred in connection with long-term
financings and lease contracts. These costs are amortized over the life of the
respective agreement on a straight-line basis. Amortization expense resulting
from deferred financing and leasing costs was approximately $24,000 and $61,000
for the years ended December 31, 2001 and 2000.

In December 2000, the Company deposited approximately $1.2 million into an
escrow account for the acquisition of PLM. On February 7, 2001, the Company
acquired approximately 83% of PLM and the balance held in escrow was applied to
the purchase price of PLM.

PLM has life insurance policies on certain current and former employees which
had a $2.3 million cash surrender value as of December 31, 2001. (See Note 4).

NOTE 11 - OTHER LIABILITIES

Other liabilities consists primarily of the $3.0 million received by two of the
AFG Trusts in 1999 in connection with the Kettle Valley transaction described in
Note 9. Pursuant to the terms of that transaction, the two trusts sold a
non-recourse residual interest in a Boeing 767-300 aircraft leased by
Scandinavian Airlines System ("SAS"). Future payments against the residual
interest will be required to the extent that aggregate cash proceeds realized
from the aircraft exceed certain preferred interests retained by the two trusts,
but not more than approximately $3.0 million. Recognition of income from this
transaction has been deferred until the aircraft is disposed of. The SAS lease
agreement is scheduled to expire on December 29, 2003.

NOTE 12 - NOTES PAYABLE TO THIRD PARTIES

At December 31, 2001, the Company had aggregate indebtedness to third parties of
approximately $52.9 million, including two note obligations totaling
approximately $5.6 million associated with the Company's two commercial
buildings. One loan, with a balance of approximately $5.2 million, matures on
June 1, 2010 and carries a fixed annual interest rate of 7.86% and the other
loan, with a balance of $427,460, matures on December 31, 2002 and carries a
variable annual interest rate equal to prime plus 1.50% (6.25% at December 31,
2001). The remainder of the Company's indebtedness to third parties is
non-recourse installment debt pertaining to equipment held on operating leases.
Generally, this debt is secured by the equipment and will be fully amortized
over the terms of the lease agreements corresponding to each asset. However, in
certain instances involving aircraft, retirement of the debt obligations is
partially dependent upon the residual value of the equipment. Interest rates on
equipment debt obligations range from 6.76% to 9.176% at December 31, 2001. The
carrying amount of the Company's notes payable to third parties approximates
fair value at December 31, 2001.

In April 2001, PLM entered into a $15.0 million warehouse facility, which is
shared with PLM Equipment Growth Fund VI, PLM Equipment Growth & Income Fund
VII, and Fund I, LLC, that allows PLM to purchase equipment prior to its
designation to a specific program. Borrowings under this facility by the other
eligible borrowers reduce the amount available to be borrowed by PLM. All
borrowings under this facility are guaranteed by PLM. This facility provides
for financing up to 100% of the cost of the asset. Interest accrues at prime or
LIBOR plus 200 basis points, at the option of PLM. Borrowings under this
facility may be outstanding up to 270 days. This facility was amended in
December 2001 to lower the amount available to be borrowed to $10.0 million.
The expiration of this facility, which was scheduled to expire in April 2002,
has been extended to July 2002. All borrowings must be repaid upon the
expiration of this facility. PLM believes it will be able to extend the facility
with similar terms upon the facility's extended expiration. As of December 31,
2001, PLM had no borrowings outstanding under this facility and there were no
borrowings outstanding under this facility by any other eligible borrower.

The annual maturities of the Company's indebtedness to third parties is
summarized below:

BUILDINGS EQUIPMENT TOTAL
---------- ----------- -----------

For the year ending December 31, 2002 $ 790,432 $10,216,447 $11,006,879
2003 423,815 36,180,955 36,604,770
2004 458,352 660,165 1,118,517
2005 495,707 235,565 731,272
2006 664,151 -- 664,151
Thereafter 2,792,707 -- 2,792,707
--------- ---------- -----------

Total $5,625,164 $47,293,132 $52,918,296
========== =========== ===========

The Company's indebtedness to third parties is divided among the Company's
consolidated affiliates as follows:

AFG Investment Trust A $ 420,027
AFG Investment Trust B 420,027
AFG Investment Trust C 22,382,964
AFG Investment Trust D 24,070,114
Old North Capital Limited Partnership 5,197,703
AFG International Limited Partnership 427,461
-----------

Total $52,918,296
===========

NOTE 13 - CONTINGENT LIABILITIES

On March 8, 2000, the AFG Trusts entered into a guarantee agreement whereby the
AFG Trusts, jointly and severally, guaranteed the payment obligations under a
master lease agreement between Echelon Commercial LLC, a newly-formed Delaware
company that is controlled by Gary D. Engle, President and Chief Executive
Officer of EFG, as lessee, and Heller Affordable Housing of Florida, Inc., and
two other entities, as lessor ("Heller"). The lease payments of Echelon
Commercial LLC to Heller are supported by lease payments to Echelon Commercial
LLC from various sub-lessees who are parties to commercial and residential lease
agreements under the master lease agreement. The guarantee of lease payments by
the AFG Trusts was capped at a maximum of $34,500,000, excluding expenses that
could result in the event that Echelon Commercial LLC experienced a default
under the terms of the master lease agreement.

As a result of principal reductions on the average guarantee amount, an amended
and restated agreement was entered into in December 2000 that reduced the
guaranteed amount among the AFG Trusts. During the year ended December 31,
2001, the requirements of the guarantee agreement were met and the AFG Trusts
received payment for all outstanding amounts totaling $640,000, including
$249,620 of income related to the guarantee agreement recognized during the year
ended December 31, 2001. During the year ended December 31, 2000, the AFG
Trusts received an upfront cash fee of $500,000 and recognized a total of
$859,180 in income related to this guarantee fee. The guarantee fee is
reflected as Other Income on the accompanying Statement of Operations. The AFG
Trusts have no further obligations under the guarantee agreement.

As of December 31, 2001, PLM had guaranteed certain obligations up to $0.4
million of a Canadian railcar repair facility, in which PLM has a 10% ownership
interest.

PLM entered into employment agreements with five individuals due to the PLM's
acquisition by the AFG Trusts which require PLM to pay severance to these
individuals up to two years of their base salaries and benefits if their
employment is terminated after a change in control as defined in the employment
agreement. As of December 31, 2001, the total future contingent liability for
these payments was $0.2 million.

In March 2001, the Internal Revenue Service notified PLM that it would conduct
an audit of certain Forms 1042, Annual Withholding Tax Return for U.S. Source
Income of Foreign Persons. The audit relates to payments to unrelated foreign
entities made by two partnerships in which PLM formerly held interests as the
100% direct and indirect owner. One partnership's audit relates to Forms 1042
for the years 1997, 1998 and 1999, while the other partnership's audit relates
to Forms 1042 for the years 1998 and 1999. The audits remain pending, with the
Internal Revenue Service presently reviewing documents and information provided
to it by PLM. The Internal Revenue Service has not proposed any adjustments to
the Forms 1042, and management believes that the withholding tax returns will be
accepted as filed. If the withholding tax returns are not accepted as filed by
the Internal Revenue Service, the recipient foreign entities are legally
obligated to indemnify PLM for any losses. If the withholding tax returns are
not accepted as filed by the Internal Revenue Service, and the recipient foreign
entities do not honor the indemnification, the Company's financial condition,
results of operations, and liquidity would be materially impacted.

NOTE 14 - RELATED PARTY TRANSACTIONS

Administrative Services
------------------------

A number of the Company's administrative functions are performed by EFG,
pursuant to the terms of a services agreement dated May 7, 1997. EFG is
controlled by Gary D. Engle, the Company's Chairman and Chief Executive Officer.
Administrative expenses consist primarily of professional and clerical salaries
and certain rental expenses for which EFG is reimbursed at actual cost. The
Company incurred total administrative costs of $167,614 and $153,474 during the
years ended December 31, 2001 and 2000, respectively.

EFG also provides asset management and other services to the AFG Trusts and is
compensated for those services based upon the nature of the underlying
transactions. For equipment reinvestment acquisition services, EFG is paid an
acquisition fee equal to 1% of base purchase price. For management services,
EFG is paid a management fee equal to 5% of lease revenues earned from operating
leases and 2% of lease revenues earned from full-payout leases. Operating
expenses incurred by the Company and its subsidiaries that were paid to EFG
during the years ended December 31, 2001 and 2000 are as follows:

2001 2000
---------- ----------

Total $4,420,572 $2,937,818
========== ==========

Acquisition fees are capitalized to the cost of the equipment acquired.

The AFG Trusts are limited-life entities having the following scheduled
dissolution dates:

AFG Investment Trust A - December 31, 2003 (*)
AFG Investment Trust B - December 31, 2003 (*)
AFG Investment Trust C - December 31, 2004
AFG Investment Trust D - December 21, 2006

(*) In December 2001, each of the Trusts filed a Current Report on Form 8-K
with the SEC, stating that the managing trustee of the Trusts had resolved to
cause the Trust to dispose of its assets prior to December 31, 2003. Upon
consummation of the sale of its assets, the Trusts will be dissolved and the
proceeds thereof will be applied and distributed in accordance with the terms of
the Trusts' operating agreements.

Acquisition of Equis II Corporation and Related Financing
----------------------------------------------------------------

During the fourth quarter of 1999, the Company issued $19.586 million of
promissory notes to acquire an 85% equity interest in Equis II Corporation, a
Massachusetts corporation having a controlling interest in the AFG Trusts. The
trusts were organized between 1992 and 1995 by the predecessor of EFG. During
the first quarter of 2000, the Company obtained shareholder approval for the
issuance of 510,000 shares of common stock to purchase the remaining 15% equity
interest of Equis II. On April 20, 2000, the Company issued 510,000 shares of
common stock to purchase the remaining 15% equity interest in Equis II. The
market value of the shares issued was approximately $2.4 million ($4.625 per
common share) based upon the closing price of the Company's common stock on
April 20, 2000.

Prior to the Company's acquisition of Equis II Corporation, Equis II was owned
by Mr. Engle, certain trusts established for the benefit of Mr. Engle's
children, and by James A. Coyne, the Company's President and Chief Operating
Officer. Equis II commenced operations on July 17, 1997. The Company, through
its ownership of Equis II, owns Class B interests in each of the AFG Trust: AFG
Investment Trust A (822,863 interests), AFG Investment Trust B (997,373
interests), AFG Investment Trust C (3,019,220 interests), and AFG Investment
Trust D (3,140,683 interests). Through its ownership of the Class B interests,
Equis II controls approximately 62% of the voting interests in each of the
trusts. However, on certain voting matters, principally those involving
transactions with related parties, Equis II is obligated to vote its Class B
interests consistent with the majority of unaffiliated investors. In addition
to the Class B interests, Equis II owns AFG ASIT Corporation, the managing
trustee of the AFG Trusts. AFG ASIT Corporation has a 1% interest in the AFG
Trusts and, as managing trustee, has significant influence over their
operations.

The $19.586 million of promissory notes issued by the Company to acquire Equis
II Corporation is divided into two groups of notes. The first group totals
$14.6 million and matures on October 31, 2005. These notes bear interest at a
face rate of 7% annually, but provide for quarterly interest payments based upon
a pay-rate of 3%. The remaining portion, or 4%, is deferred until the maturity
date. The Company paid principal and interest of approximately $1.59 million
and $99,600, respectively, by issuing 326,462 shares of common stock on November
3, 2000, as permitted by authorization of the Company's shareholders obtained on
November 2, 2000. The next installment on the notes was scheduled for January
2002. In December 2001, the notes were amended. As of December 31, 2001, the
annual maturities of the notes are scheduled to be paid as follows:

2002 $ 4,000,000
2003 6,002,000
2004 --
2005 3,000,000
-----------
Total $13,002,000
===========

The second group of promissory notes issued by the Company to acquire Equis II
total $4.986 million and have payment terms identical to certain debt
obligations of Mr. Engle and Mr. Coyne to the Company by virtue of the
acquisition of Equis II and Ariston Corporation. At the time of the Company's
initial 85% investment in Equis II, Mr. Engle and Mr. Coyne had debt obligations
to (i) Equis II Corporation totaling approximately $1.9 million and (ii) a
subsidiary of Ariston, ONC totaling approximately $3.1 million. As a result of
the Equis II transaction, the Company became the beneficiary on notes due from
Mr. Engle and Mr. Coyne and the obligor on new notes, having identical terms and
for equal amounts, due to Mr. Engle, or family trusts/corporation controlled by
Mr. Engle, and to Mr. Coyne. On January 26, 2000, Mr. Engle and Mr. Coyne made
principal and interest payments of approximately $2.1 million to ONC in partial
repayment of their respective obligations. On the same date, the Company made
principal and interest payments to Mr. Engle (and certain family
trusts/corporation) and to Mr. Coyne totaling approximately $2.1 million in
partial repayment of the Company's obligations to them. The Company intends to
make future payments with respect to these notes using the proceeds from
payments made by Mr. Engle and Mr. Coyne to Equis II and ONC. The terms of the
notes provide that the Company will be relieved of its obligations to make
payments during the period of any default by either Mr. Engle or Mr. Coyne in
remitting payments with respect to their obligations to Equis II or ONC.

In connection with the Equis II transaction, Mr. Engle and Mr. Coyne forfeited,
and the Company canceled, the stock options awarded to each of them to purchase
40,000 shares of common stock at an exercise price of $9.25 per share that were
granted on December 30, 1997. In addition, Mr. Engle retained voting control of
the Class B interests and the common stock of AFG ASIT Corporation through a
voting trust agreement, until the earlier of the Company's repayment of the
$19.586 million of promissory notes issued to acquire Equis II or Mr. Engle's
express written agreement to terminate the voting trust.

As a result of the termination of the voting trust in November 2000 and due to
the control position of Mr. Engle over the Company and Equis II Corporation, the
Company obtained full ownership and control of Equis II and control of four
Delaware business trusts. As such, the acquisition of Equis II has been
accounted for as a combination of businesses under common control, similar to a
pooling of interests. Accordingly, the Company's consolidated financial
statements as of December 31, 2001 and 2000 and for the years then ended include
the consolidated financial statements of Equis II Corporation.

Special Beneficiary Interests
-------------------------------

In November 1999, the Company purchased from an affiliate certain equity
interests in the AFG Trusts, referred to as Special Beneficiary Interests. The
Special Beneficiary Interests were purchased from EFG, an affiliate, and consist
of an 8.25% non-voting interest in each of the trusts. The Company purchased
the interests for approximately $9.7 million under the terms of a non-recourse
note, payable over 10 years and bearing interest at 7% per year. Amortization
of principal and payment of interest are required only to the extent of cash
distributions paid to the Company as owner of the Special Beneficiary Interests.
To date, the Company has received cash distributions of approximately $3.2
million from the Special Beneficiary Interests and has paid EFG, an affiliate,
an equal amount consisting of principal and accrued interest. At December 31,
2001 and 2000, the non-recourse note payable had an outstanding principal
balance of approximately $6.63 million. The Special Beneficiary Interests have
been eliminated in consolidation.

Due From Affiliates
---------------------

Amounts due from affiliates are summarized below:

2001 2000
---------- ----------

Loan obligations due from Mr. Engle and Mr. Coyne $2,937,205 $2,937,205
Interest receivable on loan obligations due from
Mr. Engle and Mr. Coyne 518,766 257,029
Rents receivable from EFG escrow (1) 217,527 1,007,073

Management fees receivable from PLM Equipment Growth Funds 951,000 --
---------- ----------

Total $4,624,498 $4,201,307
========== ==========

(1) All rents and proceeds from the sale of equipment by the AFG Trusts are
paid directly to either EFG or to a lender. EFG temporarily deposits collected
funds in a separate interest-bearing escrow account and remits such amounts to
the Company or its affiliates on a monthly basis.

Indebtedness and Other Obligations to Affiliates
-----------------------------------------------------

A summary of the Company's indebtedness and other obligations to affiliates
appears below.

2001 2000
----------- -----------

Principal balance of indebtedness to affiliates $34,949,392 $34,949,392
Accrued interest due to affiliates 3,789,586 1,457,597
Other (1) 669,071 202,579
----------- -----------

Total $39,408,049 $36,609,568
=========== ===========

(1) Consists primarily of amounts due to EFG for administrative services and
operating expenses.

Principal Balance of Indebtedness to Affiliates
----------------------------------------------------

The principal balance of the Company's indebtedness to affiliates at December

DUE WITHIN
ONE YEAR OR
BALANCE AT ON DEMAND AS OF BALANCE AT
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2001 2001 2000
-------------- ---------------- --------------

Notes payable to Mr. Engle, or family trusts/corporation controlled by
Mr. Engle, resulting from the purchase of Equis II
Corporation, 7% annual interest; maturing in 2005. (1) (3) $ 8,624,660 $ 2,653,334 $ 8,624,660
Note payable to Mr. Coyne resulting from purchase of
Equis II Corporation; 7% annual interest; maturing in 2005. (1) (3) 4,377,340 1,346,666 4,377,340
-------------- ---------------- --------------

Sub-total $ 13,002,000 $ 4,000,000 $ 13,002,000
-------------- ---------------- --------------
Notes payable to Mr. Engle, or family trusts/corporation controlled
by Mr. Engle, resulting from the purchase of Equis II
Corporation; 11.5% annual interest; due on demand. (1) (2) 687,349 687,349 687,349
Note payable to Mr. Coyne resulting from purchase of
Equis II Corporation; 11.5% annual interest; due on demand. (1) (2) 348,856 348,856 348,856
-------------- ---------------- --------------

Sub-total $ 1,036,205 $ 1,036,205 $ 1,036,205
-------------- ---------------- --------------
Notes payable to Mr. Engle, or family trusts/corporation controlled by
Mr. Engle, resulting from purchase of Equis II Corporation,
7.5% annual interest; maturing on Aug. 8, 2007. (1) (2) 1,260,997 -- 1,260,997
Note payable to Mr. Coyne resulting from purchase of
Equis II Corporation; 7.5% annual interest; maturing on
Aug. 8, 2007. (1) (2) 640,003 -- 640,003
-------------- ---------------- --------------

Sub-total $ 1,901,000 $ -- $ 1,901,000
-------------- ---------------- --------------
Note payable to EFG for purchase of Ariston Corporation;
7% annual interest; maturing on Aug. 31, 2003. $ 8,418,496 -- $ 8,418,496
Non-recourse note payable to EFG for purchase of Special Beneficiary
Interests; 7% annual interest; maturing on Nov. 18, 2009. $ 6,634,544 -- $ 6,634,544
Notes payable to affiliates for 1997 asset purchase;
10% annual interest; maturing on Apr. 1, 2003. (4) $ 3,957,147 -- $ 3,957,147
-------------- ---------------- --------------

Total $ 34,949,392 $ 5,036,205 $ 34,949,392
============== ================ ==============

31, 2001 and 2000 consists of the obligations listed below.

(1) The promissory notes issued to the former Equis II stockholders are
general obligations of the Company secured by a pledge to the former Equis II
stockholders of the shares of Equis II owned by the Company.
(2) These amounts are equal in aggregate to debt obligations of Mr. Engle
and Mr. Coyne to Equis II Corporation and ONC included in amounts due from
affiliates on the accompanying consolidated balance sheets.
(3) The notes to Mr. Engle (and related family trusts/corporation) become
immediately due and payable if Mr. Engle ceases to be the Chief Executive
Officer and a Director of the Company, except if he resigns voluntarily or is
terminated for cause. Similarly, the notes to Mr. Coyne become immediately due
and payable if Mr. Coyne ceases to be the President and a Director of the
Company, except if he resigns voluntarily or is terminated for cause.
(4) In 1997, the Company borrowed $4,419,500 from certain affiliates
controlled by Mr. Engle, including $462,354 from AFG Investment Trust A, a
subsidiary. During each of the years ended December 31, 2001 and 2000, the
Company incurred total interest expense of $441,950 in connection with this
indebtedness. The obligation to AFG Investment Trust A of $462,354 and related
annual interest expense of $46,235 has been eliminated in consolidation as of
December 31, 2001 and 2000.

Common Stock Owned by Affiliates
------------------------------------

In connection with a transaction in 1997, the Company issued 198,700 shares of
common stock to certain affiliates controlled by Mr. Engle, including 20,969
shares that are owned indirectly by AFG Investment Trust A. The shares so owned
by AFG Investment Trust A have been eliminated in consolidation.

Guarantee of Affiliate's Lease Obligations
----------------------------------------------

On March 8, 2000, the AFG Trusts became guarantors of the lease payment
obligations of Echelon Commercial LLC under a certain master lease agreement.
Echelon Commercial LLC is an affiliate of the Company and the AFG Trusts and is
controlled by Gary D. Engle. As of December 31, 2001, the AFG Trusts have no
further obligations under the guarantee agreement. (See Note 13).

NOTE 15 - DEFERRED STOCK COMPENSATION

In 1997, the Company established a deferred compensation plan (the "Plan") for
Mr. Engle and Mr. Coyne. Pursuant to terms of the plan, both Mr. Engle and Mr.
Coyne receive shares of the Company's common stock instead of cash compensation.
The number of shares allocated to them is determined at the end of each month by
dividing the average closing price of the Company's stock for the last ten
trading days of the month into the dollar amount that otherwise would have been
paid to them as cash compensation for the month. The shares are fully vested
and are held in a rabbi trust established for the benefit of Mr. Engle and Mr.
Coyne, but are not expected to be transferred to them until termination of their
employment. The Company treats the issuance of shares under the plan as
compensation and, therefore, recognizes an expense equal to the amount of cash
compensation that would have been paid to each individual. Total compensation
expense related to the Plan of $240,000 was recorded in each of the years ended
December 31 2001 and 2000. These expenses are included in general and
administrative expenses on the accompanying consolidated statements of
operations. During fiscal 2000, the Company issued 52,468 shares under the
Plan. Mr. Engle and Mr. Coyne waived the Company's requirement to fund the Plan
for the year ended December 31, 2001 and as such, no shares were issued in
fiscal 2001.

NOTE 16 - STOCK OPTION PLANS

The Company has three stock option plans:

1. The Semele Grant Option Program- This stock option plan consists of an
----------------------------------
Executive Option Grant Program and a Director Option Grant Program. Under the
plan, the Company's Board of Directors has the authority to issue stock options
up to 100,000 shares of Semele's common stock. In addition, the Company's Board
has the authority to establish the terms and conditions of stock options awarded
under the executive program, including, but not limited to, selecting the
recipients, the number of shares awarded, and the exercise price. Directors are
not eligible to receive stock options under the executive option program and
executives are not eligible to receive stock options under the director option
program. At December 31, 2001 and 2000, there were no stock options outstanding
under the executive option program and 15,000 stock options were outstanding
under the director option program, all of which were fully vested. No stock
options were granted during fiscal 2001 and 2000.

2. The PLM Non-Qualified Director and Employee Option Programs- These
-------------------------------------------------------------------
Programs have reserved up to 780,000 shares of PLM common stock for key
employees and directors. Under these Programs, the price of the shares issued
under an option must be at least 85% of the fair market value of the PLM common
stock at the date of grant. Vesting of the options granted under these plans
occurs in three equal installments of 33.3% per year, initiating from the date
of grant. As of December 31, 2000, grants can no longer be made under either
program.**

3. The 2000 Management Stock Compensation Plan-The Plan reserved 70,000
-------------------------------------------------
shares for which options may be granted under the 2000 Director's Plan, In
February 2000, each non-employee director of PLM was granted an option to
purchase 8,000 shares of common stock under this Plan. As of December 31, 2001,
the 2000 Management Stock Compensation Plan continued to be in effect. There
were no outstanding options under either of these plans at December 31, 2001.**

4. The 1998 Management Stock Compensation Plan,- PLM's Board of Directors
------------------------------------------------
adopted the 1998 Management Stock Compensation Plan, which reserved 800,000
shares (in addition to the 780,000 shares above) of PLM's common stock for the
issuance to certain management and key employees of PLM upon exercise of stock
options. At December 31, 2001, there were no options outstanding under the
plan, although the plan continued to be in effect. **

**Prior to the completion of the Tender Offer by MILPI, all options outstanding
were immediately vested by either a vote from PLM's Board of Directors or from
the terms of the option plan agreement. Concurrent with the completion of the
Tender Offer in February 2001, PLM redeemed all vested options currently
outstanding. PLM paid the difference between the exercise price of the option
and $3.46 (the amount offered for PLM shares in the Tender Offer). Total cash
paid to redeem all outstanding options was approximately $900,000.

A summary of the options outstanding to directors under the Semele Grant Option
Program as of December 31, 2001 is summarized below:

AUCH BARTLETT UNDERLEIDER
-------------- ------------------ --------------

Options granted 5,000 5,000 5,000
Date of grant July 15, 1994 December 31, 1997 July 15, 1994
Date of expiration (on or before) July 16, 2004 January 1, 2008 July 16, 2004
Exercise price per share $ 9.25 $ 9.25 $ 9.25

The Company accounts for stock-based compensation using the intrinsic method
prescribed by APB Opinion No. 25, "Accounting for Stock Issued to Employees."
Under this method, no compensation expense is recognized for stock options that
have an option price that is equal to or in excess of fair market value at the
date of grant. SFAS No. 123, "Accounting for Stock-Based Compensation," which
became effective for fiscal years beginning after December 15, 1995, established
accounting and disclosure requirements for stock options using a fair value
method of accounting and encourages application of that methodology. As
permitted under SFAS No. 123, the Company has elected to provide pro-forma
disclosures of net income and earnings per share as if the fair-value method
prescribed by SFAS No. 123 had been used in accounting for stock options.

A Black-Scholes option-pricing model was used to estimate the fair value of the
Company's stock options at the date of grant. The pricing model for 2001
assumed a risk-free interest rate of 5.75%, no dividend yields, and volatility
in the expected market price of the Company's common stock of .444. The
Black-Scholes model was developed for use in estimating the fair value of traded
options that have no vesting restrictions and are fully transferable. Like
other models, it utilizes a number of subjective assumptions that can materially
affect the analysis and resulting estimation of compensation cost for stock
options. Accordingly, the existing models do not necessarily provide a reliable
single measure of the fair value of the Company's stock options.

For purposes of the pro-forma disclosures, the estimated fair value of newly
issued options is amortized to expense over the vesting periods and no expense
is recognized for forfeited options. There was no impact on the Company's
reported results of operations in 2001, as all outstanding stock options had
fully vested by December 31, 2001 and 2000.

NOTE 17 - PROFIT SHARING AND STOCK OPTION PLANS

PLM has a Profit Sharing and 401(k) Plan which was acquired in conjunction with
the Tender Offer by MILPI. The PLM Profit Sharing and 401(k) Plan provides for
deferred compensation as described in Section 401(k) of the Internal Revenue
Code. The Plan is a contributory plan available to essentially all full-time
employees of PLM in the United States. In 2001, PLM employees who participated
in the Plan could elect to defer and contribute to the trust established under
the Plan up to 9% of pretax salary or wages up to $10,500. PLM matched up to a
maximum of $4,000 of PLM employees' 401(k) contributions of 2001 to vest in four
equal installments over four-year period. The Company's total 401(k)
contributions, net of forfeitures, was approximately $100,000 for the period
February 7, 2001 (date of inception) through December 31, 2001.

Profit-sharing contributions are allocated equally among the number of eligible
Plan participants. There were no profit-sharing contributions accrued as of
December 31, 2001.

NOTE 18 - INCOME TAXES

The Company files a consolidated Federal Tax Return. The AFG Trusts and MILPI
are not included as part of the Company's consolidated Federal Tax Return.
These subsidiaries are flow through entities for tax purposes and file separate
returns. Deferred income taxes are provided on a liability method whereby
deferred tax assets are established to reflect temporary differences between the
financial reporting and income tax bases of assets and liabilities as well as
operating loss carryforwards; therefore, the Company has recorded a valuation
allowance against these potential benefits. Significant components of the
Company's deferred tax assets and liabilities at December 31, 2001 and 2000 are
summarized below:

2001 2000
------------- -------------

Deferred tax assets:
Deferred compensation $ 278,000 $ --
Real estate held for development 6,729,000 3,522,000
Tax effect of net operating loss carryforwards 30,414,000 30,800,000
Partnership organization and syndication costs 8,300,000 --
Federal benefit of state income taxes 735,000 --
Other 329,000 --
------------- -------------
Sub-total 46,785,000 34,322,000
Less valuation allowance for deferred tax assets (46,015,000) (33,049,000)
------------- -------------

Total deferred tax assets 770,000 1,273,000

Deferred tax liabilities
Partnership interests 10,520,000 1,273,000
Other 1,000 --
------------- -------------

Total deferred tax liabilities 10,521,000 1,273,000
------------- -------------

Net deferred tax liability $ 9,751,000 $ --
============= =============

The provision for income taxes attributable to income from operations consists
of the following (in thousands of dollars):

Federal State Total
-------- ------ ------

Current $ 551 $ 193 $ 744
Deferred 705 162 867
-------- ------ ------
Total $ 1,256 $ 355 $1,611
-------- ------ ------

The difference between the tax expense and the expected federal tax expense is
reconciled below:

2001 2000
------------- ------------
Federal statutory tax expense ($4,960,000) ($83,000)
State income tax (729,000) (12,000)
Valuation allowance for NOL 12,966,000 1,397,000
Loss reportable at the partnership and trust level (5,666,000) (1,302,000)
------------- ------------
Tax expense $ 1,611,000 $ --
------------- ------------

The tax effect of net operating loss carryforwards is determined using current
statutory rates or enacted rates for the year in which the differences are
expected to reverse. At December 31, 2001, the Company had operating loss
carryforwards of approximately $105,081,000 that expire as follows: $28,507,000
in 2010; $47,337,000 in 2011; $8,005,000 in 2012; $5,499,000 in 2016;
$11,031,000 in 2017; $1,603,000 in 2020; $3,099,000 in 2021.

NOTE 19 - LITIGATION

The named plaintiffs were individuals who invested in PLM Equipment Growth Fund
IV, PLM Equipment Growth Fund V ("Fund V"), PLM Equipment Growth Fund VI("Fund
VI"), and PLM Equipment Growth & Income Fund VII ("Fund VII"), (collectively the
"Partnerships"), each a California limited partnership for which FSI acts as the
General Partner. The complaints asserted causes of action against all
defendants for fraud and deceit, suppression, negligent misrepresentation,
negligent and intentional breaches of fiduciary duty, unjust enrichment,
conversion, conspiracy, unfair and deceptive practices and violations of state
securities law. Plaintiffs alleged that each defendant owed plaintiffs and the
class certain duties due to their status as fiduciaries, financial advisors,
agents, and control persons. Based on these duties, plaintiffs asserted
liability against defendants for improper sales and marketing practices,
mismanagement of the Partnerships, and concealing such mismanagement from
investors in the Partnerships. Plaintiffs sought unspecified compensatory
damages, as well as punitive damages.

NOTE 20 - SEGMENT REPORTING

At December 31, 2001, the Company was actively engaged in two industry segments:
i) real estate ownership, development and management and ii) equipment leasing
and management. The real estate segment includes the ownership, management and
development of commercial properties and land. In addition, the Company owns
equity interests in non-affiliated companies that are engaged in real estate
leasing or development activities, as well as winter resorts (See Note 9). The
equipment leasing and management segment consists of an ownership interest in
several limited partnerships, companies and trusts that are engaged primarily in
the business of equipment leasing and management. The Company's largest equity
interest consists of Class B Beneficiary Interests, representing approximately
62% of the voting interest, in the AFG Trusts, which were established by an
affiliate between 1992 and 1995. The AFG Trusts are limited life entities that
have scheduled dissolution dates ranging from December 31, 2003 to December 31,
2006. Revenues from equipment leasing segments consist of lease revenues from a
portfolio of assets and management fees associated with managing several
affiliated investment programs. Substantially all revenues are domiciled within
the US.

Segment information for the years ended December 31, 2001 and 2000 is summarized
below:

2001 2000
------------- -------------
Restated (1)

Total Revenues: (2)
Equipment leasing $ 24,052,971 $ 24,430,686
Real estate 1,173,284 1,165,010
------------- -------------
Total $ 25,226,255 $ 25,595,696
------------- -------------

Equity Interests:
Equipment leasing-income $ 2,155,675 $ -
Real estate-loss (628,463) (2,866,789)
------------- -------------
Total $ 1,527,212 $ (2,866,789)
------------- -------------

Operating Expenses and Management Fees:
Equipment leasing $ 9,371,946 $ 3,889,090
Real estate 169,422 188,924
------------- -------------
Total $ 9,541,368 $ 4,078,014
------------- -------------

Interest Expense:
Equipment leasing $ 6,283,443 $ 7,489,549
Real estate 462,185 515,706
------------- -------------
Total $ 6,745,628 $ 8,005,255
------------- -------------

Depreciation, Write-down of Impaired Assets
and Amortization: (3)
Equipment leasing $ 22,149,328 $ 10,352,168
Real estate 2,904,154 536,893
------------- -------------
Total $ 25,053,482 $ 10,889,061
------------- -------------

Provision for income taxes $ 1,611,000 $ -
Elimination of minority interests $ 12,268,930 $ (665,742)
------------- -------------
Net Loss $ (3,929,081) $ (909,165)
------------- -------------

Capital Expenditures:
Equipment Leasing $ 17,385,000 $ -
Real Estate 2,417,120 1,343,205
------------- -------------
Total $ 19,802,120 $ 1,343,205
------------- -------------

Assets:
Equipment Leasing $106,150,058 $107,704,604
Real Estate 45,738,045 46,282,457
------------- -------------
Total $151,888,103 $153,987,061
------------- -------------

(1) See Note 1, regarding restatement of the Company's 2000 financial
statements.
(2) Includes management fee revenue earned from affiliates of approximately
$7.2 million for the year ended December 31, 2001. (See Note 8 for discussion
of management fees). Balances exclude equity income (loss) in affiliated and
non-affiliated companies.
(3) Balance includes a write-down of assets approximately $11.5 million
related to the equipment leasing segment and approximately $2.5 million related
to the real estate segment during 2001.(See Note 3).