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

                                   FORM 10-K
(Mark One)

          [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

       FOR THE TRANSITION PERIOD FROM _______________ TO _______________ .

                          COMMISSION FILE NO 001-12211

                       ECHELON INTERNATIONAL CORPORATION
            ------------------------------------------------------
            (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

                  FLORIDA                                   59-2554218
        ------------------------                      ----------------------
        (STATE OF INCORPORATION)                         (I.R.S. EMPLOYER
                                                      IDENTIFICATION NUMBER)

         450 CARILLON PARKWAY, SUITE 200            TELEPHONE (727) 803-8200
          ST. PETERSBURG, FLORIDA 33716 -       -------------------------------
   ----------------------------------------     (REGISTRANT'S TELEPHONE NUMBER)
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)


          SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                         NAME OF EACH EXCHANGE
                TITLE OF EACH CLASS:                     ON WHICH REGISTERED:

     COMMON STOCK, PAR VALUE $.01 PER SHARE             NEW YORK STOCK EXCHANGE
     SERIES A JUNIOR PARTICIPATING PREFERRED STOCK,
     PAR VALUE $.01 PER SHARE

          SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                                      NONE

     Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  Yes [x] No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]

     State the aggregate market value of the voting stock held by
non-affiliates of the registrant: $133,901,292 as of March 16, 1999 (based upon
the closing sales price for the registrant's stock of $21.1875 reported by the
New York Stock Exchange on March 16, 1999 as published in The Wall Street
Journal and, solely for these purposes, considering as non-affiliates all
stockholders other than the registrant's executive officers and directors).

     Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.

     Common stock, par value $.01 per share, 6,681,254 shares, as of March 16,
1999


                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant's definitive Proxy Statement to be filed with
the U.S. Securities and Exchange Commission, relating to the 1999 Annual
Meeting of Stockholders, are incorporated by reference in Part III hereof.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
 
<PAGE>

                               TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                           PAGE
                                                                                          ------
<S>         <C>                                                                           <C>
PART I.
 Item 1.    Business ..................................................................       1
 Item 2.    Properties ................................................................      24
 Item 3.    Legal Proceedings .........................................................      24
 Item 4.    Submission of Matters to a Vote of Security Holders .......................      24

PART II.
 Item 5.    Market for the Registrant's Common Equity and Related
            Stockholder Matters .......................................................      25
 Item 6.    Selected Financial Data ...................................................      26
 Item 7.    Management's Discussion and Analysis of Financial Condition and
            Results of Operations .....................................................      27
 Item 7A.   Quantitative and Qualitative Disclosures about Market Risk ................      47
 Item 8.    Financial Statements and Supplementary Data ...............................     F-1
 Item 9.    Changes in and Disagreements with Accountants on Accounting
            and Financial Disclosure ..................................................   III-1

PART III.
 Item 10.   Directors and Executive Officers of the Registrant ........................   III-1
 Item 11.   Executive Compensation ....................................................   III-1
 Item 12.   Security Ownership of Certain Beneficial Owners and Management ............   III-1
 Item 13.   Certain Relationships and Related Transactions ............................   III-1

PART IV.
 Item 14.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K ..........   III-1

Signatures ..........................................................................     III-3

Financial Statement Schedules .......................................................       S-1
</TABLE>

 
<PAGE>

                                    PART I


ITEM 1. BUSINESS

GENERAL

     Echelon International Corporation ("Echelon" or the "Company") is a real
estate company which develops, owns and manages commercial and multi-family
residential real estate (the "Real Estate Business"). The Real Estate Business
includes two segments: 1) Commercial Real Estate and 2) Multi-Family
Residential Real Estate. The Company also owns and manages a portfolio of
financial assets consisting primarily of leased aircraft and other assets and
collateralized financings of commercial real estate and aircraft (the "Leasing
and Lending Business"). The Leasing and Lending Business comprises the majority
of the Company's third segment, Investments in Financial Assets. Echelon is
continuing to withdraw from the aircraft and real estate lending business to
focus on its core real estate operations. Echelon's executive offices are
located at 450 Carillon Parkway, Suite 200, St. Petersburg, Florida, 33716,
telephone (727) 803-8200.

     Prior to December 18, 1996, Echelon was a wholly-owned subsidiary of
Florida Progress Corporation ("Florida Progress"). On December 18, 1996,
Florida Progress effected a spin-off of Echelon ("the Distribution") by
distributing all of the issued and outstanding Echelon Common Stock to holders
of outstanding Florida Progress Common Stock (one share of the Company for each
fifteen shares of Florida Progress) by a tax-free stock dividend.

     The Distribution established Echelon as a publicly held corporation,
listed on the New York Stock Exchange, independent from Florida Progress. The
Company's Common Stock trades under the symbol EIN.


                           THE REAL ESTATE BUSINESS

COMMERCIAL AND MULTI-FAMILY RESIDENTIAL REAL ESTATE OWNERSHIP AND MANAGEMENT

     GENERAL

     Echelon owns and manages a portfolio of commercial and multi-family
residential real estate and has additional commercial and multi-family
residential properties under construction or development. Currently, the
majority of the income-producing properties are located in the Tampa Bay area
of Florida. The Company also has offices in Dallas, Texas and Orlando, Florida,
both of which focus on the development and management of multi-family
residential communities in the southeast and southwest United States.

     Echelon believes its business plan, to maximize the value of its existing
commercial and multi-family residential real estate assets and to develop real
estate in the Company's

                                       1
<PAGE>

target markets, is supported by the current economic forecasts and demographics
of the southeast and southwest United States.

     The Company's owned assets include commercial and multi-family residential
real estate properties, consisting of eight operating office buildings, two
operating parking garages, one office building currently under construction,
five industrial and other properties, one income-producing multi-family
residential community, seven multi-family residential communities currently
under development or construction and seven additional multi-family residential
communities in the Company's pipeline. The following table summarizes Echelon's
owned commercial and multi-family residential real estate:

 SUMMARY OF OWNED COMMERCIAL AND MULTI-FAMILY RESIDENTIAL REAL ESTATE PORTFOLIO

<TABLE>
<CAPTION>
                                                                                                                          % OF
                                                                                                                        RENTABLE
                                                                                   PERCENTAGE                           SQ. FT.
                                                                                     LEASED                              LEASED
                                                                        RENTABLE      AS OF                                BY
                                                                         SQUARE     DEC. 31,            MAJOR            MAJOR
PROJECT NAME                  DESCRIPTION               LOCATION          FEET        1998             TENANTS          TENANTS
-------------------- ---------------------------- -------------------- ---------- ------------ ----------------------- ---------
<S>                  <C>                          <C>                  <C>        <C>          <C>                     <C>
OFFICE BUILDINGS & PARKING GARAGES

INCOME-PRODUCING
NationsBank Tower    26-story Class A             St. Petersburg, FL   296,693    100%         Florida Progress         25%
                     office tower                                                              NationsBank              16%
                                                                                               Holland & Knight
                                                                                                Law Firm                 8%
                                                                                               Merrill Lynch, et al      7%
                                                                                               Raymond James &           5%
                                                                                                Associates
                                                                                               Carlton, Fields Law       5%
                                                                                                Firm
                                                                                               KPMG LLP                  5%
Central Station &    2 floors of Class A          St. Petersburg, FL   133,279    100%         Florida Power           100%
South Core Parking   office space and 2                                (excludes
Garage               floors, aprox.                                    parking)
                     380 parking spaces
McNulty Station      5 multi-tenant, Class A      St. Petersburg, FL    93,152     99%         Andersen Consulting      81%
                     office buildings, historic                                                AmSouth                   7%
                     renovation                                                                 Bancorporation
The New McNulty      8-story, 714 space           St. Petersburg, FL     9,000    N/A          Construction            N/A
                     parking garage, ground                            (retail                 complete as of
                     floor retail space                                only)                   December 31, 1998
3rd & 3rd            3-story Class B office       St. Petersburg, FL    32,607    100%         Andersen Consulting     100%
                     building
Bayboro Station      3-story Class A office       St. Petersburg, FL    80,991    100%         Florida Power           100%
                     building
100 Carillon         3-story, multi-tenant        St. Petersburg, FL    79,749    100%         Raymond James            86%
                     Class A suburban                                                           Financial, Inc
                     office building located
                     in Carillon Park
Highpoint Center     15-story, multi-tenant       Tallahassee, FL       79,525     97%         Katz, Kutter Law Firm    46%
                     Class A office                                                            Huey, Guilday            22%
                     building                                                                   Law Firm
Progress Center      3 multi-tenant,              Alachua/             102,386     93%         Regeneration             48%
                     Class A office/research      Gainesville, FL                               Technologies
                     buildings located in                                                      CuraGen Corporation      12%
                     Echelon Business &                                                        US Biomaterials          12%
                     Technology Park
</TABLE>

                                       2
<PAGE>

SUMMARY OF OWNED COMMERCIAL AND MULTI-FAMILY RESIDENTIAL REAL ESTATE PORTFOLIO

<TABLE>
<CAPTION>
                                                                                                                            % OF
                                                                                                                          RENTABLE
                                                                                     PERCENTAGE                           SQ. FT.
                                                                                       LEASED                              LEASED
                                                                        RENTABLE        AS OF                                BY
                                                                         SQUARE       DEC. 31,            MAJOR            MAJOR
PROJECT NAME              DESCRIPTION                LOCATION           FEET (1)        1998             TENANTS          TENANTS
--------------- ------------------------------ -------------------- --------------- ------------ ----------------------- ---------
<S>             <C>                            <C>                  <C>             <C>          <C>                     <C>
UNDER
CONSTRUCTION
Castille at     2 multi-tenant                 St. Petersburg, FL   103,900         N/A          Under construction as   N/A
Carillon        Class A surburban                                                                of December 31, 1998
                office buildings located                                                         (projected completion
                in Carillon Park                                                                 June 1999)

INDUSTRIAL AND
OTHER
PROPERTIES
Bayboro         Land adjacent to Bayboro       St. Petersburg, FL   277,402 (2)      38%         Florida Power            38%
 Property        Station
7th Avenue      Industrial warehouse           Tampa, FL            187,500          98%         National Distribution    64%
                                                                                                  Centers
                                                                                                 S.P. Richards Company    34%
5th Avenue      Industrial warehouse           Tampa, FL             16,482         100%         Finer Scrap Metal       100%
Progress        2 Industrial warehouse         Tampa, FL            120,444          88%         John J. Faour            15%
 Packaging      buildings                                                                        Riverside Paper Co.      27%
                                                                                                 Walmart Stores, Inc.     35%
Harborage       Full service marina includes   St. Petersburg, FL   235 wet         100%         N/A                      N/A
 Marina at      wet slips and high & dry                            slips
 Bayboro        boat storage, marine repair                         425 high        100%         N/A                      N/A
                & service, parts sales and                          and
                marine supply store                                 dry slips
</TABLE>

---------------------
(1) Unless otherwise indicated.
(2) Square footage represents land.

                                       3
<PAGE>

SUMMARY OF OWNED COMMERCIAL AND MULTI-FAMILY RESIDENTIAL REAL ESTATE PORTFOLIO

<TABLE>
<CAPTION>
                                                                              ACTUAL OR      ACTUAL OR
                                                                              ESTIMATED      ESTIMATED
                                                                             QUARTER OF    QUARTER FIRST
                                                       RENTABLE     LAND    CONSTRUCTION       UNITS
PROJECT NAME                           LOCATION          UNITS    ACREAGE   COMMENCEMENT     AVAILABLE
-------------------------------- -------------------- ---------- --------- -------------- --------------
<S>                              <C>                  <C>        <C>       <C>            <C>
MULTI-FAMILY RESIDENTIAL

INCOME-PRODUCING
Echelon at Bay Isle Key          St. Petersburg, FL        369       28    3Q '97         Q2 '98
                                                           ===                            (74% leased
                                                                                          at 12/31/98)
UNDER CONSTRUCTION OR DEVELOPMENT
Echelon at The Reserve           St. Petersburg, FL        314       14    3Q '98         Q1 '99
Echelon at Woodland Park         Tulsa, OK                 232       10    3Q '98         Q2 '99
Echelon at Northlake             Atlanta, GA               256        9    4Q '98         Q3 '99
Echelon at Memorial Creek        Tulsa, OK                 292       15    4Q '98         Q3 '99
Echelon at Mission Ranch         Mesquite, TX              295       18    4Q '98         Q3 '99
Echelon at Watters Creek         Allen, TX                 200       12    2Q '99         Q1 '00
Echelon at Briargate             Colorado                  395       19    2Q '99         Q1 '00
                                 Springs, CO               ---
  Total under construction or development                1,984
                                                         =====
PIPELINE (UNDER CONTRACT FOR LAND PURCHASE)

Echelon at Lakeside              Plano, TX                 184       12     --             --
Echelon at Cheney Place          Orlando, FL               303        4     --             --
Echelon at Uptown                Orlando, FL               199        3     --             --
Echelon at Keller Town Center    Keller, TX                276       17     --             --
Echelon at the Ballpark          Memphis, TN               380        5     --             --
Echelon at Mid-Town              Memphis, TN               292        3     --             --
Echelon at Twenty Mile Village   Parker, CO                325       19     --             --
                                                         -----
  Total pipeline (under contract for land purchase)      1,959
                                                         =====
</TABLE>

                                       4
<PAGE>

OFFICE BUILDINGS/PARKING GARAGES

     NATIONSBANK TOWER is a 26-story, 296,693 rentable square feet ("rsf")
Class A office building in the center of downtown St. Petersburg, Florida and
accounts for approximately 24% of Echelon's more than 1,200,000 rsf of owned
commercial real estate. Completed in 1990, NATIONSBANK TOWER is home to several
of the area's most prominent companies, including Florida Progress,
NationsBank, Holland & Knight, Merrill Lynch, et al, Raymond James &
Associates, Inc., Carlton, Fields, and KPMG LLP. These principal tenants
account for 71% of the building's occupancy, the majority of which have leases
with remaining terms of at least six years. As of December 31, 1998, the
property was 100% leased.

     CENTRAL STATION consists of the first two floors (133,279 rsf) of office
space in a commercial condominium, which also has six floors of parking, two
owned by Echelon containing approximately 380 parking spaces (SOUTH CORE
PARKING GARAGE) and four floors by the City of St. Petersburg. Echelon acquired
the first two floors in November 1997 and completed the interior base building
improvements in addition to tenant improvements for 100% occupancy by Florida
Power Corporation ("Florida Power"), a wholly-owned subsidiary of Florida
Progress, under a 15-year lease which commenced in May 1998.

     MCNULTY STATION is a complex of five office buildings ranging in size from
two to five stories, totaling 93,152 rsf, and is located across the street from
the NATIONSBANK TOWER. MCNULTY STATION was part of a historic renovation
completed in 1985. The buildings are all Class A buildings leased to such
tenants as Andersen Consulting and AmSouth Bancorporation. The lease with
Andersen Consulting ("Andersen"), for 81% of the MCNULTY STATION properties, is
scheduled to expire in August 2001. As of December 31, 1998, MCNULTY STATION
was 99% leased.

     THE NEW MCNULTY is a 714 space parking garage with 9,000 square feet of
ground floor retail space. The construction of the parking garage was completed
in late December 1998. The retail space is 100% leased through a lease
commencing in the first quarter of 1999. The parking garage provides parking
for Echelon's commercial properties located in downtown St. Petersburg,
Florida.

     The 3RD & 3RD building is a three-story, 32,607 rsf office building
located two blocks south of NATIONSBANK TOWER. Andersen currently occupies the
entire building until August 2001 which is coterminous with Andersen's MCNULTY
STATION lease.

     BAYBORO STATION is a three-story, 80,991 rsf Class A waterfront office
building located near downtown St. Petersburg. Echelon completed the interior
base building and tenant improvements for 100% occupancy by Florida Power under
a 10-year lease which commenced in April 1998.

                                       5
<PAGE>

     Echelon's other office property in the St. Petersburg area is 100
CARILLON. 100 CARILLON, located in the Gateway area of St. Petersburg, is a
three-story, 79,749 rsf Class A multi-tenant office building housed within the
432 gross acre Carillon multi-use park ("CARILLON PARK"). Raymond James
Financial, Inc., a regional securities brokerage firm with headquarters in a
neighboring building, and its affiliates occupy 86% of the building under a
lease expiring on December 31, 2002. As of December 31, 1998, 100 CARILLON was
100% leased.

     Other Florida commercial office properties owned by Echelon include
HIGHPOINT CENTER, a 15-story, 79,525 rsf Class A office building located in
downtown Tallahassee, Florida. The property is situated two blocks from the
state capitol building and courthouse and houses several law firms with
significant state business activities. The law firms of Huey, Guilday and Katz,
Kutter, the building's two main tenants, represent 68% of the occupancy of the
building with remaining lease terms of two and four years, respectively. As of
December 31, 1998, HIGHPOINT CENTER was 97% leased.

     PROGRESS CENTER, located in Alachua/Gainesville, Florida, is a 102,386 rsf
office/research facility. The facility includes three buildings, each of which
is comprised of approximately 40% office space and 60% laboratory space.
PROGRESS CENTER is part of a 200 gross acre office and research park ("ECHELON
BUSINESS AND TECHNOLOGY PARK"). The three major tenants currently occupy
approximately 72% of the facility. As of December 31, 1998, PROGRESS CENTER was
93% leased.

     CASTILLE AT CARILLON is two Class A office buildings totaling 103,900
square feet, connected by a covered loggia, currently under construction in
CARILLON PARK. Construction is projected for completion in June 1999. As of
March 1999, Echelon occupies approximately 20,000 square feet as its corporate
headquarters. In addition, over 12,000 rentable square feet of CASTILLE AT
CARILLON have been leased to third parties and additional leases are under
negotiation.

     During the next five years, the Company expects to hold its core office
buildings and, subject to market conditions, expand its commercial real estate
portfolio by developing or acquiring up to 750,000 to 1,500,000 square feet of
commercial office space. A substantial amount of this space will be developed
on Echelon's existing land inventory in the Gateway area of St. Petersburg,
Florida, with the balance developed or acquired in other southeast and
southwest target markets.

     Although the Company plans to hold its core office buildings during this
period, short, medium and long-term exit strategies have been developed for all
currently owned commercial real estate. The Company intends to sell non-core
commercial properties over the next five years.

                                       6
<PAGE>

     INDUSTRIAL AND OTHER PROPERTIES

     Although its industrial properties do not represent a significant part of
Echelon's investment in commercial real estate, these properties are generally
located in areas with some potential for growth. Echelon's industrial
Properties include the BAYBORO PROPERTY, THE 7TH AVENUE property, the 5TH
AVENUE property and PROGRESS PACKAGING.

     Echelon's BAYBORO PROPERTY includes 277,402 sf of land in St. Petersburg.
Florida Power leases 104,152 sf of the land to house some of its "peaking"
units, a system of gas powered backup generators used to produce power during
periods of peak electrical demand. The lease to Florida Power can be canceled
upon written notice from Florida Power. Most of the land comprising the BAYBORO
PROPERTY was acquired for its development potential. The Bayboro area is close
to downtown St. Petersburg and is located within a redevelopment zone with some
land bordering the waterfront.

     Echelon has several industrial properties located in various areas of
Tampa, Florida. The 7TH AVENUE property is a 187,500 rsf warehouse/distribution
facility located on the east side of Tampa. At December 31, 1998, the property
was 98% leased. The facility is one of the largest warehouse properties in a
predominantly industrial neighborhood. The 5TH AVENUE property, located near
the 7TH AVENUE property, is a 16,482 rsf industrial building and is 100% leased
to a single tenant. PROGRESS PACKAGING, located on the west side of Tampa, is
comprised of two industrial warehouse buildings with a total of 120,444 rsf. At
December 31, 1998, the 18,600 rsf building was 100% leased and the 101,844 rsf
building was 86% leased.

     Echelon also owns and operates a marina, the HARBORAGE MARINA AT BAYBORO,
located in the Bayboro Harbor area near downtown St. Petersburg. This full
service marina offers 235 wet slips and 425 high and dry slips, which were 100%
leased as of December 31, 1998.

     The Company intends to sell the industrial and other properties over the
next five years as market conditions warrant.

     MULTI-FAMILY RESIDENTIAL DEVELOPMENT

     As of February 1999, the Company completed the construction of ECHELON AT
BAY ISLE KEY, a 369-unit multi-family residential community located on 9th
Street in the Gateway area of St. Petersburg, Florida. As of March 1999, over
90% of the units have been leased. Leasing stabilization of 93% is projected to
occur in the first half of 1999.

     Construction is in process for ECHELON AT THE RESERVE, a 314-unit
multi-family residential community in CARILLON PARK. Construction is scheduled
to be completed by September 1999. As of March 1999, four buildings have been
completed and over 65 units have been leased.

                                       7
<PAGE>

     As of December 31, 1998, construction is also in process on four
additional multi-family residential communities, as previously outlined in the
"Summary of Owned Commercial and Multi-Family Residential Real Estate
Portfolio" table. The land for the construction of two additional multi-family
residential communities has been purchased and both land parcels are under
development as of December 31, 1998, as discussed below.

     In December 1998, the Company purchased 12 acres of land in Allen, Texas
for the construction of ECHELON AT WATTERS CREEK. Construction is scheduled to
begin on this community in the second quarter of 1999.

     As of December 31, 1998, the Company had also purchased 19 acres of land
in Colorado Springs, Colorado, with an additional 4 acre adjoining parcel
purchased in February 1999. The land will be used for the development of
ECHELON AT BRIARGATE, with construction planned to begin in the second quarter
of 1999.

     As of December 31, 1998, Echelon has seven contracts, subject to the
Company's final due diligence, to acquire land for the development of an
estimated 1,959 multi-family residential units at an aggregated estimated
development cost of $177.0 million.

     See "General Overview of Strategic Plan" for a discussion of the Company's
multi-family residential development plans.

REAL ESTATE MANAGEMENT AND BROKERAGE SERVICES

     The real estate management and brokerage services are complementary to the
Company's commercial and multi-family residential real estate operations.
Growth is expected to occur primarily as a result of the growth in the
commercial and multi-family residential real estate operations, and the growth
of revenue associated with these services for buildings owned by third parties.
In addition, Echelon continues to evaluate the acquisition of real estate
management and/or brokerage companies as opportunities become available. Some
growth in the real estate management and brokerage services may come from
strategic acquisitions.

UNDEVELOPED OWNED COMMERCIAL & MULTI-FAMILY RESIDENTIAL REAL ESTATE

     OVERVIEW

     A portion of Echelon's real estate holdings is represented by several
large parcels of undeveloped land in the St. Petersburg area. Certain of these
properties already have substantial infrastructure in place, including CARILLON
PARK. Echelon's strategy is to accelerate the development of both commercial
and multi-family residential projects on these sites. The following table
summarizes Echelon's investment in undeveloped real estate.

                                       8
<PAGE>

SUMMARY OF UNDEVELOPED OWNED COMMERCIAL & MULTI-FAMILY RESIDENTIAL REAL ESTATE

<TABLE>
<CAPTION>
                                                                                          DEVELOPMENT POTENTIAL
                                                                                         AS OF DECEMBER 31, 1998
                                                                                         ------------------------
                                                                                                        NUMBER OF
                                                                                           ACRES FOR     MULTI-
                                                                                            SALE OR      FAMILY
PROJECT NAME          DESCRIPTION             LOCATION                  ZONING            DEVELOPMENT     UNITS
--------------- ----------------------- -------------------- --------------------------- ------------- ----------
<S>             <C>                     <C>                  <C>                         <C>           <C>
Carillon Park   Class A, suburban       St. Petersburg, FL   Phase I (DRI in place)--           38         N/A
                office, retail and                            Zoned office park
                residential park in
                Gateway area                                 Phase II (DRI in place)--
                consisting of 432                             Zoned office/retail and           35         N/A
                gross acres                                   multi-family residential          36         855
                                                              park
4th Street      15 undeveloped          St. Petersburg, FL   Zoned multi-family                 15         228
                acres                                         residential/office park
9th Street      44 undeveloped          St. Petersburg, FL   Zoned multi-family                 44         596
                acres                                         residential
Echelon         Research park           Gainesville, FL      Zoned research, office,           140         N/A
Business and    consisting of                                 industrial/commercial
Technology      200 gross acres
Park            with infrastructure
                in place
Royal Oaks      35 undeveloped          Tallahassee, FL      Zoned multi-family                 35         N/A
                acres adjacent to                             residential
                131 single family lots
                previously developed
                and sold
Riverside       2,000-acre operating    Lakeland, FL         Zoned agricultural              2,000         N/A
Ranch           ranch                                                                    ---------    --------

  TOTAL                                                                                      2,343       1,679
                                                                                         =========    ========
</TABLE>

     CARILLON PARK is a 432 gross acre office, retail and multi-family
residential park located in the Gateway area of St. Petersburg, Florida and is
among the largest tracts of property in the metropolitan Tampa Bay area with
all necessary zoning, entitlements, and other development approvals in place.
Echelon believes that the 109 Company-owned undeveloped acres within CARILLON
PARK will play a significant role in Echelon's business plan. CARILLON PARK is
bordered by a triangle of major roads serving both Pinellas and Hillsborough
counties. CARILLON PARK'S central location (equidistant from downtown St.
Petersburg, downtown Tampa and downtown Clearwater) creates an ideal business
center providing quick access to a large employee pool and to the Tampa
International Airport.

     Although new office construction generally has many hurdles to overcome,
the development rights in CARILLON PARK are vested pursuant to Development of
Regional Impact ("DRI") orders. CARILLON PARK'S development plans include
master stormwater retention areas, underground utilities which include fiber
optic capability, and zoning approvals which allow for a broad spectrum of
uses. For purposes of implementing this plan, development of the CARILLON PARK
land is divided into two phases.

                                       9
<PAGE>

     Construction of the infrastructure for Phase I and Phase II is complete
and includes a jogging and fitness trail and boardwalk. Phase I, which has 38
acres remaining to be developed or sold, is already the office location for
companies such as Raymond James Financial, Inc., Allstate Insurance Company,
Xerox Corporation, Western Reserve Life Assurance Company of Ohio and Payment
Systems for Credit Unions Service Center.

     Seventy-one of the original 155 developable acres of Phase II remain to be
developed or sold. Of the original acreage for sale in Phase II, 90 acres were
zoned for office buildings and retail and 65 acres were zoned for multi-family
residential development. Of the 90 acres for office buildings, almost 51 acres
have been sold and 4 acres are being utilized for the construction of CASTILLE
AT CARILLON. This leaves a balance of approximately 35 acres for office
building/retail development in Phase II. Of the 65 acres for multi-family
residential development, 15 acres have been sold and 14 acres are being
utilized for the construction of ECHELON AT THE RESERVE, leaving approximately
36 acres with the potential for development of an additional 855 multi-family
residential units. Echelon intends to develop most of the CARILLON PARK land
for its own account and market the remaining land to third parties.

     Financing for further development of CARILLON PARK is expected from a
variety of sources, including project-based financings and internally generated
funds from the collection of loans and non-strategic asset sales, operating
cash flow, and existing cash, which, as of December 31, 1998, was $21.6
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources" in Item 7.

     Although real estate development has inherent business risks, general
market demographics as well as independent marketing studies sponsored by
Echelon suggest that multi-family residential development in the Gateway area
is warranted and could support 500 to 600 units annually for the next five
years. In particular, over 8,700 employees currently work within CARILLON PARK,
with an additional 2,000 employee expansion announced to occur by the end of
1999 by a company located within CARILLON PARK, with thousands of additional
employees based in offices in the immediate vicinity.

     Echelon's 15-acre 4TH STREET site has potential for the development of
approximately 228 multi-family residential units or the development of
commercial office buildings. The Company is currently evaluating strategies for
the site which may include the development of a multi-family residential
community, development of commercial properties or the sale of the property to
a third party, depending upon which alternative provides the greatest risk-
adjusted return to the Company.

     Echelon's 9TH STREET site, which is also located in the Gateway area of
St. Petersburg, Florida, has a total of 44 undeveloped acres with multi-family
residential development potential of approximately 596 units. The 9TH STREET
site is adjacent to the 28 acres utilized for the development of the Company's
multi-family residential community, ECHELON AT BAY ISLE KEY.

                                       10
<PAGE>

     Echelon owns approximately 140 developable acres in the ECHELON BUSINESS
AND TECHNOLOGY PARK, located in Alachua/Gainesville, Florida. The rural setting
and lack of substantial economic base complicate the development and marketing
of this property. However, given the park's highway access and proximity to
nearby Interstate 75, as well as its proximity to the University of Florida,
Echelon believes that opportunities for developing ECHELON BUSINESS AND
TECHNOLOGY PARK may come from two areas: (i) research-related office and
laboratory buildings similar to existing facilities and (ii) back-office
operational centers and distribution facilities. During 1998, Echelon
successfully negotiated a modification in an agreement with the University of
Florida Foundation, Inc. ("Foundation"). As a condition of the modification,
Echelon constructed roads and other infrastructure on Company-owned land in the
ECHELON BUSINESS AND TECHNOLOGY PARK. The infrastructure enhances both the
Company's land and provides additional access to Foundation-owned land.

     Other Echelon properties include approximately 35 acres of undeveloped
land in the ROYAL OAKS subdivision in Tallahassee, Florida and a fully
operational 2,000 acre ranch, RIVERSIDE RANCH, located near Lakeland, Florida.
Although no agreements currently exist relating to the sale of such properties,
Echelon intends to sell these properties or the development rights as promptly
as practicable.

     MULTI-FAMILY RESIDENTIAL DEVELOPMENT

     Multi-family residential development has been identified as the primary
driver of Echelon's growth over the next five years. During the next five
years, Echelon expects to develop or acquire 20 to 40 multi-family residential
communities, each comprised of approximately 150 to 400 units. Within the next
12 months, the Company plans to be under construction on approximately 2,400 to
4,000 units.

     Echelon is capitalizing on the opportunity provided by its existing
property inventory in the Tampa Bay area as well as purchasing properties in
the southeast and southwest United States for development of additional
multi-family residential communities. Given current market conditions, Echelon
is aggressively seeking alliances to participate in joint venture partnerships,
merchant build and presale opportunities for specific multi-family
developments. Strategic alliances are an integral component of the Company's
strategic plan.

     COMMERCIAL REAL ESTATE DEVELOPMENT

     In addition to multi-family residential development, Echelon plans to
initially take advantage of the commercial real estate market in the Gateway
area of St. Petersburg, Florida, where occupancy levels are averaging over 93%
(according to the Maddux Report of January 1999) by developing its holdings
within CARILLON PARK. Although some regional office vacancies exist, Echelon
believes the current high occupancy levels and the lack of available commercial
space in the Gateway area will support future construction. Echelon believes
that the construction of CASTILLE AT CARILLON, two Class A office buildings
totaling

                                       11
<PAGE>

103,900 square feet, will contribute to enhancing the value of the remaining
acreage and will provide a source of prospective tenants for the multi-family
residential communities also planned for CARILLON PARK.

     To the extent market and other conditions warrant, Echelon's long-term
plans include potential office building development elsewhere in the southeast
and southwest United States.

                       THE LEASING AND LENDING BUSINESS

COLLATERALIZED COMMERCIAL REAL ESTATE LOAN PORTFOLIO

     Echelon is continuing to withdraw from the real estate lending business
and has made no new loans since 1993. The Company does not anticipate
originating any new loans except to facilitate the sale of an existing asset.
Echelon's remaining commercial real estate loan portfolio is secured by
properties located in the western United States. The aggregate loan balance, as
of December 31, 1998, was $38.8 million. The real estate loan portfolio is
summarized in the following table:

                     SUMMARY OF REAL ESTATE LOAN PORTFOLIO


<TABLE>
<CAPTION>
                                                                                                   BALANCE
                                                                               FLOATING             AS OF
                       COLLATERAL           COLLATERAL          MATURITY       INTEREST       DECEMBER 31, 1998
BORROWER/PROJECT        LOCATION            DESCRIPTION           DATE        RATE BASIS        (IN MILLIONS)    AMORTIZATION
-------------------- -------------- -------------------------- ---------- ------------------ ------------------ -------------
<S>                  <C>            <C>                        <C>        <C>                <C>                <C>
                                                               Jun-99     Prime plus 2.00%    $ 23.5                 None
Marquardt Company    Van Nuys, CA   Industrial office complex
                                    on 52 acres
Vine Street          Olympia, WA    Single tenant (State of    Apr-99     Prime plus .75%        5.8                 None
 Investors-Capitol                  Washington), Class A
 View I                             office building
Vine Street          Olympia, WA    Single tenant (State of    Dec-99     Prime plus .75%        5.0                 None
 Investors-Capitol                  Washington), Class A
 View II                            office building
Vine Street          Olympia, WA    Single tenant (State of    May-01     Prime plus .75%        4.5                 None
Associates-Town                     Washington), Class A                                      ------
 Square VI                          office building
                     Total                                                                    $ 38.8
                                                                                              ======
</TABLE>

     The final maturities of the loans comprising Echelon's real estate loan
portfolio range from 1999 to 2001. As indicated in the preceding table, all of
the loans bear interest at a floating rate based on the prime rate plus either
0.75% or 2.0%.

     At December 31, 1998, Echelon's largest outstanding loan is $23.5 million
to the Marquardt Company ("Marquardt"). Marquardt is owned by Ferranti PLC
("Ferranti"), which is operating under receivership in the United Kingdom. The
Ferranti receiver, Arthur Andersen & Company, is in the process of liquidating
Ferranti's assets, including Marquardt. Echelon's loan is secured by a 52 acre
industrial complex located in California adjacent to the Van Nuys Airport.
Situated on the property are several industrial buildings on short-term

                                       12
<PAGE>

leases of less than one year and several buildings totaling 173,764 square feet
on 16 acres of land leased to Kaiser Marquardt for the manufacturing and
testing of aerospace engines. In addition, Echelon has been assigned
Marquardt's lease with Kaiser Marquardt. Currently, this lease generates $2.4
million in annual rental income, which is sufficient to service the interest
payments on Echelon's loan. Echelon estimates that the potential fair market
value of the industrial complex exceeds the outstanding loan balance. Echelon
has extended the maturity on this loan several times through forbearance and
does not expect full payment until the infrastructure of the properties has
been completed and the specific parcel has been subdivided and sold. Therefore,
further loan extensions are possible. Ferranti has received initial indication
of approval from Los Angeles County to subdivide the property to enhance its
marketability. It is anticipated that the entire implementation of the
subdivision plan could take two years to complete. In addition, the borrower
has submitted an environmental closure plan to the California Department of
Environmental Protection and is awaiting approval.

     As indicated in the preceding table, Echelon has three loans totaling
$15.3 million as of December 31, 1998 to the two Vine Street partnerships. Each
individual loan is secured by an office building located in the State of
Washington. The buildings securing such loans range in size from 43,000 to
76,000 square feet. The loans are split between two Vine Street partnerships:
Vine Street Investors ("VSI") and Vine Street Associates ("VSA"). Each
partnership guarantees the other partnership's loans. VSI is the borrower of
the Capitol View I and II loans, while VSA provides the guarantees. VSA is the
borrower of the Town Square VI loan, while VSI provides the guarantee. The
guarantees are secured with second liens and assignment of leases on the other
partnership's security. All three buildings are leased to the State of
Washington. A comparison of lease terms to loan maturities is as follows:


<TABLE>
<CAPTION>
                                  CURRENT      CURRENT
                                   LOAN         LEASE
PROJECT LOANS                    MATURITY      MATURITY
-----------------------------   ----------   -----------
<S>                             <C>          <C>
Capitol View I ..............    4/30/99       5/31/99
Capitol View II .............   12/31/99       6/30/00
Town View Square VI .........    5/31/01      11/30/01
</TABLE>

     Echelon's strategy is to collect outstanding loan balances as soon as
practicable, to take the steps necessary to maximize the value of each asset,
and ultimately, to withdraw from the business of commercial real estate
financing as existing loans are repaid. In the event that certain borrowers are
unable to repay or refinance their loans at final maturity, Echelon anticipates
either negotiating an extension of the maturity of the loan or taking the
necessary legal steps to foreclose and liquidate the underlying collateral.
Echelon plans to redirect capital from its real estate loan portfolio first to
repay debt with any excess amounts reinvested in its Real Estate Business.

                                       13
<PAGE>

AFFORDABLE HOUSING INVESTMENTS

     As part of Echelon's strategy, the Company has investments in affordable
housing developments that provide Housing Tax Credits. Affordable Housing Tax
Credit developments have maximum limits on tenant income, gross rent
restrictions, and certain other requirements of state tax credit authorities
and the Internal Revenue Service. Investments in these developments provide
dollar-for-dollar tax credits over a 10-year period against federal income tax
liabilities. Echelon believes that Housing Tax Credit investments are
appropriate investments because of the significant demand for affordable and
low income housing and the attractive risk and return outlook. In addition,
Echelon expects that its finance lease portfolio will create a federal income
tax base and cash outflow over the next 10 to 15 years. Echelon believes that
investments in Housing Tax Credit investments could significantly reduce this
cash outflow while creating favorable overall returns for the Company.

     Through December 31, 1998, Echelon has invested $22.9 million in five
Housing Tax Credit limited partnerships which call for additional cash
investments by Echelon of $2.9 million in 1999.

COLLATERALIZED LEASING AND FINANCING OF AIRCRAFT AND RELATED EQUIPMENT

     GENERAL

     Echelon owns and manages a portfolio of leveraged, direct finance and
operating leases of aircraft and other equipment and one collateralized loan
secured by aircraft.

     Echelon's leveraged lease portfolio represents transactions in which
Echelon acts as the equity investor and owner participant. In a typical
aircraft leveraged lease transaction, an airline (which may be unable either to
allocate capital to the purchase of a large commercial aircraft or to
effectively utilize the tax benefits related to ownership) and an aircraft
manufacturer enter into a transaction in which a third party (called an "owner
participant" or "equity participant") purchases the aircraft, typically through
a special purpose trust (an "owner trust"), from the manufacturer. The aircraft
is then leased to the airline or to an affiliate of the manufacturer which then
subleases the aircraft to the airline. The owner trust is the legal owner of
the aircraft. The purchase of the aircraft is generally financed by both the
equity investment by the owner participant and by non-recourse loans borrowed
by the owner trust from a bank or other lender(s). The rent payable to the
owner trust pursuant to the leveraged lease generally represents the amount
necessary to service the debt, plus a return on the owner participant's equity
investment. The owner participant also generally recognizes certain tax
benefits as the beneficial owner of the aircraft. These leases are typically
long-term (20 years or more) and at termination the owner participant takes
possession of the aircraft, which generally still has a useful life of several
years (usually 10 years in the case of aircraft). Upon expiration, the lessee
generally has the right to purchase the aircraft for the higher of the
aircraft's fair market value or for some stated percentage of the aircraft's
cost. The lessee may also generally terminate the lease early by

                                       14
<PAGE>

payment of the lease termination value (a predetermined pricing method which
reflects, among other things, the amount of non-recourse debt, the initial
investment and certain tax consequences).

     Echelon also owns assets under operating and direct finance leases. Under
operating leases, Echelon leases an asset to a third party in circumstances
unrelated to the financing of such asset for a term which is generally shorter
than the typical term of a leveraged lease. Direct finance leases are generally
structurally similar to the leveraged lease transactions, except for the
absence of third party debt financing by the owner trust.

     Under these lease terms, the ultimate user (i.e., the lessee or
sub-lessee) of the aircraft is generally required to bear the direct operating
costs and the physical loss risk of the aircraft; maintain the aircraft;
indemnify Echelon as lessor against any liability as a result of any act or
omission of the lessee or its agents; maintain casualty insurance in an amount
equal to the specific amount specified in the lease; and maintain liability
insurance naming Echelon as an additional insured with a minimum coverage which
Echelon deems appropriate. In general, substantially all obligations connected
with the ownership and operation of the leased aircraft are assumed by the
lessee, and minimal obligations are imposed upon Echelon. Default by a lessee,
however, may cause Echelon to incur unanticipated expenses. See "Governmental
and Environmental Regulations" below. Moreover, the risk that the asset will be
worth less than originally anticipated, and the risk that it will not be
re-leased or sold upon expiration of the lease, is borne by Echelon as the
owner participant.

                                       15
<PAGE>

   LEVERAGED LEASING

   The following table summarizes Echelon's leveraged lease portfolio:

                     SUMMARY OF LEVERAGED LEASE PORTFOLIO


<TABLE>
<CAPTION>
                                                                                           LEASE      APPROXIMATE
                                     AIRCRAFT/ASSET        LEASE                        TERMINATION   AGE OF ASSET
                                       TYPE/YEAR       COMMENCEMENT    ORIGINAL COST        DATE        AT LEASE
LEASE/SUBLEASES                       OF DELIVERY          DATE       ($ IN MILLIONS)    (MO./YR.)      MATURITY
--------------------------------- ------------------- -------------- ----------------- ------------- -------------
<S>                               <C>                 <C>            <C>               <C>           <C>
A.I. Leasing II (Airbus) ........ A300-B4-203             Mar-85     40.0                  Jan-07         21
                                  1985
Airbus A300 Leasing,
 Inc./American .................. A300-B4-605R            Apr-89     54.0                  May-11         22
                                  1989
Air Wisconsin ................... Bae146-300A             Sep-89     23.0                  Mar-10         20
                                  1989
American Airlines, Inc. ......... DC 9-82                 Oct-84     23.0                  Jan-05         20
                                  1984
American Airlines, Inc. ......... DC 9-82                 Oct-84     23.0                  Jan-05         20
                                  1984
America West Airlines, Inc. ..... B757-2G7ER              Dec-89     48.0                  Jan-18         28
                                  1989
Delta Air Lines, Inc.
 (Stage II) ..................... B737-232 ADV            Apr-84     18.0                  Mar-05         20
                                  1984
Delta Air Lines, Inc.
 (Stage II) ..................... B737-232 ADV            Apr-84     18.0                  Mar-05         20
                                  1984
Delta Air Lines, Inc.
 (Stage II) ..................... B737-247 ADV            Jul-87     19.0                  Jul-02         15
                                  1987
Delta Air Lines, Inc.
 (Stage II) ..................... B737-247 ADV            Jul-87     19.0                  Jul-02         15
                                  1987
Delta Air Lines, Inc. ........... B767-332                Nov-87     59.0                  Jan-10         22
                                  1987
Delta Air Lines, Inc. ........... B757-232                Feb-88     43.0                  Aug-10         22
                                  1988
US Airways, Inc. ................ B737-301                Sep-86     24.0                  Jan-07         20
                                  1986
US Airways, Inc. ................ B737-301                Sep-86     24.0                  Jan-07         20
                                  1986
US Airways, Inc. ................ B737-301                Sep-86     24.0                  Jan-07         20
                                  1986
Consolidated Rail Co. ........... 25 GE                   Mar-85     34.0                  Jan-01         15
                                  C-36-7 locomotives
Union Bank-Real Estate
 Monterey Park, CA .............. 420,845 square          Sep-86     50.0                  Dec-11         25
                                  foot building
</TABLE>

     Because current disposition of the leveraged lease assets would result in
significant current income tax payments, Echelon generally plans to hold the
leveraged lease assets to maturity or until the market value of a leveraged
lease asset exceeds its termination value. At that time, Echelon will either
sell or hold and re-lease the underlying aircraft or other asset, depending
upon which option is determined to provide the highest return. If market
conditions warrant, Echelon may also restructure leases within the leveraged
lease portfolio.

                                       16
<PAGE>

After initial lease maturity, the average age of the leased aircraft in
Echelon's portfolio will be approximately 20 years. Based on a useful aircraft
life of 30 years, Echelon expects to have an average of ten years to maximize
the value of the leased assets through sale or re-leasing.

     DIRECT FINANCE AND OPERATING LEASES

     As of December 31, 1998, Echelon's portfolio includes two direct finance
leases. The first lease was obtained through the July 31, 1998 dissolution of
the Progress Potomac Capital Ventures ("PPCV") joint venture between Echelon
and Potomac Capital Corporation ("Potomac") and is for a 1973 DC10-30 leased to
Continental Airlines, Inc. ("Continental").

     The second direct finance lease is for a 1984 B737-300 leased to Southwest
Airlines Company ("Southwest") which was originally scheduled to mature in June
2004. In November 1998, Echelon executed an extension on the direct finance
lease which extends the maturity of the lease through June 2008 and adjusts the
monthly rental payments, beginning in June 2004. Subsequently, the lease was
utilized as collateral for a $13.0 million, full payout, 5.99% fixed rate loan
maturing in June 2008.

     Echelon has one operating lease for a 1981 B727-200 ADV aircraft on lease
to Air Micronesia, Inc. (a subsidiary of Continental), which had an original
lease expiration of December 31, 1998. The maturity of the lease was extended
to October 31, 2000.

     Although operating leases are generally for relatively higher rental rates
than longer term direct finance or leveraged leases and the lessee enjoys
relatively greater flexibility through the shorter term, the lessor under an
operating lease may be at relatively greater risk because the asset must be
re-leased at maturity. Re-leasing any asset could take time and could be
delayed due to market weakness and could be impacted by potentially lower
future rental rates.

     Echelon believes that to maximize the long-term values of its existing
aircraft assets under direct finance and operating leases, it may be necessary
to hold such assets beyond the terms of their current leases. Echelon also
believes that redeploying such assets under operating leases represents an
opportunity which could provide acceptable returns on a risk-adjusted basis.
The Company's direct finance and operating leases will continue to be actively
managed, which may result in sales or other types of liquidations as market
conditions warrant.

     AIRCRAFT LENDING

     Echelon has withdrawn from the aircraft lending business and has one
remaining aircraft loan which matures December 31, 1999. The aircraft loan is
to American Finance Group with an outstanding balance at December 31, 1998 of
$.2 million and an interest rate of 7.57%. The loan is secured by three 1978-79
B737-2H4 aircraft which are leased to Southwest until December 1999.

                                       17
<PAGE>

     BANKRUPTCY OF LESSEES OF AIRCRAFT

     Due to many factors, including the economy, uncertain traffic levels,
intense route and fare competition and the ease of entry of new airlines under
the Airline Deregulation Act of 1978, several commercial airlines in recent
years have been forced to suspend or cease operations due to financial
difficulties. These airlines have filed petitions for reorganization under the
Federal Bankruptcy Code, have merged with other airlines or have been
liquidated. Echelon believes this past economic uncertainty in the commercial
airline industry is indicative of the periodic fluctuations in the industry's
cyclical economic performance. No assurance can be given that a decline in the
health of the airline industry would not have an adverse effect on Echelon's
business or results of operations. Moreover, if aircraft are returned by
bankrupt carriers, there is no assurance that Echelon could sell or re-lease
the aircraft on favorable terms or in a timely manner.

     In order to encourage equipment financing to the commercial airline
industry, federal bankruptcy laws traditionally have afforded special treatment
to certain lenders or lessors. Section 1110 of the Federal Bankruptcy Code
creates a category of aircraft lenders and lessors whose rights to repossession
upon the occurrence of a default are substantially enhanced.

     AIRCRAFT REMARKETING AND SALE

     On termination of a lease and return or repossession of an aircraft to or
by Echelon, the Company would need to remarket the aircraft to realize its full
investment. The remarketing of aircraft may be through a lease or sale. Whether
an investment in any aircraft initially subject to a leveraged or direct
finance lease will ultimately prove profitable may depend on the terms of
re-lease or sale. No assurance can be given that as the aircraft leases mature,
Echelon will be able to re-lease or sell such aircraft on commercially
acceptable terms or in a timely manner. Furthermore, in the event of a lessee
default or bankruptcy requiring Echelon to sell the aircraft prior to expected
maturity of the lease, Echelon would accelerate the incurrence of tax
liabilities, which could be significant, even if the aircraft is sold for less
than its long-term value.

COMPETITION

     REAL ESTATE INDUSTRY

     The real estate ownership, development and management markets are
generally regional and the identity of Echelon's competitors and the levels of
competition vary in each area of activity and in each market. While Echelon
encounters significant competition in each area of activity and in each market,
Echelon believes that no one competitor is dominant. In particular, within the
Tampa Bay area in which Echelon's operations are currently concentrated, there
are numerous commercial and multi-family residential properties that compete
with Echelon in attracting residents and tenants, numerous companies that
compete with Echelon in selecting land for development and properties for


                                       18
<PAGE>

acquisition and numerous companies that compete for real estate management
services. Echelon believes competition in the real estate industry is based
largely on location, quality of products and services and financial resources.
Certain of Echelon's competitors have significantly greater financial resources
than Echelon and may have greater experience than the Company in acquiring,
developing and managing real estate, placing them at a competitive advantage in
this regard.

     AIRCRAFT LEASING INDUSTRY

     The aircraft leasing industry is highly competitive, offering users
alternatives to the purchase of most types of aircraft. Competitive conditions
vary considerably depending upon the type of aircraft to be leased and the
nature of the prospective lessee. As Echelon's aircraft leases mature, Echelon
will be subject to such competition to the extent it attempts to re-lease such
aircraft. In attempting to obtain commitments to lease aircraft to specific
lessees, Echelon may be expected to compete, directly or indirectly, with
aircraft manufacturers, airlines and other operators, equipment managers,
leasing companies, financial institutions and numerous other parties engaged in
the leasing, managing, marketing or remarketing of aircraft. Many of these
competitors have significantly greater financial resources than Echelon and may
have greater experience than Echelon in managing, leasing, operating and
selling aircraft. Such competitors may offer to lease aircraft at rates lower
than those which Echelon can reasonably offer and may provide certain benefits,
such as maintenance, crews, support services and trade-in privileges, which
Echelon generally cannot provide. In addition, to the extent troubled airlines
seek to renegotiate the terms of the leases relating to their aircraft, certain
of Echelon's competitors with greater resources may be in better bargaining
positions to avoid renegotiation or may be able to enter into such negotiations
and achieve relatively more favorable terms than Echelon would be able to
achieve.

GOVERNMENTAL AND ENVIRONMENTAL REGULATION

     REAL ESTATE INDUSTRY

     Echelon believes that it is in compliance in all material respects with
all material environmental laws or regulations and that the cost of continued
compliance with such laws and regulations will not have a material adverse
effect on Echelon. However, many of Echelon's properties are located in areas
where current or historic industrial uses of the areas may have caused site
contamination. Nonetheless, at this time, Echelon does not anticipate that
regulatory authorities will require remediation of the properties in any manner
that would result in a material adverse effect on Echelon's business, results
of operations or financial condition, and Echelon estimates that its
proportionate share of liability for cleaning up such properties ranges from
$.1 million to $1.0 million and has reserved $.3 million for potential costs
that management estimates to be probable. See Note 14 to the Consolidated
Financial Statements included in Item 8.

                                       19
<PAGE>

     AIRCRAFT LEASING INDUSTRY

     GENERAL. The ownership and operation of aircraft in the United States are
strictly regulated by the Federal Aviation Administration ("FAA"), which
imposes certain minimum restrictions and economic burdens upon the use,
maintenance and ownership of aircraft. FAA regulations contain strict
provisions governing various aspects of aircraft ownership and operation,
including aircraft inspection and certification, maintenance, equipment
requirements, general operating and flight rules, noise levels, certification
of personnel, and record keeping in connection with aircraft maintenance. In
the last several years, the FAA has issued a number of administrative
directives and other regulations relating to, among other things, collision
avoidance systems, airborne windshear avoidance systems, noise abatement and
increased inspection requirements, which will require lessees or Echelon to
incur additional expenditures for compliance. FAA policy has given high
priority to aviation safety, and a primary objective of FAA regulations is that
an aircraft be maintained properly during its service life. FAA regulations
establish standards for repairs, periodic overhauls and alterations and require
that the owner or operator of an aircraft establish an airworthiness inspection
program to be carried out by certified mechanics qualified to perform aircraft
repairs. Each aircraft in operation is required to have a Standard
Airworthiness Certificate issued by the FAA.

     MAINTENANCE AND AIRCRAFT AGING. Echelon, as the beneficial owner of
aircraft, bears the ultimate responsibility for compliance with certain federal
regulations. However, under all of the Company's aircraft leases, the lessee
has the primary obligation to ensure that at all times, the use, operation,
maintenance and repair of the aircraft are in compliance with all applicable
governmental rules and regulations and that Echelon is indemnified from loss by
the lessee for breach of any of these lessee responsibilities. Changes in
government regulations may increase the cost to, and other burdens on, Echelon
of complying with such regulations.

     Maintenance and compliance is also regulated by the FAA. At lease
termination, the lessees are required to return the aircraft in good operating
condition. Echelon may incur unanticipated maintenance expenses if Echelon were
to take possession of the leased aircraft and the lessee was in default as to
their maintenance obligation. If the defaulting lessee is in bankruptcy,
Echelon will file a proof of claim for the required maintenance expenses in the
lessee's bankruptcy proceedings and attempt to negotiate payment and
reimbursement of a portion of these expenses. The bankruptcy of a lessee could
adversely impact Echelon's ability to recover maintenance expense.

     As a result of investigations into the causes of several incidents,
including rapid in-flight aircraft decompression and fatigue cracks in critical
parts, the aircraft manufacturers issued service bulletins and the FAA has also
issued airworthiness directives ("ADs"). These bulletins and airworthiness
directives provide instructions to aircraft operators for the maintenance of
aircraft and are intended to prevent the occurrence of similar incidents.
Compliance with ADs is mandatory.

                                       20
<PAGE>

     In March 1989, the FAA issued serveral ADs which ordered extensive repairs
of all older commercial aircraft. These ADs were issued to ensure that the
oldest portion of the nation's transport aircraft fleet remains airworthy. The
FAA began requiring that aircraft undergo extensive structural modifications
upon accumulation of 20 years' time in service. Echelon has an interest in one
aircraft that has over 20 years' time in service. A formal program to control
corrosion in all aircraft has also been added to the FAA mandatory requirements
for maintenance for each type of aircraft. These FAA rules and proposed rules
evidence the current approach to aircraft maintenance developed by the
manufacturers and supported by the FAA in conjunction with an aircraft industry
group. Echelon may be required to pay for these FAA requirements if a lessee
defaults or if necessary to release or sell the aircraft.

     AIRCRAFT NOISE. The FAA, through regulations, has categorized certain
aircraft types as Stage I, Stage II and Stage III according to the noise level
as measured at three designated points. Stage I aircraft create the highest
measured noise levels. Aircraft which exceed Stage I noise maximums are no
longer allowed to operate from civil airports in the United States. The
Aviation Safety and Capacity Act of 1990 bans the operation of Stage II
aircraft after December 31, 1999.

     All of Echelon's leased aircraft have Stage III noise certification,
except four B737-200s leased to Delta Air Lines, Inc. ("Delta") and a B727-200
leased to Air Micronesia, Inc. (a subsidiary of Continental). A lease extension
with Delta requires the airline to install hushkits on two of the aircraft.
Echelon plans to negotiate with Delta for the installation of hushkits on the
other two aircraft in order to qualify for Stage III noise certification. The
cost of the hushkits is currently approximately $2.0 million per aircraft. The
aircraft leased to Air Micronesia, Inc. does not operate from civil airports in
the United States and as such, is not subject to the FAA noise certification
requirements.

     REGISTRATION OF AIRCRAFT; UNITED STATES PERSON. In accordance with FAA
regulations, the operation of an aircraft not registered with the FAA in the
United States is generally unlawful. Subject to certain limited exceptions, an
aircraft may not be registered with the FAA unless it is owned by a "citizen of
the United States" or a "resident alien" of the United States. If Echelon were
to cease being a "citizen of the United States" or a "resident alien" of the
United States, it may be subject to claims based upon its breach of covenants
and representations concerning its status as a citizen of the United States
included in the contracts underlying its leveraged, direct finance and
operating leases. Because Florida Progress continues to guarantee certain of
these covenants after the Distribution, Echelon and Florida Progress have
agreed that the Echelon Chairman, the Echelon President and at least two-thirds
of the Echelon Board of Directors will be United States citizens or resident
aliens within the meaning of the FAA regulations for as long as any of such
covenants are guaranteed by Florida Progress.

                                       21
<PAGE>

EMPLOYEES

     As of March 1999, Echelon had 138 full-time employees. These employees
work in a variety of capacities, comprised of 36 in executive and corporate
functions, 36 in real estate and property management services, 34 in
multi-family residential development and management, 5 in commercial
development and 27 in marina and other operations. None of Echelon's employees
are represented by labor unions. Echelon believes that, generally, labor
relations are satisfactory and have been maintained in a normal and customary
manner. From time to time, Echelon engages third party contractors on
development projects for infrastructure management and building construction.
These contractors' employees may include persons represented by various
building and trade unions.

            CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     Certain statements contained herein regarding matters that are not
historical facts are forward-looking statements, including (i) certain
statements contained in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," such as those statements concerning
Echelon's strategies, expected sources and uses of funds, including its
expected capital expenditures, and (ii) certain statements contained in
"Business," such as those statements concerning Echelon's strategy (a) with
respect to its office properties, to hold its existing portfolio of properties
for the next five years, (b) with respect to its industrial and other
properties, to sell the properties over the next five years as market
conditions warrant, (c) with respect to its real estate management and
brokerage services, to expand such business as a result of growth in the
Company's real estate operations, (d) with respect to its other owned real
estate and commercial and multi-family residential real estate development
activities, to develop commercial properties and multi-family residential
communities on its currently owned properties and on properties to be acquired
in the southeast and southwest United States and, in addition, to sell certain
properties as market conditions warrant to third parties, (e) with respect to
its collateralized commercial real estate loan portfolio, to collect
outstanding loan balances upon repayment at maturity or upon foreclosure and
sale of the collateral, (f) with respect to its leasing business, to generally
hold the leveraged leases to maturity or until the market values exceed
termination values of the assets, and to re-lease or sell the assets underlying
the various leases to maximize returns or to potentially restructure individual
leveraged leases, and (g) to deploy the proceeds generated by the ultimate
disposition of certain assets to the Real Estate Business. Because such
statements involve risks and uncertainties, actual strategies and the timing
and expected results thereof may differ materially from those expressed or
implied by such forward-looking statements.

     Echelon wishes to caution readers that in addition to the important
factors described elsewhere in this Form 10-K, the following important factors,
among others, could affect Echelon's actual results and could cause Echelon's
actual consolidated results during 1999, and beyond, to differ materially from
those expressed in any forward-looking statements made by, or on behalf of
Echelon.

                                       22
<PAGE>

     /bullet/ Echelon's anticipated increase in its level of real estate
              development activities will require a significant amount of
              capital and the ability to acquire and develop land identified for
              future real estate development. Accordingly, the extent of
              Echelon's real estate development will depend upon the amount of
              funds generated through operating activities, maturity and
              collection of loans receivable, planned asset sales, project-based
              and other financings, joint venture partnerships, the capital
              markets, and the ability to acquire land identified for future
              real estate development. There can be no assurance that operating
              activities, maturity and collection of loans receivable, planned
              asset sales, project-based and other financings, joint venture
              partnerships or the capital markets will generate net proceeds for
              Echelon in amounts and at times necessary to enable Echelon to
              carry out these development activities. There can also be no
              assurance that Echelon will be able to acquire land identified for
              future real estate development.

     /bullet/ The successful implementation of Echelon's strategic and business
              plans will depend in a large part on certain key officers,
              including Mr. Darryl A. LeClair, Chairman, President and Chief
              Executive Officer and Mr. W. Michael Doramus, Executive Vice
              President, who have managed Echelon's businesses and participated
              in the development of Echelon's business plan. Due to the unique
              experience of these key officers and their knowledge of Echelon's
              assets, such individuals could not be easily replaced, and the
              loss of such key officers could have a material adverse effect on
              the Company. Echelon has obtained key-man life insurance policies
              for both Mr. LeClair and Mr. Doramus.

     /bullet/ As a real estate development and management company, Echelon is
              and will be subject to certain risks incident generally to the
              ownership, development and management of real estate properties.
              These risks include the cyclical nature of real estate markets,
              governmental regulations and the need for governmental approvals,
              general risk of acquisition, development, and construction, tenant
              defaults, possible environmental liabilities, and competition from
              other real estate owners.

     /bullet/ Currently, all of Echelon's commercial real estate and
              income-producing multi-family residential properties are located
              in the State of Florida, primarily in the Tampa Bay area,
              including St. Petersburg and Tampa, and over 88% of Echelon's
              commercial rental space (measured by rentable square footage) is
              located in this area. Due to this lack of geographical
              diversification, Echelon is dependent upon the continued demand
              for commercial, multi-family residential and industrial space in
              the Tampa Bay area. Echelon may be adversely affected in the event
              the demand for office space in St. Petersburg or Tampa declines or
              the St. Petersburg or Tampa economy experiences a downturn. Like
              other real estate markets, the Florida real estate market has
              experienced periodic economic fluctuations. Echelon has also
              identified other locations in the southeast and southwest United
              States for the future acquisition and development of multi-family
              residential communities. This

                                       23
<PAGE>

              diversification is designed to reduce Echelon's risk of the
              potential effects of an economic downturn in a specific geographic
              area of the United States where the Company owns property.

     /bullet/ Aircraft leasing involves numerous risks, including risks stemming
              from the obsolescence or physical deterioration of aircraft and
              the possibility of defaults by lessees. In addition, fluctuations
              in general business and economic conditions, the adoption of
              restrictive regulations and legislation, changes in consumer
              demand for air travel, fluctuations in fuel prices and other
              factors over which lessors of aircraft have no control, could be
              expected to affect adversely the supply and demand for aircraft or
              aircraft leases and may cause cost increases relating to the
              leasing of aircraft that cannot be offset by increased leasing
              revenues. No assurance can be given that a decline in the health
              of the airline industry would not have an adverse effect on
              Echelon's business or results of operations.

ITEM 2. PROPERTIES

     Echelon believes that its properties are adequate to conduct its business
as currently operated. Echelon maintains property insurance against loss or
damage by fire or other perils to the extent that such property is usually
insured. A portion of the commercial and multi-family residential real estate
is pledged as collateral for certain loans. (See Notes 2 and 6 of Notes to
Consolidated Financial Statements included in Item 8). Property owned by
Echelon and leased under leveraged leases is subject to liens in favor of
secured lenders.

     See "The Real Estate Business" and "The Leasing and Lending Business" for
a description of all significant real estate and equipment owned by Echelon.

ITEM 3. LEGAL PROCEEDINGS

     There are no material legal proceedings pending against Echelon.

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

     No matters were submitted to a vote of Echelon's security holders during
the fourth quarter of the fiscal year covered by this Report.

                                       24
<PAGE>

                                    PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
        MATTERS

     Echelon's Common Stock has traded on the New York Stock Exchange since
December 9, 1996. The high and low price per share of Echelon's Common Stock
each quarter in 1998 and 1997 appears in Note 18 of the Notes to Consolidated
Financial Statements.

     No dividends were paid to stockholders during 1998 or 1997. Dividends paid
to Echelon's former parent in 1996 appear in the Consolidated Statements of
Stockholders' Equity. The payment and level of cash dividends by Echelon are
subject to the discretion of the Echelon Board of Directors. Echelon currently
intends to retain all future earnings for the development of its business and
does not anticipate paying any cash dividends for the foreseeable future.

     The approximate number of registered equity stockholders of Echelon is as
follows:


<TABLE>
<CAPTION>
                                                      NUMBER OF REGISTERED HOLDERS
TITLE OF CLASS                                            AS OF MARCH 16, 1999
--------------------------------------------------   -----------------------------
<S>                                                  <C>
   Common Stock, par value $.01 per share.........               27,517
</TABLE>

                                       25
<PAGE>

ITEM 6.  SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
                                                                           YEAR ENDED DECEMBER 31,
                                                  --------------------------------------------------------------------------
                                                     1998        1997           1996             1995             1994
                                                  ---------- ----------- ----------------- ---------------- ----------------
                                                                   (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                               <C>        <C>         <C>               <C>              <C>
SUMMARY OF OPERATIONS:
Revenue .........................................  $  40.6     $  44.2       $   63.3          $  47.6          $  48.8
                                                   =======     =======       ========          =======          =======
Income (loss) before income taxes and
extraordinary items .............................  $   7.2     $  11.6       $  (44.8)(1)      $  (9.9)         $  (9.2)
                                                   =======     =======       ========          =======          =======
Income (loss) before extraordinary items ........  $   8.7     $   9.5       $  (29.3)(1)      $  (5.0)         $  (5.0)
Extraordinary items:
 Gain on settlement of debt, net of income
   tax expense ..................................       .8          --             --               --               --
 Gain (loss) on extinguishment of debt,
   net of income tax effect .....................       --        (1.9)           1.8               --              ---
                                                   -------     -------       --------          -------          -------
Net income (loss) ...............................  $   9.5     $   7.6       $  (27.5)(1)      $  (5.0)(2)      $  (5.0)(2)
                                                   =======     =======       ========          =======          =======
Basic and diluted earnings per common share:
 Income (loss) before extraordinary items .......  $  1.28     $  1.40       $  (4.51)         $  (.77)         $  (.77)
 Extraordinary items ............................      .12        (.28)           .28               --               --
                                                   -------     -------       --------          -------          -------
Net income (loss) per common share ..............  $  1.40     $  1.12       $  (4.23)         $  (.77)         $  (.77)
                                                   =======     =======       ========          =======          =======
Basic and diluted weighted average shares of
  common stock outstanding ......................      6.8         6.8            6.5              6.5              6.5
                                                   =======     =======       ========          =======          =======
Dividends paid to former parent .................  $    --     $    --       $     .1          $   3.2          $    --
                                                   =======     =======       ========          =======          =======
BALANCE SHEET DATA:
Assets:
  Real estate ...................................  $ 206.2     $ 134.7       $  146.5          $ 153.9          $ 144.5
  Investments in Financial Assets ...............    266.4       276.0          334.0            400.2            478.3
  Cash equivalents and marketable securities.....     21.6        49.8           63.3               .4               .6
                                                   -------     -------       --------          -------          -------
   Total assets .................................  $ 494.2     $ 460.5       $  543.8          $ 554.5          $ 623.4
                                                   =======     =======       ========          =======          =======
Deferred income taxes ...........................  $ 141.5     $ 154.2       $  163.3          $ 182.3          $ 224.3
                                                   =======     =======       ========          =======          =======
Capitalization:
  Long-term debt ................................  $ 121.7     $  77.1       $  116.5          $  33.2          $  32.7
  Notes and advances from former parent .........       --          --           32.9            250.0            283.8
  Common equity .................................    215.8       209.1          201.4             60.8             69.0
                                                   -------     -------       --------          -------          -------
   Total capitalization .........................  $ 337.5     $ 286.2       $  350.8          $ 344.0          $ 385.5
                                                   =======     =======       ========          =======          =======
</TABLE>

----------------
(1) Reflects $31.4 million pre-tax provision for lease, loan and real estate
    losses.
(2) The similarity of net loss for the years ended December 31, 1995 and 1994
    reflects the orderly withdrawal strategy under which Echelon operated
    during those years.

                                       26
<PAGE>

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

OVERVIEW

     Echelon is a real estate company which develops, owns, and manages
commercial and multi-family residential real estate (the "Real Estate
Business"). The Real Estate Business includes two segments: 1) Commercial Real
Estate and 2) Multi-Family Residential Real Estate. The Company also owns and
manages a portfolio of financial assets consisting primarily of leased aircraft
and other assets and collateralized financings of commercial real estate and
aircraft (the "Leasing and Lending Business"). The Leasing and Lending Business
comprises the majority of the Company's third segment, Investments in Financial
Assets. Echelon is continuing to withdraw from the aircraft and real estate
lending business to focus on its core real estate operations.

     Prior to December 18, 1996 ("Distribution Date"), the Company operated as
a wholly-owned subsidiary of Florida Progress Corporation ("Florida Progress").
Effective on the Distribution Date, Florida Progress distributed the Company's
stock to Florida Progress shareholders (one share of the Company for each
fifteen shares of Florida Progress) as a tax-free dividend (the
"Distribution"). The Distribution established the Company as a publicly held
corporation, separate from Florida Progress.

     The Company's operations for the year ended December 31, 1998 include the
following nonrecurring events and transactions, which effected the Company's
earnings:

     /bullet/ The sale of 6.57 acres of land in CARILLON PARK for $2.7 million,
              resulting in a pre-tax gain of $1.1 million.

     /bullet/ The sale of two aircraft engines by Progress Potomac Capital
              Ventures ("PPCV"), in which Echelon had a 50% interest, for $5.7
              million, resulting in a pre-tax gain of $1.6 million to Echelon.

     /bullet/ The collection in full of a real estate loan receivable from
              Madison Building, Inc. As a result of the loan payoff, Echelon
              reversed the $1.6 million allowance for losses on leases and loans
              previously recorded.

     /bullet/ The sale of two aircraft engines to United Technologies, Inc. and
              the termination of the related leveraged lease, resulting in
              pre-tax income of $.6 million.

     /bullet/ The settlement of a $.6 million long-term debt obligation and
              related accrued interest of $.6 million, resulting in an after-tax
              extraordinary gain of $.8 million.

     The Company's operations for the fiscal year ended December 31, 1998 also
include the following nonrecurring events and transactions, which had no
immediate effect on the Company's earnings:

     /bullet/ The payoff of a $2.3 million deferred rent note receivable from
              Continental Airlines. The deferred rent note receivable was
              originally scheduled to mature in 2000.

                                       27
<PAGE>

     /bullet/ The receipt of $19.1 million in net assets from the dissolution of
              the PPCV joint venture in which Echelon had a 50% interest. The
              net assets represent the components of a direct finance lease for
              an aircraft leased to Continental Airlines through February 2002.

     /bullet/ The execution of an extension and rental rate adjustment on a
              direct finance lease for an aircraft leased to Southwest Airlines.
              Subsequently, the lease was used as collateral for a $13.0
              million, full payout, 5.99% fixed rate loan maturing in June 2008.

     /bullet/ The extension of an operating lease with Air Micronesia, Inc. (a
              subsidiary of Continental Airlines) from an original lease
              maturity of December 31, 1998 to October 31, 2000.

     /bullet/ Approval by Echelon's Board of Directors for the purchase of up to
              $15.0 million of the Company's outstanding common stock. Through
              December 31, 1998, the Company has purchased 143,000 shares in
              conjunction with the stock buyback, at a total cost to the Company
              of $2.9 million. Since the Distribution in December 1996, the
              Company has purchased 215,938 shares of common stock at a total
              cost to the Company of $4.5 million, or an average price of $20.69
              per share.

     The Company's operations for the fiscal year ended December 31, 1998
include the following transactions related to the Company's ongoing
multi-family residential and commercial development activities:

MULTI-FAMILY RESIDENTIAL DEVELOPMENT

     /bullet/ Construction continued through December 31, 1998 for two
              multi-family residential communities, ECHELON AT BAY ISLE KEY and
              ECHELON AT THE RESERVE, both located in the Gateway Area of St.
              Petersburg, Florida. Construction for ECHELON AT BAY ISLE KEY was
              completed in February 1999.

     /bullet/ Construction began in September 1998 for the development of
              ECHELON AT WOODLAND PARK, a 232-unit multi-family residential
              community in Tulsa, Oklahoma.

     /bullet/ Construction began in November 1998 for the development of ECHELON
              AT NORTHLAKE, a 256-unit multi-family residential community in
              Atlanta, Georgia.

     /bullet/ Construction began in December 1998 for the development of ECHELON
              AT MEMORIAL CREEK, a 292-unit multi-family residential community
              in Tulsa, Oklahoma.

     /bullet/ Construction began in December 1998 for the development of ECHELON
              AT MISSION RANCH, a 295-unit multi-family residential community in
              Mesquite, Texas.

     /bullet/ Land was purchased, at a cost of $1.2 million, for the development
              of ECHELON AT WATTERS CREEK, a 200-unit multi-family residential
              community in Allen, Texas. Development is in process and
              construction is planned to begin in the second quarter of 1999.

                                       28
<PAGE>

     /bullet/ Land was purchased, at a cost of $1.9 million, for the development
              of ECHELON AT BRIARGATE, a 395-unit multi-family residential
              community in Colorado Springs, Colorado. Development is in process
              and construction is planned to begin in the second quarter of
              1999.

COMMERCIAL DEVELOPMENT

     /bullet/ Construction and tenant improvements were completed on BAYBORO
              STATION (80,991 rentable square feet) and CENTRAL STATION (133,279
              rentable square feet). Both properties are 100% leased under
              10-year and 15-year leases, respectively.

     /bullet/ Construction of THE NEW MCNULTY, a 714 space parking garage with
              9,000 square feet of ground floor retail space, was completed in
              late December 1998.

     /bullet/ Construction is continuing for CASTILLE AT CARILLON, two Class A
              office buildings totaling 103,900 square feet located in CARILLON
              PARK, which will be completed in June 1999. As of March 1999,
              Echelon occupies approximately 20,000 square feet as its corporate
              headquarters.

     The Company's capital expenditures during 1998 totaled $90.4 million.
Commercial capital expenditures for construction and tenant improvements
totaled $36.8 million, multi-family capital expenditures (including land
purchases) were $52.4 million and corporate equipment and other capital
expenditures were $1.2 million.

     The results of operations in 1998, 1997 and 1996 are not necessarily
indicative of future results.

SEGMENT REPORTING

     As of December 31, 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes standards for additional
disclosure about operating segments for interim and annual financial
statements. The standard requires financial and descriptive information be
disclosed for segments whose operating results are reviewed by the chief
operating officer for decisions on resource allocation. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers.

     The Company has three principal operating segments: 1) Commercial Real
Estate, 2) Multi-Family Residential Real Estate and 3) Investments in Financial
Assets. Commercial Real Estate includes the ownership, operation and
development of office and industrial properties, land sales, marina operations
and real estate brokerage services. Multi-Family Residential Real Estate
includes the development, ownership and operation of multi-family residential
communities. Investments in Financial Assets include the management of the
Company's leveraged leases, direct finance leases, an operating lease,
commercial finance loans and affordable housing limited partnership
investments. The airline industry is the primary industry included in the
Investments in Financial Assets segment.

                                       29
<PAGE>

     The Company's reportable segments offer different products or services and
are managed separately because each requires different operating strategies and
management expertise. There are no material intersegment sales or transfers.

     The Company is subject to the risks inherent in the development, ownership
and management of commercial and multi-family residential real estate. These
include, among others, the risks normally associated with construction, changes
in the general economic climate, availability of construction and permanent
financing, trends in the real estate industry (including creditworthiness of
tenants, competition for tenants, changes in tax laws and interest rate levels)
and potential liability under environmental and other laws.

     The Company is also subject to the risks inherent with aircraft leasing.
These include, among others, the risks stemming from the obsolescence or
physical deterioration of aircraft, the possibility of defaults by lessees, the
adoption of restrictive regulations and legislation, changes in consumer demand
for air travel, fluctuation in fuel prices and other factors over which lessors
of aircraft have no control. These risks could be expected to adversely affect
the supply and demand for aircraft or aircraft leases and may cause cost
increases relating to the leasing of aircraft that cannot be offset by
increased leasing revenues.

     Echelon is continuing to withdraw from the aircraft and real estate
lending business to focus on its core commercial and multi-family residential
real estate operations.

     The accounting policies of the segments are the same as those described in
Note 1 of the Consolidated Financial Statements included in Item 8.

                                       30
<PAGE>

     Segment information for the years ended December 31, 1998, 1997 and 1996
is summarized below. Revenues received from Florida Progress and subsidiaries
accounted for 11.8% of the Company's revenues during the year ended December
31, 1998. No single customer accounted for more than 10% of the Company's
revenues during the years ended December 31, 1997 and 1996.



<TABLE>
<CAPTION>
                                                       YEARS ENDED DECEMBER 31,
                                                  ----------------------------------
                                                    1998        1997         1996
                                                  --------   ----------   ----------
                                                            (IN MILLIONS)
<S>                                               <C>        <C>          <C>
Sales and Revenues:(1)
 Commercial real estate .......................    $25.3      $  23.0       $ 40.5
 Multi-family residential real estate .........      0.9           --           --
 Investments in financial assets ..............     10.7         17.9         22.7
                                                   -----      -------       ------
                                                    36.9         40.9         63.2
 Non-segment ..................................      3.7          3.3          0.1
                                                   -----      -------       ------
                                                   $40.6      $  44.2       $ 63.3
                                                   =====      =======       ======
Operating Expenses:(2)
 Commercial real estate .......................    $21.2      $  42.8       $ 53.5
 Multi-family residential real estate .........      1.4           --           --
 Investments in financial assets ..............      2.2        (15.8)        37.8
                                                   -----      -------       ------
                                                    24.8         27.0         91.3
 Non-segment ..................................      8.6          5.6         16.8
                                                   -----      -------       ------
                                                   $33.4      $  32.6       $108.1
                                                   =====      =======       ======
Interest Expense, Net:(2)
 Commercial real estate .......................    $ 2.6      $   3.8       $  8.2
 Multi-family residential real estate .........       .3           --           --
 Investments in financial assets ..............      2.6          5.2         10.5
                                                   -----      -------       ------
                                                     5.5          9.0         18.7
 Non-segment ..................................       --           --           --
                                                   -----      -------       ------
                                                   $ 5.5      $   9.0       $ 18.7
                                                   =====      =======       ======
Depreciation Expense:(2)
 Commercial real estate .......................    $ 4.1      $   3.5       $  4.5
 Multi-family residential real estate .........       .3           --           --
 Investments in financial assets ..............      1.1          1.1          1.1
                                                   -----      -------       ------
                                                     5.5          4.6          5.6
 Non-segment depreciation expense .............       .5           .1           --
                                                   -----      -------       ------
                                                   $ 6.0      $   4.7       $  5.6
                                                   =====      =======       ======
Extraordinary Gain (Loss), Net
 of Income Tax Effect:
 Commercial real estate .......................    $ 0.8      $  (1.0)      $  (.3)
 Multi-family residential real estate .........       --           --           --
 Investments in financial assets ..............       --          (.9)         2.1
                                                   -----      -------       ------
                                                     0.8         (1.9)         1.8
 Non-segment ..................................       --           --           --
                                                   -----      -------       ------
                                                   $ 0.8      $  (1.9)      $  1.8
                                                   =====      =======       ======
</TABLE>

                                      31
<PAGE>

<TABLE>
<CAPTION>
                                               YEARS ENDED DECEMBER 31,
                                           ---------------------------------
                                              1998       1997        1996
                                           ----------   ------   -----------
                                                     (IN MILLIONS)
<S>                                        <C>          <C>      <C>
Income tax expense (benefit) ...........     $ (1.5)     $2.1      $ (15.5)
                                             ======      ====      =======
Consolidated net income (loss) .........     $  9.5      $7.6      $ (27.5)
                                             ======      ====      =======
</TABLE>

----------------
(1) Non-segment sales and revenues to reconcile to total revenue are comprised
    of investment income and net realized gain on sale of investments.
(2) Non-segment operating expenses to reconcile to total operating expenses are
    comprised of corporate general and administrative expenses and corporate
    depreciation.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO THE YEAR ENDED DECEMBER 31, 1997

     Net income for the year ended December 31, 1998 was $9.5 million or $1.40
basic and diluted earnings per share. This compares to net income of $7.6
million or $1.12 basic and diluted earnings per share for the year ended
December 31, 1997.

SALES AND REVENUES

     COMMERCIAL REAL ESTATE

     Commercial real estate sales and revenues for the year ended December 31,
1998 increased $2.3 million compared to the same period in 1997 primarily due
to:

     /bullet/ A $3.6 million increase in rental revenues resulting from an
              overall increase in occupancy and rental rates for the Company's
              commercial properties and the 100% occupancy of the commercial
              properties completed during 1998, BAYBORO STATION and CENTRAL
              STATION. See Note 7 to the Consolidated Financial Statements
              included in Item 8.

     /bullet/ A $2.3 million increase in the sales of development properties and
              development rights as a result of the sales of land and
              development rights in CARILLON PARK during the year ended December
              31, 1998. The CARILLON PARK land sale was to an existing owner for
              land contiguous to the owner's land holdings. The sale of
              development rights in CARILLON PARK was also to an existing owner
              for further development on the owner's land holdings. Echelon
              intends to develop much of the unsold CARILLON PARK land for its
              own real estate portfolio and market the remaining land to third
              parties.

     /bullet/ A $3.6 million decrease in marina revenues for the year ended
              December 31, 1998, compared to the same period in 1997, primarily
              as a result of the Company's decision to discontinue the sale of
              boats as a component of marina operations.

                                       32
<PAGE>

   MULTI-FAMILY RESIDENTIAL REAL ESTATE

     /bullet/ Multi-family residential real estate sales and revenues for the
              year ended December 31, 1998 of $.9 million resulted from the
              opening of the Company's first multi-family residential community,
              ECHELON AT BAY ISLE KEY, in late April 1998.

     INVESTMENTS IN FINANCIAL ASSETS

     Investments in financial assets sales and revenues for the year ended
December 31, 1998 decreased $7.2 million compared to the same period in 1997
primarily due to:

     /bullet/ A decrease of $2.4 million in interest income for the year ended
              December 31, 1998 compared to 1997 as a result of the sales and
              payoffs of loans receivable as the Company continues to execute
              its strategy to liquidate non-strategic assets and redirect the
              capital to real estate development and acquisition.

     /bullet/ Equity in earnings of unconsolidated partnerships decreased $1.1
              million for the year ended December 31, 1998 compared to 1997
              primarily due to the July 31, 1998 dissolution of the joint
              venture partnership in which Echelon had a 50% interest. The
              decrease in the equity in earnings is offset by the $1.6 million
              pretax gain on the sale of an asset in January 1998 in this joint
              venture. Equity in earnings of unconsolidated partnerships in the
              first nine months of 1997 included $.9 million from a pretax gain
              on the sale of an asset in a partnership in which Echelon had
              approximately a 26% interest.

     /bullet/ Earned income on finance and operating leases increased $1.3
              million for the year ended December 31, 1998 compared to 1997
              primarily as a result of $.8 million increase in lease revenues
              recorded from the direct finance lease the Company received from
              the July 31, 1998 dissolution of the joint venture, in which
              Echelon was a 50% partner and $.6 million of revenues related to
              the sale of two aircraft engines and termination of the related
              leveraged lease. Prior to July 31, 1998, the income from the joint
              venture was reported in the "Equity in earnings of unconsolidated
              partnerships" income statement line item.

     /bullet/ An increase of $.9 million in the amount of losses recorded from
              the Company's investments in affordable housing limited
              partnerships. As part of Echelon's strategy to focus on real
              estate development, Echelon has investments in affordable housing
              limited partnerships entitled to the benefits of housing tax
              credits. The Company's overall return on these investments
              includes recording losses on this type of investment. The tax
              benefits resulting from such losses and the realization of the
              limited housing tax credits are the primary source of value from
              this type of investment. Equity in losses of real estate
              partnership investments reduced 1998 and 1997 revenue by $2.4
              million and $1.5 million, respectively, as a result of the Company
              recording its share of losses from housing tax credit limited
              partnerships in each of the years. The Company recorded $2.4
              million and

                                       33
<PAGE>

              $1.3 million in tax credits for the years ended December 31, 1998
              and 1997, respectively, as a reduction of income tax expense.

     /bullet/ A decrease in gain on sale of loans of $4.1 million. The gain on
              sale of loans of $4.1 million for the year ended December 31, 1997
              was the result of the recognition of a deferred gain on loans
              receivable that were sold.

     NON-SEGMENT

     The Company's non-segment sales and revenues are comprised of investment
income and realized gain on sale of investments, which increased $.4 million
for the year ended December 31, 1998 compared to the same period of 1997.

OPERATING EXPENSES

     COMMERCIAL REAL ESTATE

     Commercial real estate operating expenses for the year ended December 31,
1998 decreased $21.6 million compared to the same period in 1997 primarily due
to:

     /bullet/ A decrease in the provision for (recovery of) real estate losses
              of $19.0 million. The decrease is the result of a $19.0 million
              provision Echelon recorded in 1997 to recognize an impairment on
              certain income-producing property. The impairment was recognized
              when Echelon revised its strategy with respect to certain
              commercial real estate assets to include short to medium-term exit
              strategies.

     /bullet/ A decrease in rental and other operations expenses of $2.8 million
              over 1997 primarily due to:

              - a decrease in marina operations of $3.1 million related to the
                Company's decision to discontinue the sale of boats as a
                component of marina operations, as discussed above, and

              - an increase in rental operations for the Company's commercial
                properties of $.3 million resulting from increased occupancy in
                the Company's commercial properties in 1998 as compared to 1997,
                as previously discussed.

     /bullet/ A decrease in interest expense, net of amounts capitalized, of
              $1.2 million primarily due to a reduction in the Company's debt
              during 1997, resulting from loan receivable sales and payoffs and
              asset sales in 1997 and the refinancing of a significant portion
              of the Company's debt at lower interest rates in the fourth
              quarter of 1997.

     /bullet/ An increase in the cost of development properties and development
              rights sold of $.8 million, related to the sale of development
              properties discussed previously.

     /bullet/ An increase in depreciation expense of $.6 million primarily as a
              result of the completion of the construction and tenant
              improvements of two commercial properties, BAYBORO STATION and
              CENTRAL STATION, in the second quarter of 1998.

                                       34
<PAGE>

  MULTI-FAMILY RESIDENTIAL REAL ESTATE

     /bullet/ Multi-family residential real estate operating expenses for the
              year ended December 31, 1998 of $1.4 million resulted from the
              opening of the Company's first multi-family residential community,
              ECHELON AT BAY ISLE KEY, in late April 1998, as previously
              discussed. The $1.4 million of operating expenses are comprised of
              $.3 million of depreciation expense, $.3 million of interest
              expense and $.8 million of real estate operating expenses.

     INVESTMENTS IN FINANCIAL ASSETS

     Expenses related to investments in financial assets for the year ended
December 31, 1998 increased $18.0 million compared to the same period in 1997
primarily due to:

     /bullet/ An $18.1 million decrease in the recovery of losses on leases and
              loans comprised of:

              The reversal of $19.7 million of the provision for (recovery of)
              losses on loans and leases in 1997. The components of the reversal
              were:

              - The reversal of a $15.0 million provision, recorded prior to
                1997, as a result of the collection in 1997 of two aircraft
                loans receivable and the disposal of an investment in an
                unconsolidated affiliate.

              - The reversal of a $4.7 million provision recorded in 1996
                related to an aircraft lease that the Company anticipated
                selling in order to pay off certain debt. The cash flow
                generated through the collection of the aircraft loans
                receivable and the disposal of an investment in an
                unconsolidated affiliate enabled the Company to retire some of
                its debt and retain the aircraft lease which the Company had
                expected to sell in order to retire the debt.

              The reversal of a $1.6 million allowance for loan losses in 1998
              as a result of the complete repayment of a loan, for which the
              Company had previously recorded an allowance for loan losses:

     /bullet/ A decrease in interest expense, net of amounts capitalized, of
              $2.6 million primarily due to a reduction in the Company's debt
              during 1997, resulting from loan receivable sales and payoffs and
              asset sales in 1997 and the refinancing of a significant portion
              of the Company's debt at lower interest rates in the fourth
              quarter of 1997.

     /bullet/ A decrease in other income of $2.5 million. The $2.5 million of
              other income in 1997 is the result of a $1.3 million gain related
              to the sale of the Company's interest in a previously written-off
              oil rig lease and the reversal of $1.2 million of accruals
              primarily related to estimates of expenses expected to have been
              incurred in connection with the Distribution in December 1996.

  NON-SEGMENT

     Non-segment operating expenses to reconcile to total operating expenses
are comprised primarily of corporate general and administrative expenses and
corporate depreciation.

                                       35
<PAGE>

     The non-segment operating expenses increased $3.0 million for the year
ended December 31, 1998 compared to the same period in 1997. The increase is
primarily the result of an increase in corporate general and administrative
expenses resulting from the formation of the Company's multi-family residential
and commercial pipeline of potential projects during a significant portion of
1998. During the formation of the pipeline, certain costs were appropriately
expensed rather than capitalized. As specific projects are approved, costs
related to these projects have been, and will continue to be, capitalized.

EXTRAORDINARY ITEMS

   COMMERCIAL REAL ESTATE

     /bullet/ During 1998, the Company settled a long-term obligation with the
              University of Florida Foundation, Inc. In conjunction with the
              settlement, a $.6 million long-term debt obligation and related
              accrued interest of $.6 million were canceled, resulting in a $.8
              million after-tax extraordinary gain to the Company.

     /bullet/ The $(1.0) million after-tax extraordinary loss in 1997 is the
              result of the write-off of debt issuance costs and a prepayment
              penalty related to the early extinguishment of debt.

   INVESTMENTS IN FINANCIAL ASSETS

     /bullet/ The $(.9) million after-tax extraordinary loss in 1997 is a result
              of the write-off of debt issuance costs related to the early
              extinguishment of debt, resulting from the early collection of
              certain of the Company's real estate loans receivable.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE YEAR ENDED DECEMBER 31, 1996

     For the year ended December 31, 1997, Echelon reported net income of $7.6
million or $1.12 basic and diluted earnings per share compared to a net loss of
$(27.5) million or $(4.23) basic and diluted loss per share for the year ended
December 31, 1996.

SALES AND REVENUES

     COMMERCIAL REAL ESTATE

     Commercial real estate sales and revenues for the year ended December 31,
1997 decreased $17.5 million compared to the same period in 1996 primarily due
to:

     /bullet/ A $21.0 million decrease in the sales of development properties
              and development rights due to a decrease in CARILLON PARK land
              sales. The decrease in the sale of development properties was a
              strategic decision in 1997 to remove most of the remaining land in
              CARILLON PARK from the market and to develop the property for the
              Company's real estate portfolio.

     /bullet/ A $1.4 million increase in commercial rental income primarily due
              to overall increased occupancy in Echelon's properties.

     /bullet/ A $2.1 million increase in marina and other operations revenues.

                                       36
<PAGE>

     INVESTMENTS IN FINANCIAL ASSETS

     Investments in financial assets sales and revenues for the year ended
December 31, 1997 decreased $4.8 million compared to the same period in 1996
primarily due to:

     /bullet/ Interest income declined by $9.1 million for the year ended
              December 31, 1997 compared to the same period in 1996 as a result
              of the sales and payoffs of loans receivable as the Company
              continued to execute its strategy to liquidate non-strategic
              assets and redirect the capital to commercial and multi-family
              residential real estate development.

     /bullet/ Equity in earnings of unconsolidated partnerships increased $1.1
              million due primarily to a $.9 million gain in 1997 on the sale of
              an asset in an unconsolidated partnership in which Echelon had
              approximately a 26% interest.

     /bullet/ Equity in losses of limited partnership investments reduced 1997
              revenue by $1.5 million as a result of the Company investing in
              these limited partnerships in 1997 and recording its share of
              losses from affordable housing tax credit limited partnerships.
              The Company also recorded $1.3 million in tax credits for the year
              ended December 31, 1997 as a reduction of income tax expense.

     /bullet/ Earned income on finance and operating leases increased $.6
              million due to the recognition of income in 1997 on an aircraft
              lease that was classified as an "Asset Held for Sale" for the
              majority of the year ended December 31, 1996.

     /bullet/ A $4.1 million gain on sale of loans in the year ended December
              31, 1997 was the result of the recognition of a deferred gain on
              loans receivable that were sold. The Company had no gains on sales
              of loans during the year ended December 31, 1996.

     NON-SEGMENT

     Investment income and realized gain on sale of investments increased $3.2
million for the year ended December 31, 1997 in comparison with 1996 as a
result of the Company's investment in marketable securities in 1997.

OPERATING EXPENSES

     COMMERCIAL REAL ESTATE

     Commercial Real Estate operating expenses for the year ended December 31,
1997 decreased $10.7 million compared to the same period in 1996 primarily due
to:

     /bullet/ A $4.2 million increase in rental and other operations expense
              over 1996 due to the increased occupancy in Echelon's properties
              and an increase in marina and other operations.

     /bullet/ A $20.9 million decrease in the cost of development properties and
              development rights sold in 1997 due to a decrease in Carillon Park
              land sales, as previously discussed.

                                       37
<PAGE>

     /bullet/ A $11.4 million increase in the provision for (recovery of) real
              estate losses for the year ended December 31, 1997 compared to
              1996. As previously discussed, in 1997 the Company recorded a
              $19.0 million provision to recognize an impairment on certain
              income producing property. The impairment was recognized when
              Echelon revised its strategy with respect to its commercial real
              estate assets to include short to medium-term exit strategies. In
              1996, Echelon recorded a $7.6 million provision to cover losses
              estimated to be incurred on the accelerated sale of certain
              non-strategic real estate assets.

     /bullet/ A decrease in interest expense of $4.4 million in comparison with
              1996 due to the Company's paydown of debt throughout 1997 with
              funds from loan receivable sales and payoffs and sales of
              non-strategic assets.

     /bullet/ A decrease in depreciation expense of $1.0 million for the year
              ended December 31, 1997 compared to 1996 primarily as a result of
              the $19.0 million impairment recorded on the Company's
              income-producing property, as previously discussed.

  INVESTMENTS IN FINANCIAL ASSETS

     Expenses related to investments in financial assets for the year ended
December 31, 1997 decreased $53.6 million compared to the same period in 1996
primarily due to:

     /bullet/ The reversal of $19.7 million of the provision for (recovery of)
              losses on loans and leases in 1997. The components of the reversal
              were:

              - The reversal of a $15.0 million provision, recorded prior to
                1997, as a result of the collection in 1997 of two aircraft
                loans receivable and the disposal of an investment in an
                unconsolidated affiliate.

              - The reversal of a $4.7 million provision recorded in 1996
                related to an aircraft lease that the Company anticipated
                selling in order to pay off certain debt. The cash flow
                generated through the collection of the aircraft loans
                receivable and the disposal of an investment in an
                unconsolidated affiliate enabled the Company to retire some of
                its debt and retain the aircraft lease which the Company had
                expected to sell in order to retire the debt.

     /bullet/   A $23.8 million provision for losses on loans and leases
                recorded in 1996 for losses expected to be incurred on the
                accelerated sale of certain non-strategic assets.

     /bullet/   A decrease in interest expense, net of amounts capitalized, of
                $5.3 million in 1997 primarily due to the Company's paydown of
                debt throughout 1997.

                                       38
<PAGE>

     /bullet/   A decrease in other operating expenses of $2.3 million in 1997
                as compared to 1996. The decrease is primarily the result of
                expenses incurred in 1996 in connection with the Distribution.

     /bullet/   An increase in other income of $2.5 million. The $2.5 million of
                other income in 1997 is the result of a $1.3 million gain
                related to the sale of the Company's interest in a previously
                written-off oil rig lease and the reversal of $1.2 million of
                accruals primarily related to estimates of expenses expected to
                have been incurred in connection with the Distribution in
                December 1996.

EXTRAORDINARY ITEMS

     COMMERCIAL REAL ESTATE

     /bullet/   The $(1.0) million and $(.3) million after-tax extraordinary
                losses in both 1997 and 1996 are the result of the write-off of
                debt issuance costs and prepayment penalties related to the
                early extinguishment of debt.

     INVESTMENTS IN FINANCIAL ASSETS

     /bullet/   The $(.9) million after-tax extraordinary loss in 1997 is a
                result of the write-off of debt issuance costs related to the
                early extinguishment of debt, resulting from the collection on
                certain of the Company's real estate loans receivable.

     /bullet/   The $2.1 million after-tax extraordinary gain in 1996 is the
                result of the extinguishment of debt and accrued interest.

LIQUIDITY AND CAPITAL RESOURCES

     SOURCES OF LIQUIDITY AND CAPITAL RESOURCES

     The Company's liquidity and capital resources have been, and are expected
to continue to be, impacted by the strategic plan discussed herein. The
Company's sources of liquidity and capital resources have been primarily from
the maturity and collection of Echelon's lease and loan portfolio, proceeds
from the sale of certain non-strategic assets and, with respect to the
Echelon's real estate development, from project-based and other financings. The
planned development of multi-family residential and commercial real estate will
require additional access to external financing. The timing and amount of
external financing requirements will, in part, be dependent upon the timing of
collections from real estate loans and asset sales.

     Echelon expects to obtain sufficient capital from its operations, asset
sales, loan collections, project-based and other financings, and the capital
markets sufficient to execute its strategic plan. However, no assurance can be
given that such capital will be available in amounts sufficient to execute the
strategic plan.

     In May 1998, Echelon executed a commitment letter with Teacher's Insurance
and Annuity Association of America ("TIAA") for a $55.5 million Credit Facility
at an interest rate

                                       39
<PAGE>

of 7.15% per annum. The proceeds of the facility will be used for the permanent
financing of specific projects. The facility will be secured by the projects
and funding will occur for each project based on specific conditions. Each
disbursement will constitute a separate loan which will mature 10 years from
the date of the first loan disbursement. The first loan disbursement requires
interest-only payments for the first 12 months and monthly principal and
interest payments thereafter based on a 30-year amortization schedule. The
remaining loans require monthly principal and interest payments based on a
30-year amortization schedule. The Credit Facility defines the loan
disbursement expiration dates for each loan, with the ability for the Company
to extend any of the expiration dates for 90 days. Under the terms of the
commitment, TIAA required the Company to remit a refundable application fee.
The Company negotiated to provide stand-by letters of credit in lieu of the
application fee, which will be reduced on a pro-rata basis as the loans are
funded. As of December 31, 1998, Echelon had certificates of deposit totaling
$1.1 million securing these letters of credit. The Company had not closed on
any loans with TIAA as of December 31, 1998.

     In January 1999, the Company executed a commitment letter with NationsBank
for a $100.0 million Advised Guidance Line of Credit. The line of credit will
provide construction financing for multi-family residential and commercial
projects, as approved by NationsBank. Each project financed under the line will
be a separate loan and the interest rate for each loan will be negotiated with
NationsBank based upon market conditions at the time of funding. The term for
each multi-family residential loan is 36 months and for each commercial loan is
30 months. The loans are interest only, with the entire principal and any
accrued interest due at maturity.

     In February 1999, the Company executed a $19.8 million commitment letter
with NationsBank under the $100.0 million Advised Line of Credit outlined
above. The commitment is for a construction loan for ECHELON AT LAKESIDE, a 184
unit multi-family community to be developed in Plano, Texas. The interest rate
on the loan is LIBOR plus 1.85% and the term of the loan is 36 months from the
date of the loan closing.

     In February 1999, the Company also executed a commitment letter with
Wachovia Bank, N. A. for a $21.5 million construction loan for ECHELON AT
CHENEY PLACE, a 303 unit multi-family residential community to be developed in
downtown Orlando, Florida. The interest rate on the loan is LIBOR plus 1.60%
and the term of the loan is 36 months from the date of the loan closing.

     At the Distribution Date, Echelon and Florida Progress entered into a
distribution agreement, which requires Echelon to maintain a liquidity level of
at least $17.0 million throughout 1999.

     CASH FLOW PROVIDED BY (USED IN) OPERATING ACTIVITIES

     Cash flow provided by (used in) operating activities was $.4 million,
($11.1) million, and ($13.2) million for 1998, 1997 and 1996, respectively. The
primary use of cash in each of these years was largely related to previously
deferred tax liabilities becoming due and

                                       40
<PAGE>

payable as a result of sales and collections of leases. Deferred income taxes
from leveraged leasing activities, which are reflected in cash flows from
operating activities, are offset by related collections from lessees which are
included in cash flows from investing activities. Echelon generally plans to
hold its leveraged lease assets to maturity or until the market value exceeds
the termination value. For leveraged leases held to maturity, the remaining
deferred tax payments will be spread over the lease term. Future net cash flows
from operations are generally expected to be reinvested in the Real Estate
Business.

     CASH FLOW PROVIDED BY (USED IN) INVESTING ACTIVITIES

     Echelon's net cash flow provided by (used in) investing activities for
1998, 1997 and 1996 was ($27.2) million, $29.5 million, and $61.5 million,
respectively. In each case, the foregoing cash flows reflected the $21.6
million, $56.9 million, and $45.9 million, respectively, in proceeds received
from the sale or collection of leases and loans. The collection of leases and
loans in 1998 includes $2.3 million from Continental Airlines for the payoff of
a deferred rent note receivable originally scheduled to mature in 2000, $3.0
million from Madison Building, Inc. for the payoff of a real estate loan and
$3.5 million for the sale of two aircraft engines which were in the Company's
leveraged lease portfolio. Echelon expects investing activities to continue to
be a net use of funds as Echelon continues to invest in its Real Estate
Business.

     For the years ended December 31, 1998 and 1997, purchases of marketable
securities, including debt securities with maturities greater than three
months, were $11.0 million and $65.9 million, respectively, and proceeds from
sales of marketable securities were $52.3 million and $26.6 million,
respectively. The Company converted the marketable securities portfolio to cash
during the fourth quarter of 1998.

     Real estate property additions and other capital expenditures for 1998,
1997 and 1996, were $90.4 million, $13.1 million, and $9.1 million,
respectively.

     The Company's total multi-family capital expenditures during 1998 were
$52.4 million. Multi-family capital expenditures were primarily for the ongoing
construction of two multi-family residential communities, ECHELON AT BAY ISLE
KEY and ECHELON AT THE RESERVE, the four land purchases and ongoing
construction of ECHELON AT NORTHLAKE, ECHELON AT WOODLAND PARK, ECHELON AT
MEMORIAL CREEK and ECHELON AT MISSION RANCH and the land purchases for ECHELON
AT WATTERS CREEK and ECHELON AT BRIARGATE.

     The Company's total commercial capital expenditures during 1998 for
construction and tenant improvements were $36.8 million. Commercial capital
expenditures were primarily for the construction and tenant improvements of
BAYBORO STATION and CENTRAL STATION, the construction of THE NEW MCNULTY and
the ongoing construction for CASTILLE AT CARILLON.

     The Company's total corporate capital expenditures during 1998 were $1.2
million. Corporate capital expenditures were primarily for the acquisition of
computer and office equipment.

     Total capital expenditures in 1999 for tenant improvements, land
development, commercial office development and multi-family residential
development are expected to be

                                       41
<PAGE>

between $175.0 and $225.0 million. These expenditures are expected to be funded
through project-based and other financings, from existing cash, and from joint
venture partnerships.

     For the year ended December 31, 1998, contributions to unconsolidated
partnerships and distributions from unconsolidated partnerships were $9.4
million and $6.5 million, respectively.

     For the year ended December 31, 1997, contributions to unconsolidated
partnerships and distributions from unconsolidated partnership were $11.2
million and $7.0 million, respectively.

     The Company is currently involved in the construction of several
commercial projects and multi-family residential communities and had
outstanding construction commitments with contractors with remaining amounts
totaling $37.1 million at December 31, 1998.

     CASH FLOW PROVIDED BY (USED IN) FINANCING ACTIVITIES

     During the year ended December 31, 1998, the Company's primary sources of
cash flow from financing activities were proceeds of $11.0 million from the
increase in the Northwestern Mutual Life Insurance Company loan, proceeds of
$13.0 million from the Fleet Capital Corporation loan, and construction draws
of $23.8 million. The Company also made scheduled loan repayments on the
Company's outstanding debt of $4.7 million during 1998.

     Echelon has used land which is not encumbered by debt to help procure
financing for new multi-family residential developments on such land.

     As of December 31, 1998, Echelon had a total of seven contracts, subject
to the Company's final due diligence, to acquire land for the development of an
estimated 1,959 multi-family residential units at an aggregate estimated
development cost of $177.0 million. No assurance can be given that Echelon will
acquire this land or develop the multi-family residential units.

     During 1998 and 1997, the Company purchased a total of 215,938 shares of
Common Stock, at a total cost to the Company of $4.5 million, as discussed
below.

     During the first half of 1998, the Company purchased 4,419 shares of
Common Stock, resulting in additional treasury stock of $.1 million.

     In October 1998, Echelon announced that the Company's Board of Directors
authorized up to $15.0 million for the purchase of the Company's outstanding
Common Stock in both the open market and privately negotiated transactions, as
market conditions allow. During the fourth quarter of 1998, the Company
purchased 143,000 shares of Common Stock, which resulted in additional treasury
stock, at cost, of $2.9 million, in conjunction with the open market stock
purchase program.

     In 1997, the Echelon Board of Directors approved an Odd-Lot Buy-Back
program to purchase up to $5.0 million of Common Stock. The Company purchased
68,519 shares of

                                       42
<PAGE>

Common Stock during the fourth quarter of 1997, which resulted in treasury
stock, at cost, of approximately $1.5 million. The Odd-Lot Buy-Back program
expired on December 31, 1997.

     Dividends to Florida Progress were $.1 million in 1996. Echelon does not
anticipate paying any cash dividends for the foreseeable future.

     OFF-BALANCE SHEET RISK

     Through a previous partnership, Echelon remains contingently liable for
first mortgage bonds issued to residents of the life care communities owned by
such partnership. The contingent liability reduces over time as those who were
residents at the time of the sale of Echelon's partnership interest discontinue
their residency. If the current owners fail to perform their obligations and if
the partnership assets, consisting primarily of land and buildings, were
worthless, Echelon could be liable for $24.0 million as of December 31, 1998.
Echelon considers the incurrence of this liability to be remote based on asset
values and the indemnification agreement from the current owners to Echelon.

     IMPACT OF INFLATION

     Echelon believes that inflation will not have a materially adverse effect
on its business or financial condition.

YEAR 2000 COMPUTER ISSUE

     Many computer systems currently in use were designed and developed using
two digits, rather than four, to identify the year. As a result, such computer
systems will recognize the year 2000 as "00". This could cause many computer
applications to fail completely or to create erroneous results unless
corrective measures are taken.

     Echelon has several projects underway to address the Year 2000 issue.
These include: 1) identifying and mitigating Year 2000 problems in Echelon's
systems, including equipment used in the Company's properties, such as
elevators and phone systems that may have date sensitive information within
them, 2) working with the Company's financial institutions, lenders and vendors
to assure that the appropriate steps are being taken to mitigate the Year 2000
issue in each entity's software systems, and 3) ensuring that each entity that
electronically receives or sends information to Echelon is aware of the steps
that the Company is taking and is taking appropriate steps of its own to
address the Year 2000 issue.

     During 1998 and 1997 the Company incurred total costs of $.3 million for
the acquisition and implementation of a property management and general ledger
software that is Year 2000 compliant. These costs were recorded in accordance
with Echelon's accounting policies. The Company estimates an additional $.3
million to be incurred for Year 2000-related projects in the year ending
December 31, 1999.

     Echelon is currently Year 2000 compliant with some systems and expects to
be compliant with all other systems no later than the third quarter of 1999.
Costs related to the

                                       43
<PAGE>

maintenance and/or modification of Echelon's software systems have been and
will continue to be expensed as incurred. Echelon does not anticipate the costs
related to Year 2000 to have a material impact on its results of operations.
While the Company currently expects that the Year 2000 issues will not pose
significant operational problems, delays in the modification of software
systems or failure to fully identify all Year 2000 dependencies in the
Company's systems could result in material adverse consequences, including
disruption of operations, loss of information, and unanticipated increases in
costs. The Company's contingency plan for addressing the Year 2000 issue
includes the utilization of manual operating systems.

RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," which
established accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. The Company will be required to adopt this standard as of
January 1, 2000 and based on current circumstances, does not believe the
application of the new rules will have a material impact on the Company's
consolidated financial statements.

GENERAL OVERVIEW OF STRATEGIC PLAN

     The overriding objective of the Echelon management team, and of all
Echelon's employees, is to create superior long-term value for stockholders.

     To achieve this objective, Echelon will grow its real estate assets and
operations through the execution of targeted strategies. While these targeted
strategies evidence the Company's best decisions to date, the strategies, to
the degree possible, provide flexibility to be adjusted to deal with changing
economic conditions, capital market fluctuations, business cycles and other
market conditions. Echelon continuously evaluates its strategic direction
against both short-term and long-term real estate and capital market
indicators.

     MULTI-FAMILY

     As previously communicated, multi-family residential development has been
identified as the primary driver of Echelon's growth over the next five years.
During the next five years, Echelon expects to develop or acquire 20 to 40
multi-family residential communities, each comprised of approximately 150 to
400 units. Strategic alliances continue to be an integral component of the
Company's strategic plan and given current market conditions, Echelon is
aggressively seeking alliances to participate in joint venture partnerships and
possible merchant build and presale opportunities for specific multi-family
developments.

     Echelon is capitalizing on the opportunity provided by its existing land
inventory in the Tampa Bay area as well as acquiring land in other locations in
the southeast and southwest United States to achieve geographic diversity and
to establish a pipeline of development sites.

                                       44
<PAGE>

     The Company's pipeline consists of sites in select markets in the
southeast and southwest United States. Initial target markets are identified
using a sophisticated proprietary software system, rather than by random market
visits. The market research software delivers a more objective and pragmatic
assessment of markets, while minimizing the time necessary to screen potential
markets. Following initial target market selection, markets are inspected by
experienced Echelon management. This systematic approach may reduce the market
selection cycle time and allow Echelon developers the opportunity to identify
and reach a target market ahead of competition and site price escalation. This
software system also assists in designing the appropriate community for each
target market. The Company expects to maintain an active pipeline of ten to
twenty sites in target markets using the market research system.

     The Company continues to evaluate possible acquisitions, which include
other multi-family development companies and/or multi-family assets. Some
growth of the multi-family portfolio is expected to result from strategic
acquisitions.

     COMMERCIAL

     During the next five years, the Company expects to hold its core office
buildings and, subject to market conditions, expand its commercial real estate
portfolio by developing, or acquiring, up to 750,000 to 1,500,000 square feet
of commercial office space. A substantial amount of this space will be
developed on Echelon's existing land inventory in the Gateway area of St.
Petersburg, Florida, with the balance developed through land acquisition in
other southeast and southwest target markets in the United States.

     Although the Company plans to hold its core office buildings during this
planning period, short, medium and long-term exit strategies have been
developed for all currently owned commercial real estate. The Company intends
to sell non-core commercial and industrial properties as opportunities arise.

     Echelon continues to evaluate the acquisition of other commercial real
estate development companies, real estate based operating companies and/or
commercial real estate assets as opportunities become available. Some growth of
the commercial portfolio is expected to come from strategic acquisitions.

     REAL ESTATE MANAGEMENT AND BROKERAGE SERVICES

     Real estate management and brokerage services are complementary to the
Company's multi-family residential and commercial real estate operations.
Growth is expected to occur primarily as a result of the growth in Echelon's
multi-family residential and commercial real estate operations. Some revenue
growth is expected from real estate management and brokerage services provided
to third party owners. In addition, Echelon continues to evaluate the
acquisition of real estate management and/or brokerage companies, as
opportunities become available. Some growth in the real estate management and
brokerage services may come from strategic acquisitions.

                                       45
<PAGE>

     INVESTMENTS IN FINANCIAL ASSETS

     The Company generally plans to hold its leveraged lease portfolio until
maturity or until market values exceed termination values. At that time, the
Company will either sell or re-lease the assets depending upon which
alternative provides the greatest risk-adjusted return. The Company will
continue to execute a financial strategy that integrates the tax benefits
provided by its investments in affordable housing limited partnerships with the
deferred tax liability of the leveraged lease portfolio in order to reduce its
federal income tax liability.

     Operating leases and direct finance leases in aircraft and related
equipment will continue to be actively managed, which may result in sales or
other types of liquidations as market conditions warrant.

     As communicated previously, Echelon will continue to withdraw from the
aircraft and real estate lending business to focus on its core real estate
operations. The Company will collect the outstanding loan balances as soon as
practical, maximize the value of each asset, and redeploy the capital from the
loan portfolio to repay debt and/or invest in real estate operations. Echelon
expects to liquidate the loan portfolio by 2002.

     To execute its strategic plan, Echelon expects to obtain sufficient
capital from its operations, asset sales, loan collections, project based and
other financings, joint venture partnerships and the capital markets. However,
no assurance can be given that such capital will be available in sufficient
amounts to execute this plan.

     As previously disclosed, the Company's success to date is not a forecast
of 1999 results. Specifically, financial results from 1998 and 1997 are not
necessarily indicators of 1999 net income. Redirecting capital into the
Company's real estate pipeline will have net income impacts typical of real
estate development.

                                       46
<PAGE>

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to interest rate changes primarily as a result of
its long-term debt used to fund capital expenditures for the expansion of the
Company's real estate portfolio. The Company also has real estate loans
receivable that bear interest at a floating rate based on the prime rate plus a
defined number of basis points. The Company's objective in managing interest
rate risk is to limit the impact of interest rate changes on earnings and cash
flow. The Company's construction financing is at variable rates of interest and
all permanent and corporate financings are at fixed rates of interest. The
Company does not enter into derivative or interest rate hedge transactions.

     The Company's interest rate risk is monitored using a variety of
techniques. The table below presents the principal amounts, weighted average
interest rates, fair value and other terms, by year of expected maturity,
required to evaluate the expected cash flows and sensitivity to interest rate
changes.


<TABLE>
<CAPTION>
                                                                                                                 FAIR
                                                       1999    2000   2001   2002   2003   THEREAFTER   TOTAL    VALUE
                                                     -------- ------ ------ ------ ------ ------------ ------- --------
<S>                                        <C>       <C>      <C>    <C>    <C>    <C>    <C>          <C>     <C>
Fixed rate debt ..........................            $ 4.0    $6.8   $3.1   $4.2   $4.7      $62.3     $85.1   $85.1
                                                      =====    ====   ====   ====   ====      =====     =====   =====
 Weighted average interest rate
   at December 31, 1998 ..................    7.43%
                                              ====
Variable rate LIBOR debt .................            $11.7    $ --   $1.1   $ --   $ --      $23.8     $36.6   $36.6
                                                      =====    ====   ====   ====   ====      =====     =====   =====
 Weighted average interest rate
   at December 31, 1998 ..................    7.05%
                                              ====
Variable rate prime loans receivable .....            $34.3    $ --   $4.5   $ --   $ --      $  --     $38.8   $38.8
                                                      =====    ====   ====   ====   ====      =====     =====   =====
 Weighted average interest rate
   at December 31, 1998 ..................     9.2%
                                              ====
</TABLE>

     As the table incorporates only those exposures that exist as of December
31, 1998, it does not consider those exposures or positions which could arise
after that date. In addition, the Company's variable interest construction
financing is included in the "thereafter" column based on the fact that the
Company has secured permanent financing commitments for these debt instruments
as of December 31, 1998. Moreover, because firm commitments are not presented
in the table above, the information presented has limited predictive value. As
a result, the Company's ultimate realized gain or loss with respect to interest
rate fluctuations will depend on the exposures that arise during the period,
the Company's hedging strategies at that time, and interest rates.

                                       47
<PAGE>

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

                         INDEX TO FINANCIAL STATEMENTS


<TABLE>
<CAPTION>
                                                                            PAGE
                                                                           -----
<S>                                                                        <C>
Echelon International Corporation:
Independent Auditors' Report ...........................................    F-2

Financial Statements:
 Consolidated Balance Sheets
   as of December 31, 1998 and 1997 ....................................    F-3
 Consolidated Statements of Operations
   for the years ended December 31, 1998, 1997 and 1996 ................    F-4
 Consolidated Statements of Comprehensive Income
   for the years ended December 31, 1998, 1997 and 1996 ................    F-5
 Consolidated Statements of Stockholders' Equity
   for the years ended December 31, 1998, 1997 and 1996 ................    F-6
 Consolidated Statements of Cash Flows
   for the years ended December 31, 1998, 1997 and 1996 ................    F-7
 Notes to Consolidated Financial Statements ............................    F-8

Progress Potomac Capital Ventures:
Independent Auditors' Report ...........................................   F-44

Financial Statements:
 Balance Sheet as of December 31, 1997 .................................   F-45
 Statements of Income for the seven-month period ended July 31, 1998
   (date of dissolution) and the years ended December 31, 1997 and 1996    F-46
 Statements of Changes in Joint Venturers' Capital
   for the seven-month period ended July 31, 1998 (date of dissolution)
   and the years ended December 31, 1997 and 1996 ......................   F-47
 Statements of Cash Flows for the seven-month period ended July 31, 1998
   (date of dissolution) and the years ended December 31, 1997 and 1996    F-48
 Notes to Financial Statements .........................................   F-49
</TABLE>

                                      F-1
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Echelon International Corporation:

     We have audited the accompanying consolidated balance sheets of Echelon
International Corporation and subsidiaries as of December 31, 1998 and 1997,
and the related consolidated statements of operations, comprehensive income,
cash flows and stockholders' equity for each of the years in the three year
period ended December 31, 1998. These financial statements are the
responsibility of the management of Echelon International Corporation. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Echelon International
Corporation and subsidiaries as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.

                                        KPMG LLP

St. Petersburg, Florida
February 22, 1999

                                      F-2
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

                          CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                       DECEMBER 31,
                                                                                   ---------------------
                                                                                      1998        1997
                                                                                   ---------   ---------
                                                                                       (IN MILLIONS)
<S>                                                                                <C>         <C>
                                    ASSETS
REAL ESTATE, LEASES, LOANS, & OTHER INVESTMENTS:
Real estate, net (Note 2) ......................................................    $ 198.8     $ 115.1
Aircraft under operating lease (net of accumulated depreciation
  of $9.5 million and $8.4 million, respectively) (Note 2)......................        3.0         4.1
Leases and loans receivable, net (Note 3) ......................................      190.4       196.3
Investments in and advances to unconsolidated partnerships (Note 11) ...........       21.8        47.2
                                                                                    -------     -------
                                                                                      414.0       362.7
                                                                                    -------     -------
ASSETS HELD FOR SALE (Note 4) ..................................................        2.3         2.5
                                                                                    -------     -------
CURRENT ASSETS:
Cash and equivalents (includes restricted deposits of $1.3 million
  and $1.5 million, respectively)...............................................       21.6         7.8
Marketable securities (Note 5) .................................................         --        42.0
Accounts receivable, net .......................................................        1.4         1.2
Current portion of leases and loans receivable (Note 3) ........................       50.3        39.8
lnventories, at cost ...........................................................        1.0         1.1
Other ..........................................................................         .8         1.7
                                                                                    -------     -------
   Total current assets ........................................................       75.1        93.6
                                                                                    -------     -------
OTHER NON-CURRENT ASSETS .......................................................        2.8         1.7
                                                                                    -------     -------
    Total assets ...............................................................    $ 494.2     $ 460.5
                                                                                    =======     =======
                         LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and other liabilities .........................................    $  11.8     $   6.1
Accounts and interest payable to former parent (Note 7) ........................         --         1.3
Current portion of fundings for limited partnership investments (Note 11) ......        2.9         9.5
Current portion of deferred income taxes (Note 12) .............................       10.1         8.4
Current portion of long-term debt (Note 6) .....................................       15.7        12.2
                                                                                    -------     -------
   Total current liabilities ...................................................       40.5        37.5
LONG-TERM DEBT (Note 6) ........................................................      106.0        64.9
DEFERRED INCOME TAXES (Note 12) ................................................      131.4       145.8
OTHER LIABILITIES ..............................................................         .5         3.2
COMMITMENTS AND CONTINGENCIES (Note 14) ........................................
    Total liabilities ..........................................................      278.4       251.4
                                                                                    -------     -------
STOCKHOLDERS' EQUITY (Notes 9 and 10)
Preferred stock, $.01 par value, 10,000,000 shares authorized, none issued......         --          --
Common stock, $.01 par value, 25,000,000 shares authorized,
  6,901,718 issued and 6,685,780 outstanding in 1998 and
  6,785,241 issued and 6,716,722 outstanding in 1997 ...........................         .1          .1
Additional paid in capital .....................................................      282.2       279.5
Retained deficit ...............................................................      (61.0)      (70.5)
Accumulated other comprehensive income .........................................         --         1.5
Treasury stock, at cost (215,938 shares in 1998 and 68,519 shares in 1997) .....       (4.5)       (1.5)
Unearned compensation ..........................................................       (1.0)         --
                                                                                    -------     -------
    Total stockholders' equity .................................................      215.8       209.1
                                                                                    -------     -------
    Total liabilities and stockholders' equity .................................    $ 494.2     $ 460.5
                                                                                    =======     =======
</TABLE>

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

                                      F-3
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                                        YEAR ENDED DECEMBER 31,
                                                                     -----------------------------
                                                                       1998      1997      1996
                                                                     -------- --------- ----------
                                                                     (IN MILLIONS, EXCEPT PER SHARE
                                                                               AMOUNTS)
<S>                                                                  <C>      <C>       <C>
SALES AND REVENUES:
Real estate operations:
 Rental and other operations revenues ..............................  $ 23.1   $ 22.2    $  18.7
 Sale of development properties and development rights .............     3.1       .8       21.8
Investments in financial assets:
 Earned income on finance and operating leases .....................     6.2      4.9        4.3
 Interest income ...................................................     4.2      6.6       15.7
 Equity in earnings of unconsolidated partnerships .................     2.7      3.8        2.7
 Equity in losses of limited partnership investments ...............    (2.4)    (1.5)        --
 Gain on sale of loans .............................................      --      4.1         --
Investment income and net realized gain on sale of investments .....     3.7      3.3         .1
                                                                      ------   ------    -------
                                                                        40.6     44.2       63.3
                                                                      ------   ------    -------
OPERATING EXPENSES:
Rental and other operations expenses ...............................    13.7     16.0       16.3
Cost of development properties and development rights sold .........     1.6       .8       21.7
Depreciation .......................................................     6.0      4.7        5.6
Provision for (recovery of) lease, loan and
  real estate losses, net ..........................................    (1.6)     (.7)      31.4
Interest expense:
 Former parent advances ............................................      --       --       14.5
 Long-term debt, net of amounts capitalized ........................     5.5      9.0        4.2
Allocated administrative expenses of former parent .................      --       --        2.4
General and administrative expenses ................................     8.4      6.6        4.3
Other (income) expenses, net .......................................     (.2)    (3.8)       7.7
                                                                      ------   ------    -------
                                                                        33.4     32.6      108.1
                                                                      ------   ------    -------
INCOME (LOSS) BEFORE INCOME TAXES AND
  EXTRAORDINARY ITEMS ..............................................     7.2     11.6      (44.8)
INCOME TAX EXPENSE (BENEFIT) .......................................    (1.5)     2.1      (15.5)
                                                                      ------   ------    -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEMS ...........................     8.7      9.5      (29.3)
EXTRAORDINARY ITEMS:
 Gain on settlement of debt, net of income tax
   expense of $.4 million...........................................      .8       --         --
 Gain (loss) on extinguishment of debt net of income tax
   expense (benefit) of $(1.3) million and $1.3 million,
   respectively ....................................................      --     (1.9)       1.8
                                                                      ------   ------    -------
NET INCOME (LOSS) ..................................................  $  9.5   $  7.6    $ (27.5)
                                                                      ======   ======    =======
Basic earnings per common share:
 Income (loss) before extraordinary items ..........................  $ 1.28   $ 1.40    $ (4.51)
 Extraordinary items, net of tax ...................................     .12     (.28)       .28
                                                                      ------   ------    -------
 Net income (loss) per common share ................................  $ 1.40   $ 1.12    $ (4.23)
                                                                      ======   ======    =======
Basic weighted average shares of common stock outstanding ..........     6.8      6.8        6.5
                                                                      ======   ======    =======
Diluted earnings per common share:
 Income (loss) before extraordinary items ..........................  $ 1.28   $ 1.40    $ (4.51)
 Extraordinary items, net of tax ...................................     .12     (.28)       .28
                                                                      ------   ------    -------
 Net income (loss) per common share ................................  $ 1.40   $ 1.12    $ (4.23)
                                                                      ======   ======    =======
Diluted weighted average shares of common stock outstanding ........     6.8      6.8        6.5
                                                                      ======   ======    =======
</TABLE>

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

                                      F-4
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

                CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME


<TABLE>
<CAPTION>
                                                                                YEAR ENDED DECEMBER 31,
                                                                           ----------------------------------
                                                                              1998       1997         1996
                                                                           ---------   --------   -----------
                                                                                     (IN MILLIONS)
<S>                                                                        <C>         <C>        <C>
Net income (loss) ......................................................    $  9.5      $ 7.6       $ (27.5)
Other comprehensive income, net of tax:
 Change in unrealized holding gain on available-for-sale
   securities during period ............................................      (1.5)       1.5            --
 Less: reclassification adjustment for net gains included in net income        1.5         --            --
                                                                            ------      -----       -------
   Other comprehensive income ..........................................        --        1.5            --
                                                                            ------      -----       -------
Total comprehensive income (loss) ......................................    $  9.5      $ 9.1       $ (27.5)
                                                                            ======      =====       =======
</TABLE>

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

                                      F-5
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

                CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                                           UNREALIZED
                                                                            GAIN ON
                                                                           AVAILABLE-
                                                  ADDITIONAL                FOR-SALE
                                         COMMON     PAID IN    RETAINED   SECURITIES,   TREASURY     UNEARNED
                                          STOCK     CAPITAL     DEFICIT    NET OF TAX     STOCK    COMPENSATION     TOTAL
                                        -------- ------------ ---------- ------------- ---------- -------------- ----------
                                                                           (IN MILLIONS)
<S>                                     <C>      <C>          <C>        <C>           <C>        <C>            <C>
Balances, December 31, 1995 ...........    $.1      $111.2     $ (50.5)     $   --       $   --           --      $  60.8
Net loss ..............................     --          --       (27.5)         --           --           --        (27.5)
Non-cash contribution from
  former parent .......................     --       140.0          --          --           --           --        140.0
Cash contributions from
  former parent .......................     --        23.7          --          --           --           --         23.7
Common Stock issued--308,801
  shares ..............................     --         4.5          --          --           --           --          4.5
Dividends to former parent ............     --          --         (.1)         --           --           --          (.1)
                                           ---      ------     -------      ------       ------           --      -------
Balances, December 31, 1996 ...........     .1       279.4       (78.1)         --           --           --        201.4
                                           ---      ------     -------      ------       ------           --      -------
Net income ............................     --          --         7.6          --           --           --          7.6
Common Stock issued--8,702
  shares ..............................     --          .1          --          --           --           --           .1
Unrealized gain on available-for-
  sale securities, net of tax .........     --          --          --         1.5           --           --          1.5
Common Stock purchased, at
  cost, 68,519 shares .................     --          --          --          --         (1.5)          --         (1.5)
                                           ---      ------     -------      ------       ------           --      -------
Balances, December 31, 1997 ...........     .1       279.5       (70.5)        1.5         (1.5)          --        209.1
                                           ---      ------     -------      ------       ------           --      -------
Net income ............................     --          --         9.5          --           --           --          9.5
Common Stock issued--116,477
  shares ..............................     --         2.5          --          --           --           --          2.5
Change in unrealized gain on
  available-for-sale securities,
  net of tax ..........................     --          --          --        (1.5)          --           --         (1.5)
Common Stock purchased, at
  cost, 147,419 shares ................     --          --          --          --         (3.0)          --         (3.0)
Tax benefit of stock transactions
  with employees ......................     --          .2          --          --           --           --           .2
Unearned compensation .................     --          --          --          --           --         (1.0)        (1.0)
                                           ---      ------     -------      ------       ------         ----      -------
Balances, December 31, 1998 ...........    $.1      $282.2     $ (61.0)     $   --       $ (4.5)      $ (1.0)     $ 215.8
                                           ===      ======     =======      ======       ======       ======      =======
</TABLE>

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

                                      F-6
<PAGE>
                       ECHELON INTERNATIONAL CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                                YEAR ENDED DECEMBER 31,
                                                                                           ---------------------------------
                                                                                              1998       1997        1996
                                                                                           --------- ----------- -----------
                                                                                                     (IN MILLIONS)
<S>                                                                                        <C>       <C>         <C>
OPERATING ACTIVITIES:
 Net income (loss) .......................................................................  $   9.5   $    7.6    $  (27.5)
 Adjustment to reconcile net income (loss) to cash provided
  by (used in) operating activities:
 Depreciation and amortization of financing costs ........................................      6.2        5.7         6.1
 Extraordinary (gain) loss on (settlement) extinguishment of debt ........................     (1.2)       3.2        (3.1)
 Deferred income taxes ...................................................................    (12.7)      (9.1)      (19.0)
 Amortization related to finance leases ..................................................     (3.3)      (3.8)       (1.4)
 Provision for (recovery of) lease, loan and real estate losses ..........................     (1.6)       (.7)       31.4
 Stock-based compensation expense ........................................................      0.8         --          --
 Gain on sale of assets ..................................................................     (3.1)      (5.0)         --
 Equity in income of unconsolidated partnerships, net ....................................      (.3)      (1.1)       (2.7)
 Changes in working capital:
  Accounts payable and other liabilities .................................................      6.1       (9.2)       (8.4)
  Other working capital changes ..........................................................       .8         .9         (.1)
 Other ...................................................................................      (.8)        .4        11.5
                                                                                            -------   --------    --------
                                                                                                0.4      (11.1)      (13.2)
                                                                                            -------   --------    --------
INVESTING ACTIVITIES:
 Purchases of marketable securities ......................................................    (11.0)     (65.9)         --
 Proceeds from sales of marketable securities ............................................     52.3       26.6          --
 Proceeds from sales and collections of leases and loans .................................     21.6       56.9        45.9
 Net proceeds from sales of real estate property, development rights and assets held for        3.2       29.2        21.1
  sale
 Real estate property additions and other capital expenditures ...........................    (90.4)     (13.1)       (9.1)
 Contributions to unconsolidated partnerships ............................................     (9.4)     (11.2)       (2.4)
 Distributions from unconsolidated partnerships ..........................................      6.5        7.0         6.0
                                                                                            -------   --------    --------
                                                                                              (27.2)      29.5        61.5
                                                                                            -------   --------    --------
FINANCING ACTIVITIES:
 Issuance of long-term debt ..............................................................     48.4       45.0       136.2
 Repayment of long-term debt .............................................................     (4.7)    (117.3)      (25.0)
 Debt issuance costs .....................................................................      (.3)       (.2)
 Decrease in due to former parent debt obligation ........................................       --         --      (115.4)
 Dividends paid to former parent .........................................................       --         --         (.1)
 Equity contribution from former parent ..................................................       --         --        23.7
 Issuance of common stock ................................................................       .2         .1          --
 Purchase of treasury stock ..............................................................     (3.0)      (1.5)         --
                                                                                            -------   --------    --------
                                                                                               40.6      (73.9)       19.4
                                                                                            -------   --------    --------
Net increase(decrease) in cash and equivalents ...........................................     13.8      (55.5)       62.9
BEGINNING CASH AND EQUIVALENTS ...........................................................      7.8       63.3          .4
                                                                                            -------   --------    --------
ENDING CASH AND EQUIVALENTS (including restricted cash of
 $1.3 million and $1.5 million, respectively).............................................  $  21.6   $    7.8    $   63.3
                                                                                            =======   ========    ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 Cash paid during the period for:
  Interest, net of amounts capitalized ...................................................  $   5.2   $    8.5    $   23.9
                                                                                            =======   ========    ========
  Income taxes, net of refunds ...........................................................  $  11.8   $    9.4    $   14.2
                                                                                            =======   ========    ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH
 INVESTING & FINANCING ACTIVITIES:
 Distribution of note receivable by unconsolidated partnership ...........................  $    --   $    3.0    $     --
                                                                                            =======   ========    ========
 Distribution of net assets by unconsolidated partnership ................................  $  19.1   $     --    $     --
                                                                                            =======   ========    ========
 Change in funding for limited partnership investments ...................................  $    --   $    (.4)   $   12.8
                                                                                            =======   ========    ========
 Issuance of common stock related to long-term incentive plan ............................  $    .5   $     --    $     --
                                                                                            =======   ========    ========
 Change in unrealized gain on available-for-sale securities, net of
  tax of $(.7) million in 1998 and $.9 million in 1997....................................  $  (1.5)  $    1.5    $     --
                                                                                            =======   ========    ========
 Equity contribution from former parent ..................................................  $    --   $     --    $  140.0
                                                                                            =======   ========    ========
 Delayed equity amortization on leveraged leases .........................................  $   1.6   $    1.6    $    1.6
                                                                                            =======   ========    ========
 Tax benefit of stock transactions with employees ........................................  $    .2   $     --    $     --
                                                                                            =======   ========    ========
</TABLE>
              The accompanying notes are an integral part of these
                       consolidated financial statements.
                                      F-7
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

SPIN-OFF TRANSACTION AND DESCRIPTION OF BUSINESS

     Echelon International Corporation ("Echelon" or the "Company") is a real
estate company which develops, owns and manages commercial and multi-family
residential real estate (the "Real Estate Business"). The Real Estate Business
includes two segments: 1) Commercial Real Estate and 2) Multi-Family
Residential Real Estate. The Company also owns and manages a portfolio of
financial assets consisting primarily of leased aircraft and other assets and
collateralized financings of commercial real estate and aircraft (the "Leasing
and Lending Business"). The Leasing and Lending Business comprises the majority
of the Company's third segment, Investments in Financial Assets. Echelon is
continuing to withdraw from the aircraft and real estate lending business to
focus on its core real estate operations.

     Prior to December 18, 1996, Echelon was a wholly-owned subsidiary of
Florida Progress Corporation ("Florida Progress"). On December 18, 1996,
Florida Progress effected a spin-off of Echelon ("the Distribution") by
distributing all of the issued and outstanding Echelon Common Stock to holders
of outstanding Florida Progress Common Stock (one share of the Company for each
fifteen shares of Florida Progress) by a tax-free stock dividend. See Note 7.
The Distribution established Echelon as a publicly held corporation separate
from Florida Progress. In connection with the Distribution, Echelon formulated
a plan for the disposal of certain non-strategic assets. See Note 4.

PRINCIPLES OF PRESENTATION

     The accompanying consolidated financial statements include the financial
results of the Company and its majority-owned operations. All significant
intercompany balances and transactions have been eliminated. Investments for
which the Company has a 20% to 50% ownership interest and certain limited
partnerships are accounted for using the equity method. Investments in
affordable housing limited partnerships in which the Company has less than a
20% ownership interest are also accounted for using the equity method, in
accordance with the Financial Accounting Standards Board Emerging Issues Task
Force Issue No. 94-1.

     Certain amounts previously reported in the 1997 and 1996 consolidated
financial statements have been reclassified to conform with the 1998
presentation.

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and

                                      F-8
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.

REAL ESTATE, AIRCRAFT UNDER OPERATING LEASE AND DEPRECIATION

     The Company records property at cost adjusted for any impairment and
provides for depreciation primarily on a straight-line basis over the estimated
service lives or lease terms of the related assets. Interest and real estate
taxes incurred during construction periods are capitalized on a specific
project identification basis and depreciated on the same basis as the related
assets. Costs directly related to the acquisition (including costs related to
pre-acquisition due diligence), development or improvement of real estate and
certain indirect costs related to developments are capitalized. Costs incurred
in connection with the pursuit of unsuccessful acquisitions or developments are
expensed at the time the pursuit is abandoned.

     The Company accounts for impairments of long-lived assets and long-lived
assets to be disposed of 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." This standard requires that
long-lived assets and certain intangible assets be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable through future cash flows from the use and
disposition of the asset. An impairment loss recognized on assets to be held
and used is measured as the amount by which the carrying amount of the asset
exceeds the fair value of the asset. Assets held for sale are reported at the
lower of carrying amount or fair value less cost to sell.

FINANCE LEASES

     Finance leases consist of direct financing leases and leveraged leases.

     The investment in direct finance leases equals rentals receivable plus
estimated residual value of leased equipment less unearned income. Income on
direct financing leases is recognized by a method which produces a constant
periodic rate of return on the outstanding investment in the lease. If the
residual value of leased equipment under a direct finance lease is determined
to be excessive and the decline in the residual value is judged to be other
than temporary, the investment in the lease is recalculated and the difference
between the investment in the lease and the recalculated value is recorded as
unearned income.

     The investment in leveraged leases is the aggregate of rentals receivable
(net of principal and interest on the related nonrecourse third party debt) and
estimated residual

                                      F-9
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

value of the equipment less the unearned income and deferred investment tax
credit. Income on leveraged leases is recognized by a method which produces a
constant rate of return on the outstanding investment in the lease net of the
related deferred tax liability and deferred investment tax credits in the years
in which the net investment is positive. If the residual value of leased
equipment under a leveraged lease is determined to be excessive and the decline
in the residual value is judged to be other than temporary, the investment in
the lease is recalculated and the difference between the investment in the
lease and the recalculated value is taken as a charge to income.

ALLOWANCE FOR LEASE AND LOAN LOSSES

     The allowance for losses on leases is provided when management has
determined that it is probable that the net investment in a lease will not be
recovered due to financial difficulties of a lessee or the lease being
terminated or restructured prior to the expiration date. The allowance is
measured by the difference between the net investment in the lease and the
market value of the leased asset less costs to sell, in accordance with SFAS
No. 5, "Accounting for Contingencies" and SFAS No. 13, "Accounting for Leases."
Management utilizes the best available information when establishing and
reviewing its allowance for lease and loan losses.

     In accordance with SFAS No. 114, "Accounting by Creditors for the
Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
the Impairment of Loan -- Income Recognition and Disclosure," a loan is
considered impaired when management determines that it is probable that the
Company will not collect all amounts due according to the contractual terms of
the loan. An allowance for loss on an impaired loan is recognized when the
present value of the expected future cash flows, discounted at the loan's
effective rate, is less than the carrying value of the loan. When an impaired
loan is collateral dependent, and foreclosure is probable, the lower of the
carrying amount of the loan, or the fair value of collateral less costs to
sell, is used to measure the amount of allowance for loss to be recognized.
Interest income on impaired loans is recognized on a cash basis as a credit to
interest income.

INVESTMENTS IN AFFORDABLE HOUSING LIMITED PARTNERSHIPS

     Echelon invests in limited partnerships which in turn invest in affordable
housing limited partnerships which develop multi-family residential communities
throughout the United States. These partnership investments include certain tax
benefits, including low-income housing tax credits and tax deductions for the
operating losses of the communities. The

                                      F-10
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

Company accounts for these investments using the equity method, in accordance
with the Financial Accounting Standards Board Emerging Issues Task Force Issue
No. 94-1.

CASH AND EQUIVALENTS

     Cash and equivalents include cash on hand, demand deposits and short-term
investments with original maturities of three months or less.

     The restricted cash at both December 31, 1998 and 1997 represents
certificates of deposits held by a bank that requires such deposits in support
of standby letters of credit.

MARKETABLE SECURITIES

     The Company's investments in marketable securities at December 31, 1997
are classified as available-for-sale, except for debt securities with a
maturity of three months or less, which are classified as cash equivalents. The
available-for-sale marketable securities are available to support current
operations or to take advantage of other investment opportunities. These
securities are stated at fair value based upon market quotes. Dividend and
interest income is recognized when earned. Realized gains and losses are
included in earnings and are calculated using the specific identification
method for determining the cost of securities sold. Unrealized gains and
losses, net of tax, are included as a separate component of stockholders'
equity.

     The Company converted the marketable securities portfolio to cash during
the fourth quarter of 1998.

REAL ESTATE OPERATIONS

     Real estate operations include rent from real estate leasing, marina and
other operations and sales of development properties. Rental revenues, net of
any rent concessions given to lessees, are recognized ratably over the lease
period. Real estate sales transactions are recorded in accordance with SFAS No.
66, "Accounting for Sales of Real Estate."

INVESTMENTS IN FINANCIAL ASSETS

     Revenues from investments in financial assets include interest income on
loans receivable, earned income on operating and finance leases, equity in
earnings of unconsolidated partnerships and equity in losses of affordable
housing limited partnerships. See Note 11.

                                      F-11
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

RENTAL AND OTHER OPERATIONS EXPENSES

     Rental and other operations expenses shown on the accompanying
Consolidated Statements of Operations include costs of on-site personnel,
utilities, repairs and maintenance, property taxes, insurance, marketing,
landscaping, and other related administrative costs.

INTEREST EXPENSE, FORMER PARENT ADVANCES

     The accompanying consolidated Statements of Operations include an
allocation of interest expense due to Florida Progress prior to the
Distribution, based upon the average outstanding amounts due to Florida
Progress and affiliates. See Note 7. Management believes the allocation method
used was reasonable.

INCOME TAXES

     The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS No.
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date. Prior to
the Distribution, the Company was included in the consolidated federal income
tax returns of Florida Progress and the income tax provision was calculated as
if the Company had filed separate returns.

EARNINGS PER COMMON SHARE

     In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings per Share" ("EPS"). SFAS No. 128 replaces the standards
for computing EPS under Accounting Principles Board Opinion No. 15, "Earnings
per Share," and makes the computations comparable to international EPS
standards. The Company adopted this SFAS as of December 31, 1997. The adoption
of this statement required the Company to present basic earnings per share and
diluted earnings per share in place of primary earnings per share. There was no
effect on earnings (loss) per share for the restatement of the prior year's
financial results, as required by the SFAS, due to the Company's net loss in
1996.

                                      F-12
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

     The net income (loss) per common share reflects, for all periods
presented, the average outstanding common shares of Echelon after giving effect
to the changes in the capitalization, as discussed in Note 9. Basic earnings
(loss) per common share is calculated as the net income available to common
stockholders divided by the weighted average number of shares of common stock
outstanding during the period. Diluted earnings (loss) per common share is
calculated as the net income available to common stockholders divided by the
weighted average number of shares of common stock outstanding during the period
plus the number of additional common shares that would have been outstanding if
the dilutive potential common shares had been issued.

FINANCING COSTS

     Fees and issue costs associated with obtaining debt are recorded as a
deferred charge. All fees and issue costs are amortized to interest expense
over the term of the related debt using the effective interest method.

STOCK-BASED COMPENSATION

     The Company discloses stock-based compensation in accordance with the
requirements of SFAS No. 123, "Accounting For Stock-Based Compensation." The
Company has elected to measure and recognize stock-based compensation costs
based on the accounting prescribed by Accounting Principles Board ("APB")
Opinion No. 25, "Accounting For Stock Issued To Employees."

COMMITMENTS AND CONTINGENCIES

     In October 1996, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 96-1, "Environmental Remediation
Liabilities," which was adopted by the Company on January 1, 1997. SOP 96-1
requires, among other things, environmental remediation liabilities to be
accrued when the criteria of SFAS No. 5, "Accounting for Contingencies," have
been met. SOP 96-1 also provides guidance with respect to the measurement of
the remediation liabilities. Such accounting for environmental remediation
costs and the adoption of the new statement did not have a material impact on
the Company's financial position, results of operations or liquidity.

FINANCIAL INSTRUMENTS

     The estimated fair value of financial instruments has been determined by
the Company using available market information and appropriate valuation
methodologies. Judgment is

                                      F-13
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

required in interpreting market data to develop estimates of fair value.
Accordingly, the estimates may be materially different from the amounts that
the Company could realize in a current market transaction.

     The Company has no derivative financial instruments, such as futures,
forwards, swaps or options contracts.

NEW ACCOUNTING STANDARDS

     The Company adopted SFAS No. 130, "Reporting Comprehensive Income," as of
January 1, 1998. The standard defines comprehensive income as all changes in
equity of an enterprise during a period except those resulting from stockholder
transactions. As the standard addresses reporting and presentation issues only,
there was no impact on earnings from the adoption of this standard.
Comprehensive income is included in the Company's Statements of Comprehensive
Income. Prior year financial statements have been reclassified to conform to
the requirements of SFAS No. 130.

     The Company adopted SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information" for the year ended December 31, 1998. The
standard requires financial and descriptive information be disclosed for
segments meeting certain materiality criteria whose operating results are
reviewed for decisions on resource allocation and for which discrete financial
information is available. It also establishes standards for related disclosures
about products and services, geographic areas and major customers. See Note 13.

(2) REAL ESTATE & AIRCRAFT UNDER OPERATING LEASE

     During the second quarter of 1997, the Company revised its strategy with
respect to its commercial real estate assets to include short and medium-term
exit strategies, in addition to the original plan of long-term exit strategies.
As a result, in June 1997, the Company recognized an impairment of $19.0
million on certain income-producing property in accordance with SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed Of." The impairment loss was measured using independent appraisals and
is reflected in the provision for lease, loan, and real estate losses in the
Consolidated Statements of Operations.

     During 1996, the Company recognized an impairment of $7.6 million on an
income-producing building and on real estate under development. The impairment
is reflected in the provision for lease, loan and real estate losses in the
Consolidated Statements of Operations. The impairment, measured using
discounted cash flows, became necessary

                                      F-14
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(2) REAL ESTATE & AIRCRAFT UNDER OPERATING LEASE--(CONTINUED)

when a tenant gave a non-renew notice and management determined re-leasing this
property would require modifications which would not be recovered. The
impairment on real estate under development became necessary when it was
determined that the carrying value of the property plus costs to complete
development of the property exceeded its fair value.

     The depreciable lives and carrying values of real estate, a significant
portion of which is pledged to secure borrowings, are as follows:


<TABLE>
<CAPTION>
                                                                              DECEMBER 31,
                                                                            -----------------
                                                              DEPRECIABLE
                                                             LIVES (YEARS)    1998     1997
                                                            --------------- -------- --------
                                                                              (IN MILLIONS)
<S>                                                         <C>             <C>      <C>
   Land and land improvements held for development or sale                   $ 26.9   $ 27.5
                                                                             ------   ------
   Real estate under development:
    Commercial Development
     Land and land improvements ...........................                     1.0       --
     Construction in progress .............................                    10.5      1.7
                                                                             ------   ------
                                                                               11.5      1.7
                                                                             ------   ------
    Multi-Family Development
     Land and land improvements ...........................                    15.3      4.0
     Construction in progress .............................                    24.8      2.3
                                                                             ------   ------
                                                                               40.1      6.3
                                                                             ------   ------
   Income producing:
    Commercial
     Land and land improvements ...........................                    15.3     15.2
     Buildings and improvements ...........................       5-40        102.0     78.0
     Equipment and other ..................................       3-10          1.5      1.6
                                                                             ------   ------
                                                                              118.8     94.8
                                                                             ------   ------
    Multi-Family
     Land and land improvements ...........................                     1.9       --
     Buildings and improvements ...........................         35         18.0       --
     Equipment and other ..................................       3-10          0.7       --
                                                                             ------   ------
                                                                               20.6       --
                                                                             ------   ------
    Corporate
     Equipment and other ..................................       3-10          2.3      1.3
                                                                             ------   ------
                                                                              220.2    131.6
   Less: accumulated depreciation .........................                    21.4     16.5
                                                                             ------   ------
                                                                             $198.8   $115.1
                                                                             ======   ======
</TABLE>

                                      F-15
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(2) REAL ESTATE & AIRCRAFT UNDER OPERATING LEASE--(CONTINUED)

     At December 31, 1998, the approximate future minimum rental income under
current operating leases that have initial or remaining noncancelable lease
terms in excess of one year is as follows:

<TABLE>
<CAPTION>
                                (IN MILLIONS)
                               --------------
<S>                            <C>
  1999 .....................        $14.9
  2000 .....................         14.5
  2001 .....................         12.6
  2002 .....................         11.3
  2003 .....................          8.5
  Thereafter ...............         34.6
                                    -----
     Total .................        $96.4
                                    =====
</TABLE>

     One tenant, Florida Progress and subsidiaries, represented 11.8% of the
Company's total revenues for the year ended December 31, 1998. No single tenant
accounted for more than 10% of the Company's revenues during the years ended
December 31, 1997 and 1996.

     Capitalized interest during the development of specific projects was $1.8
million and $.2 million during the years ended December 31, 1998 and 1997,
respectively.

     Echelon has extended the aircraft operating lease with Air Micronesia,
Inc. (a subsidiary of Continental Airlines, Inc.) from the original maturity of
December 31, 1998 to October 31, 2000.

                                      F-16
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(3) LEASES AND LOANS RECEIVABLE

     At December 31, 1998 and 1997, investments in leases and loans receivable
were as follows:

<TABLE>
<CAPTION>
                                                       DECEMBER 31,
                                                   ---------------------
                                                      1998        1997
                                                   ---------   ---------
                                                       (IN MILLIONS)
<S>                                                <C>         <C>
   Finance leases:
     Rentals receivable ........................    $ 180.9     $ 169.2
     Unguaranteed residual values ..............      111.1       105.6
     Guaranteed residual values ................         --         6.0
     Unearned income ...........................      (60.3)      (56.6)
     Initial direct costs ......................         .4          .2
     Deferred investment tax credits ...........      (11.9)      (13.3)
                                                    -------     -------
      Total finance leases .....................      220.2       211.1
   Commercial finance loans receivable .........       39.0        45.1
   Allowance for losses ........................      (18.5)      (20.1)
                                                    -------     -------
                                                      240.7       236.1
   Less: current portion .......................       50.3        39.8
                                                    -------     -------
                                                    $ 190.4     $ 196.3
                                                    =======     =======
</TABLE>

     Finance leases consist of direct finance leases and leveraged lease
investments which are primarily in aircraft. The majority of the leases have
remaining terms of 7 to 12 years, with one lease currently scheduled to mature
in 20 years. Rentals receivable from leveraged lease investments represent
unpaid rentals less principal and interest on nonrecourse third-party debt. The
Company's share of rentals receivable is subordinate to the debt holders who
have security interests in the leased assets.

     As of July 31, 1998, a joint venture in which Echelon had a 50% interest
was dissolved and the Company received net assets totaling $19.1 million. The
net assets were recorded by the Company and represent the components of a
direct finance lease for an aircraft leased to Continental Airlines, Inc.
through February 2002.

     During August 1998, the Company sold two aircraft engines which were in
the Company's leveraged lease portfolio. The sale of the aircraft engines and
the termination of the leveraged lease resulted in pre-tax income of $.6
million to the Company.

     In November 1998, the Company executed an extension and rental rate
adjustment on a direct finance lease for an aircraft leased to Southwest
Airlines. The lease was originally scheduled to mature in June 2004. The
amended lease agreement extends the maturity of the lease through June 2008.
Subsequently, the lease was utilized as collateral for a full payout loan. See
further discussion of the loan in Note 6, "Long-Term Debt".

                                      F-17
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(3) LEASES AND LOANS RECEIVABLE--(CONTINUED)

     At December 31, 1998, net contractual maturities of rentals receivable
from finance leases were $15.8 million, $13.7 million, $24.3 million, $19.9
million and $11.1 million for each of the years in the five-year period from
1999 through 2003, respectively, and $96.1 million thereafter.

     The Company's net investment in leveraged leases is comprised of the
following:


<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                         -------------------------
                                                                             1998          1997
                                                                         -----------   -----------
                                                                               (IN MILLIONS)
<S>                                                                      <C>           <C>
   Rentals receivable ................................................    $  146.7      $  156.5
   Estimated residual value of leased assets .........................       102.9         105.6
   Less: Unearned income and deferred investment tax credits .........       (60.5)        (65.4)
   Delayed equity .......................................   ..........       (16.8)        (18.5)
   Deferred taxes arising from leveraged leases .........   ..........      (152.8)       (163.6)
                                                                          --------      --------
   Net investment in leveraged leases ................................    $   19.5      $   14.6
                                                                          ========      ========
</TABLE>

     Net income recognized from leveraged leases (after payments to nonrecourse
lenders but before other borrowing costs) was as follows:


<TABLE>
<CAPTION>
                                                       1998     1997      1996
                                                      ------   ------   --------
                                                       (IN MILLIONS, EXCEPT PER
                                                            SHARE AMOUNTS)
<S>                                                   <C>      <C>      <C>
   Lease income ...................................    $ .4     $ .4     $  .3
   Gain (loss) on sale of equipment ...............      --       --       (.5)
   Amortization of investment tax credits .........     1.4       .7        .7
                                                       ----     ----     -----
                                                       $1.8     $1.1     $  .5
                                                       ====     ====     =====
</TABLE>

     The Company's commercial finance loans are secured by first mortgage liens
on the related commercial real estate or by security interests in aircraft,
aircraft engines or spare parts. These loans are further secured, where
applicable, by an assignment to the Company of the borrowers' lease agreements,
and, in some cases, third party guaranties.

     At December 31, 1998, the Company had a $23.5 million loan receivable
considered to be impaired under the definition of SFAS No. 114. Principal and
interest payments for the loan are current as of December 31, 1998. The $23.5
million loan receivable is secured by a first mortgage on certain property and
is considered to be impaired as a result of the Company's extension of the
original maturity of the loan several times through forbearance. The Company
does not expect full payment until the infrastructure of the property has been
completed and the land has been subdivided and sold. In the opinion of
management, no valuation allowance is deemed necessary on this loan as the
estimated current market

                                      F-18
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(3) LEASES AND LOANS RECEIVABLE--(CONTINUED)

value of the underlying property and cash flow from leases on this property,
which have been assigned to the Company, support the current recorded value of
the loan.

     During 1998, the Company was paid in full on a $3.0 million real estate
loan that was previously considered to be impaired. As a result, Echelon
reversed the $1.6 million allowance for losses on leases and loans previously
recorded.

     The Company's portfolio of leases and loans receivable included $38.1
million and $45.2 million in loans and leases performing under restructured
agreements at December 31, 1998 and 1997, respectively. All restructured assets
are performing in accordance with their new terms and the restructurings are
not anticipated to materially reduce the Company's future revenues.

     No amounts were recorded as a provision for lease and loan losses in 1998
or 1997. During 1996, the Company recorded a $2.3 million provision for lease
and loan losses.

     At December 31, 1998 and 1997, the Company's portfolio of leases and loans
receivable included investments in airline and other equipment totaling $205.0
million and $198.8 million, respectively. Investments in commercial real estate
totaled $54.2 million and $57.4 million at the same dates.

(4) ASSETS HELD FOR SALE

     In June 1996, the Company's management adopted a plan to dispose of certain
non-strategic assets. These assets were classified as "Assets Held for Sale" at
both December 31, 1998 and 1997. Management expects that the disposal of these
assets will be completed within one to two years. Assets held for sale,
reflected at the lower of carrying amount or fair value less costs to dispose of
the assets, consist of the following:


<TABLE>
<CAPTION>
                                                          DECEMBER 31,
                                                        ----------------
                                                         1998      1997
                                                        ------   -------
                                                         (IN MILLIONS)
<S>                                                     <C>      <C>
   Leases and loans receivable, net .................    $ .4     $ .4
   Real estate (primarily consists of land) .........     1.9      2.1
                                                         ----     ----
                                                         $2.3     $2.5
                                                         ====     ====
</TABLE>

     In June 1997, the Company received $24.3 million on the collection of two
aircraft loans receivable and the disposal of an investment in an
unconsolidated affiliate. The net book value of these assets at the time of
disposal was $9.3 million. As a result of this transaction, the Company
reversed the valuation allowance previously established, based on the

                                      F-19
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(4) ASSETS HELD FOR SALE--(CONTINUED)

estimated market value of these assets, and recorded a pre-tax gain of $15.0
million. The proceeds were used to repay the remaining debt to the Company's
former parent. The retirement of the debt allowed the Company to retain a lease
receivable, which it had previously expected to sell in order to repay the
debt. In connection with the reclassification of the lease receivable from
"Assets Held for Sale" to "Leases and Loans Receivable", the Company also
reversed the $4.7 million valuation allowance recorded in contemplation of the
accelerated sale of the lease receivable.

     During 1997, the Company was paid in full for a loan of $.5 million and
sold property with a net book value of $.2 million.

     During 1998, the Company sold property, classified as "Assets Held for
Sale", at its net book value of $.2 million.

(5) MARKETABLE SECURITIES

     The Company converted the marketable securities portfolio to cash during
the fourth quarter of 1998.

     The following is a summary of available-for-sale securities as of December
31, 1997:


<TABLE>
<CAPTION>
                                            AMORTIZED     UNREALIZED     UNREALIZED      FAIR
                                               COST          GAIN           LOSS         VALUE
                                           -----------   ------------   ------------   --------
                                                              (IN MILLIONS)
<S>                                        <C>           <C>            <C>            <C>
   Certificates of deposit .............      $ 2.0          $ --          $  --        $ 2.0
   U.S. government obligations .........        7.6            .1             --          7.7
   Municipal bonds .....................        5.6            .1             --          5.7
   Corporate debt securities ...........        8.1            --             --          8.1
                                              -----          ----          -----        -----
      Subtotal .........................       23.3            .2             --         23.5
   Equity securities ...................       16.2           2.5            (.2)        18.5
                                              -----          ----          -----        -----
      Total ............................      $39.5          $2.7          $ (.2)       $42.0
                                              =====          ====          =====        =====
</TABLE>

     Net realized gains on available-for-sale securities were $1.5 million and
$.3 million for the years ended December 31, 1998 and 1997, respectively.

                                      F-20
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(6) LONG-TERM DEBT

     Long-term debt outstanding at December 31, 1998 and 1997 is as follows:


<TABLE>
<CAPTION>
                                                                               DECEMBER 31,
                                                                            -------------------
                                                              INTEREST
                                                                RATE          1998       1997
                                                          ---------------   --------   --------
                                                                               (IN MILLIONS)
<S>                                                       <C>               <C>        <C>
   Salomon Brothers Realty Corp. ......................         7.13%(a)     $ 12.8     $13.0
   Northwestern Mutual Life Insurance Company .........         6.98%          54.4      45.0
   SouthTrust Bank ....................................         7.15%(a)       14.9        --
   AmSouth Bank .......................................         7.06%(a)        8.9        --
   Fleet Capital Corporation ..........................         5.99%          12.9        --
   Delayed equity obligation on finance lease .........        10.00%          16.8      18.5
   Other ..............................................           --             --       0.6
                                                                             ------     -----
                                                                              121.7      77.1
   Less: current portion of long-term debt ............                        15.7      12.2
                                                                             ------     -----
                                                                             $106.0     $64.9
                                                                             ======     =====
</TABLE>

---------------------
(a) Interest rate at December 31, 1998.

SALOMON BROTHERS REALTY CORP.

     In November 1996, Echelon obtained a three-year secured loan from Salomon
Brothers Realty Corp. ("Salomon Brothers") in the principal amount of $105.0
million. Repayments of $37.7 million were made on the loan throughout 1997. On
December 30, 1997, a portion of the loan secured by certain commercial real
estate assets was refinanced by a $45.0 million loan from Northwestern Mutual
Life Insurance Company ("Northwestern"), with the proceeds reducing the Salomon
Brothers loan.

     In May 1998, the Company executed an amendment on the Salomon Brothers
loan which increased the amount of available credit on the loan to $30.0
million and reduced the interest rate on the entire loan to LIBOR plus 1.50%
per annum.

     At December 31, 1998, the Salomon Brothers loan was secured by a portion
of Echelon's real estate loan portfolio and a commercial property, BAYBORO
STATION. The loan requires mandatory monthly principal payments based on an
amortization schedule of 25 years or the scheduled principal payments received
on real estate loans, if greater. Additional principal payments may be due upon
the sale or repayment of individual items of collateral. The entire loan
matures in May 2000 with the ability to extend through May 2002.

                                      F-21
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(6) LONG-TERM DEBT--(CONTINUED)

NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY

     As discussed above, a portion of Echelon's commercial real estate
portfolio secures the Northwestern loan. In August 1998, the Company closed on
a loan amendment with Northwestern which increased the amount of the existing
loan by $11.0 million and reduced the interest rate on the entire loan to 6.98%
per annum. The increase in the loan is secured by two commercial properties in
Echelon's real estate portfolio, CENTRAL STATION and THE NEW MCNULTY. The
amended loan requires monthly principal and interest payments based on an
amortization schedule of 22.5 years, with final maturity no later than August
2005. Additional principal payments may be due upon the sale of individual
components of the collateral. The terms of the loan include a prepayment
lockout until January 1, 2001, at which time the Company can pay the loan in
full including a prepayment fee. The prepayment fee shall be the greater of 1%
of the outstanding principal loan balance or the present value of the remaining
loan payments at a discount rate defined in the Northwestern loan agreement
minus the outstanding principal balance of the loan, exclusive of all accrued
interest.

SOUTHTRUST BANK

     In July 1997, the Company closed on a $16.5 million construction loan with
SouthTrust Bank. The interest rate is LIBOR plus 1.60% per annum and the loan
has been used to fund development of ECHELON AT BAY ISLE KEY, a 369-unit
multi-family residential community in St. Petersburg, Florida. The initial term
of the construction loan is two years with the ability to extend the loan for
an additional five years from the completion of construction. The construction
of ECHELON AT BAY ISLE KEY was completed in February 1999. Teacher's Insurance
and Annuity Association of America ("TIAA") has committed to provide the
permanent financing for this development, as discussed below.

AMSOUTH BANK

     In April 1998, the Company closed on an $18.6 million construction loan
with AmSouth Bank. The interest rate is LIBOR plus 1.50% per annum and the loan
is being used to fund the development of ECHELON AT THE RESERVE, a 314-unit
multi-family residential community in CARILLON PARK, located in the Gateway
area of St. Petersburg, Florida. As of December 31, 1998, Echelon had drawn
$4.6 million on this loan. The initial term of the loan is three years, with an
option to extend for an additional two years from construction completion. TIAA
has committed to provide the permanent financing for this development, as
discussed below.

                                      F-22
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(6) LONG-TERM DEBT--(CONTINUED)

     In May 1998, the Company executed a commitment letter with AmSouth Bank
for a $50.0 million Advised Guidance Line of Credit. The proceeds from the line
will be used to provide the construction financing for multi-family and
commercial projects, as approved by AmSouth Bank. Each project financed under
the line will be a separate loan. The interest rate for each loan will be the
lesser of the prime rate of interest or the LIBOR rate plus a defined number of
basis points per annum. The term for each multi-family residential loan is 36
months and for each commercial loan is 30 months. The repayment terms of the
loans are interest only, with the entire principal and any accrued interest due
at maturity.

     To date, the Company has closed on five loans under the AmSouth Bank $50.0
million Advised Guidance Line of Credit. The construction projects, the loan
amounts and the construction draws as of December 31, 1998 are as follows:


<TABLE>
<CAPTION>
                                          CONSTRUCTION LOAN     CONSTRUCTION DRAWS AS OF
CONSTRUCTION PROJECT                            AMOUNT             DECEMBER 31, 1998
--------------------------------------   -------------------   -------------------------
                                                          (IN MILLIONS)
<S>                                      <C>                   <C>
   CASTILLE AT CARILLON ..............          $10.9                     $3.3
   ECHELON AT WOODLAND PARK ..........          $11.3                       --
   ECHELON AT NORTHLAKE ..............          $17.2                     $1.0
   ECHELON AT MISSION RANCH ..........          $14.1                       --
   ECHELON AT MEMORIAL CREEK .........          $14.6                       --
</TABLE>

     AmSouth Bank has participated portions of several of these loans to other
financial institutions.

FLEET CAPITAL CORPORATION

     In November 1998, the Company executed an extension and rental rate
adjustment on a direct finance lease for an aircraft leased to Southwest
Airlines. The lease was originally scheduled to mature in June 2004. The
amended lease extends the lease maturity through June 2008. Subsequently, the
lease was utilized as collateral for a $13.0 million full payout, 5.99% fixed
rate loan, maturing in June 2008.

DELAYED EQUITY OBLIGATION ON FINANCE LEASE

     In connection with an aircraft leveraged lease restructured in 1992, the
Company agreed to provide additional equity over the following eleven years.
The Company will make equity contributions which will be paid to the
nonrecourse debt holders and will collect payments from the lessee over the
remaining lease term. The present value of the additional equity using a 10%
discount rate was $16.8 million and $18.5 million at December 31, 1998 and
1997, respectively.

                                      F-23
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(6) LONG-TERM DEBT--(CONTINUED)

OTHER

     In August 1998, the Company negotiated a modification in an agreement with
the University of Florida Foundation, Inc. As a result of the modification, a
long-term debt obligation and related accrued interest were canceled, which
resulted in a $.8 million after-tax extraordinary gain to the Company. See
further discussion included in Note 15, "Extraordinary Items".

FINANCING COMMITMENTS

     In May 1998, Echelon executed a commitment letter with TIAA for a $55.5
million Credit Facility at an interest rate of 7.15% per annum. The proceeds of
the facility will be used for the permanent financing of specific projects. The
facility will be secured by the projects and funding will occur for each
project based on specific conditions. Each disbursement will constitute a
separate loan which will mature 10 years from the date of the first loan
disbursement. The first loan disbursement requires interest-only payments for
the first 12 months and monthly principal and interest payments thereafter
based on a 30-year amortization schedule. The remaining loans require monthly
principal and interest payments based on a 30-year amortization schedule. The
Credit Facility defines the loan disbursement expiration dates for each loan,
with the ability for the Company to extend any of the expiration dates for 90
days. Under the terms of the commitment, TIAA required the Company to remit a
refundable application fee. The Company negotiated to provide stand-by letters
of credit in lieu of the application fee, which will be reduced on a pro-rata
basis as the loans are funded. As of December 31, 1998, Echelon had
certificates of deposit totaling $1.1 million securing these letters of credit.
The Company had not closed on any loans with TIAA as of December 31, 1998.

     In January 1999, the Company executed a commitment letter with NationsBank
for a $100.0 million Advised Guidance Line of Credit. The line of credit will
provide construction financing for multi-family residential and commercial
projects, as approved by NationsBank. Each project financed under the line will
be a separate loan and the interest rate for each loan will be negotiated with
NationsBank based upon market conditions at the time of funding. The term for
each multi-family residential loan is 36 months and for each commercial loan is
30 months. The loans are interest only, with the entire principal and any
accrued interest due at maturity.

     In February 1999, the Company executed a $19.8 million commitment letter
with NationsBank under the $100.0 million Advised Line of Credit outlined
above. The commitment is for a construction loan for ECHELON AT LAKESIDE, a 184
unit multi-family

                                      F-24
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(6) LONG-TERM DEBT--(CONTINUED)

community to be developed in Plano, Texas. The interest rate on the loan is
LIBOR plus 1.85% and the term of the loan is 36 months from the date of the
loan closing.

     In February 1999, the Company also executed a commitment letter with
Wachovia Bank, N. A. for a $21.5 million construction loan for ECHELON AT
CHENEY PLACE, a 303 unit multi-family residential community to be developed in
downtown Orlando, Florida. The interest rate on the loan is LIBOR plus 1.60%
and the term of the loan is 36 months from the date of the loan closing.

FINANCIAL COVENANTS AND DEBT MATURITIES

     The Company's significant financial covenants include minimum net worth
and liquidity requirements. At December 31, 1998, Echelon was in compliance
with all financial convenants contained in its debt agreements.

     Debt maturities are $15.7 million, $6.8 million, $4.2 million, $4.2
million and $4.7 million for each of the years in the period 1999 through 2003,
respectively, and $86.1 million thereafter.

(7) TRANSACTIONS WITH FLORIDA PROGRESS

     Financial information prior to the Distribution reflects the results of
operations of the Company as a wholly-owned subsidiary of Florida Progress and
is not necessarily indicative of the results of operations had the Company
operated as a separate entity during such prior periods.

     Prior to the Distribution, the Company utilized accounting, legal, risk
management, human resource, tax, treasury, management, and facility and office
services of Florida Progress and its affiliates and was billed for these
services, including a portion of the affiliates' overhead. Charges for these
services and overhead were $2.4 million in 1996. These costs were charged to
Echelon using the affiliates' actual costs allocated to each affiliate based on
its pro-rata usage of those services.

     At the Distribution Date, the Company and Florida Progress entered into a
tax sharing agreement, which provided for the payment of taxes and receipt of
tax refunds for periods up through the Distribution Date. As of December 31,
1998, there were no amounts owed by the Company to Florida Progress under this
agreement.

     Florida Progress and its subsidiaries rent facility and office space in
several of the Company's office buildings for which the Company received
payments of $4.7 million,

                                      F-25
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(7) TRANSACTIONS WITH FLORIDA PROGRESS--(CONTINUED)

$1.5 million, and $2.4 million, in 1998, 1997, and 1996, respectively. Included
in the 1998 amounts received from Florida Progress are two leases executed in
the fourth quarter of 1997. The first lease, which commenced in May 1998, is a
15-year lease for 100% of the first two floors of the CENTRAL STATION building.
The second lease, which commenced in April 1998, is a 10-year lease for 100% of
BAYBORO STATION. Both leases are at current market rates, with annual rent
increases of approximately 3% over the lease term.

     Florida Progress paid $.1 million and $.4 million to the Company for real
estate brokerage commissions during 1998 and 1997, respectively.

     For the year ended December 31, 1996, interest expense reflected in the
accompanying consolidated financial statements related to the intercompany
advances from Florida Progress and represents interest allocated to the
Company. The effective interest rate on the average outstanding intercompany
advances for the year ended December 31, 1996 was 6.0%.

     No interest was paid to Florida Progress during the year ended December
31, 1998. During the year ended December 31, 1997, the Company paid $.9 million
of interest on the note payable to Florida Progress.

(8) RELATED PARTY TRANSACTIONS

     In April 1998, the Board of Directors approved an interest-free loan
program for Executive Officers to assist them in meeting tax liabilities
associated with the lapse of restrictions on restricted Common Stock. During
May 1998, the Company funded $.3 million to two Executive Officers in
conjunction with this loan program. In December 1998, the Board of Directors
approved the forgiveness of the loans and additional compensation sufficient to
cover the related tax consequences of the loan forgiveness. This transaction
resulted in compensation expense of $.5 million for the Company.

     In October 1997, the Company acquired certain assets of Mission
Development Company ("Mission Development"), a Dallas-based real estate
development and consulting company for $.4 million and established a southwest
regional office in Dallas, Texas. Mission Development was owned by W. Michael
Doramus, the Company's former Chairman of the Board of Directors. Upon the
acquisition, Mr. Doramus resigned as Chairman, but remained on the Board of
Directors, and was hired as Executive Vice President of Echelon. The terms of
Mr. Doramus' employment agreement include an annual base salary of at least
$250,000 (effective October 1, 1998), eligibility for annual bonuses based upon
both the annual results of the Company's operations and individual performance
goals, and the opportunity to earn shares of Common Stock and stock options
based upon the cumulative

                                      F-26
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(8) RELATED PARTY TRANSACTIONS--(CONTINUED)

results of the Company's operations and satisfaction of individual performance
goals for the three year periods ending December 31, 1999 and 2000,
respectively.

(9) COMMON AND PREFERRED STOCK AND SHAREHOLDER RIGHTS

     In October 1996, the Echelon Board of Directors adopted Amended and
Restated Articles of Incorporation which increased the number of authorized
common shares from 100 to 25,000,000, changed the par value from $1.00 to
$0.01; and converted each share of $1.00 par value Common Stock into 64,670.18
shares of $.01 par value Common Stock. The conversion of the Common Stock and
the effect on loss per share has been reflected for the fiscal year ended
December 31, 1996. Additionally, Echelon has authorized 10,000,000 shares of
$.01 par value preferred stock. No shares of the Company's preferred stock have
been issued.

     In conjunction with the Distribution, the Company executed a Shareholder
Rights Agreement whereby each share of Common Stock has associated with it one
preferred share purchase right ("Right"). Each Right entitles the holder to
purchase one-hundredth of a share of Series A Junior Participating Preferred
Stock ("Junior Preferred Stock") at a price of $55 per one-hundredth of a share
of Junior Preferred Stock, subject to adjustment. These Rights are only
exercisable in the event of certain attempted business combinations. If
exercised, the Rights would cause substantial dilution of ownership, thus
adversely affecting any attempt to acquire the Company on terms not approved by
the Company's Board of Directors. The Rights have no voting or dividend rights
and expire in November 2006, unless redeemed earlier by the Company.

     During 1998 and 1997, the Company purchased a total of 215,938 shares of
Common Stock, at a total cost to the Company of $4.5 million.

     During the first half of 1998, the Company purchased 4,419 shares of
Common Stock, resulting in additional treasury stock, at cost, of $.1 million.

     In October 1998, Echelon announced that the Company's Board of Directors
authorized up to $15.0 million for the purchase of the Company's outstanding
Common Stock in both the open market and privately negotiated transactions, as
market conditions allow. As of December 31, 1998, the Company has purchased
143,000 shares of Common Stock, which resulted in additional treasury stock, at
cost, of $2.9 million.

     In 1997, the Echelon Board of Directors approved an Odd-Lot Buy-Back
program to purchase up to $5.0 million of the Company's Common Stock. The
Company purchased 68,519 shares of Common Stock during the fourth quarter of
1997, which resulted in treasury stock, at cost, of approximately $1.5 million.
The program expired December 31, 1997.

                                      F-27
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(9) COMMON AND PREFERRED STOCK AND SHAREHOLDER RIGHTS--(CONTINUED)

     The net income (loss) and common shares used to compute basic and diluted
earnings per share are presented in the following table:

<TABLE>
<CAPTION>
                                                           1998       1997         1996
                                                         --------   --------   -----------
                                                          (IN MILLIONS, EXCEPT PER SHARE
                                                                     AMOUNTS)
<S>                                                      <C>        <C>        <C>
   BASIC
   Weighted average number of shares:
    Average common shares outstanding ................      6.8        6.8           6.5
                                                          =====      =====       =======
    Net income (loss) used to compute basic
      earnings per share:
    Net income (loss) ................................    $ 9.5      $ 7.6       $ (27.5)
                                                          -----      -----       -------
   Basic earnings (loss) per common share ............    $1.40      $1.12       $ (4.23)
                                                          =====      =====       =======
   DILUTED
   Weighted average number of shares:
    Average common shares outstanding ................      6.8        6.8           6.5
    Dilutive effect for stock options and contingently
      issuable common shares .........................       --         --            --
                                                          -----      -----       -------
    Weighted average shares ..........................      6.8        6.8           6.5
                                                          =====      =====       =======
    Net income used to compute diluted
      earnings per share:
    Net income (loss) ................................    $ 9.5      $ 7.6       $ (27.5)
                                                          -----      -----       -------
   Diluted earnings (loss) per common share ..........    $1.40      $1.12       $ (4.23)
                                                          =====      =====       =======
</TABLE>

(10) DESCRIPTION OF STOCK AND STOCK OPTION PLANS

     In October 1996, the Echelon Board of Directors approved several
stock-based benefit plans, and reserved an aggregate of 1,200,000 shares of
Echelon Common Stock for issuance pursuant to the following plans.

     ECHELON INTERNATIONAL CORPORATION EMPLOYEE STOCK PURCHASE PLAN ("Employee
Stock Purchase Plan" or "ESPP"). An aggregate of 75,000 shares of Echelon
Common Stock are reserved for issuance under the ESPP. Under the Employee Stock
Purchase Plan, all eligible employees are provided the opportunity to purchase
shares of Echelon Common Stock in April and September of each year through
2006, at a price equal to 85% of the market price of the Common Stock
immediately prior to the beginning of each offering period.

                                      F-28
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(10) DESCRIPTION OF STOCK AND STOCK OPTION PLANS--(CONTINUED)

     ECHELON INTERNATIONAL CORPORATION LONG-TERM INCENTIVE PLAN ("LTIP"). An
aggregate of 950,000 shares of Echelon Common Stock are reserved for issuance
under the LTIP. The exercise price and vesting schedule of the nonqualified
stock options granted under the plan are determined at the discretion of the
Board of Directors' Committee administering the plan (the "Committee"). Under
the LTIP, Common Stock, incentive stock options, nonqualified stock options and
stock appreciation rights, or any combination thereof, may be granted to
Echelon employees. The Committee may condition awards of restricted Common
Stock and stock appreciation rights upon satisfaction of performance criteria
or other conditions. The exercise price of the incentive stock options granted
under the plan will be determined at the discretion of the Committee, which
price may not be less than the market price of Echelon Common Stock on the date
the stock option is granted. The Company has issued stock options under the
LTIP which vest 20% each year after issuance over a period of five years and
will expire 10 years after the date of grant. The Company has also issued
performance-based stock options under the LTIP which cliff vest at the end of
nine years, with a provision for early vesting if certain performance goals are
achieved.

     ECHELON INTERNATIONAL CORPORATION NON-EMPLOYEE DIRECTORS' PLAN
("Non-Employee Directors' Plan"). An aggregate of 25,000 shares of Echelon
Common Stock are reserved for issuance under the plan. Directors who are not
employees of Echelon ("Non-Employee Directors") receive an annual retainer of
$15,000 paid quarterly in arrears, in the form of Echelon Common Stock. In
addition to the annual retainer, Non-Employee Directors who are elected or are
continuing as Non-Employee Directors as of the conclusion of Echelon's Annual
Meeting of Stockholders will receive stock options to purchase 1,000 shares of
Echelon Common Stock. The exercise price of the stock options will be equal to
the market price of Echelon Common Stock on the date the stock option is
granted. The stock options will vest fully at the end of one year and will
expire five years after the date of grant.

     ECHELON INTERNATIONAL CORPORATION STOCK OPTION PLAN ("Stock Option Plan").
A maximum of 150,000 shares of Echelon Common Stock are reserved for issuance
under the plan. Under the Stock Option Plan, incentive stock options,
nonqualified stock options, or any combination thereof, may be granted to any
employee of Echelon. In general, the exercise price of the stock options will
be determined by the Committee, but such price will not be less than the market
price of Echelon Common Stock on the date the stock options are granted. The
stock options will normally vest 20% each year after issuance over a period of
five years and will expire 10 years after the date of grant.

     During the years ended December 31, 1998, 1997 and 1996, the Company had
the following stock-related transactions:

                                      F-29
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(10) DESCRIPTION OF STOCK AND STOCK OPTION PLANS--(CONTINUED)

     /bullet/   The Company issued 6,921 shares and 4,480 shares of Common Stock
                during the years ended December 31, 1998 and 1997, respectively,
                under the Employee Stock Purchase Plan.

     /bullet/   During the year ended December 31, 1998, the Company issued
                1,000 shares of restricted Common Stock and 3,500 shares of
                unrestricted Common Stock to Executive Officers under the LTIP.
                Compensation expense of $.1 million was recognized for the
                issuance of the Common Stock.

     /bullet/   During the year ended December 31, 1997, the Company issued
                1,500 shares of restricted Common Stock to officers and
                employees under the LTIP. Total compensation expense of $.1
                million was recognized for the issuance of the Common Stock.

     /bullet/   During the year ended December 31, 1998, the Company issued
                102,510 shares of restricted Common Stock under the LTIP, in
                accordance with four executive employment contracts.
                Compensation expense of $.7 million and $.5 million,
                respectively, was recorded during the years ended December 31,
                1998 and 1997 related to the vesting of these restricted shares.

     /bullet/   The Company issued 2,546 shares and 2,722 shares of Common Stock
                during the years ended December 31, 1998 and 1997, respectively,
                under the Non-Employee Directors Plan.

     /bullet/   During 1996, the Company issued 308,801 shares of restricted
                Common Stock to Executive Officers and key management under the
                LTIP and recorded compensation expense of $4.5 million. In
                conjunction with the lapse of certain restrictions on the Common
                Stock in 1998, the Company increased additional paid in capital
                by $.2 million.

                                      F-30
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

     (10) DESCRIPTION OF STOCK AND STOCK OPTION PLANS--(CONTINUED)

     The Company has granted nonqualified stock options to purchase Common
Stock as follows:

<TABLE>
<CAPTION>
                                                                                                         WEIGHTED
                                                                            WEIGHTED                      AVERAGE
                             STOCK               NON-EMPLOYEE                AVERAGE      RANGE OF       REMAINING
                             OPTION               DIRECTORS'                EXERCISE      EXERCISE      CONTRACTUAL
                              PLAN       LTIP        PLAN         TOTAL       PRICE        PRICES          LIFE
                          ----------- --------- -------------- ----------- ---------- ---------------- ------------
<S>                       <C>         <C>       <C>            <C>         <C>        <C>              <C>
Authorized ..............   150,000    950,000      25,000     1,125,000
                            =======    =======      ======     =========
Outstanding--
 December 31, 1996 ......        --    134,840          --       134,840     $22.25   $       22.25
 Granted ................    21,250    128,000       4,000       153,250     $21.76   $19.38-$25.25
                            -------    -------      ------     ---------
Outstanding--
 December 31, 1997 ......    21,250    262,840       4,000       288,090     $21.99   $19.38-$25.25
 Granted ................    85,500     69,000       4,000       158,500     $22.13   $20.63-$27.25
 Forfeited ..............    (2,000)        --          --        (2,000)    $21.81   $       21.81
                            -------    -------      ------     ---------
Outstanding--
 December 31, 1998 ......   104,750    331,840       8,000       444,590     $22.04   $19.38-$27.25     8.55 years
                            =======    =======      ======     =========
</TABLE>

     During 1998, the Company granted nonqualified stock options to purchase
158,500 shares of Common Stock. The exercise price for all of the stock options
was equal to the market value on the date of grant. In accordance with APB No.
25, no compensation expense was recorded for the issuance of these stock
options.

     During 1997, the Company granted nonqualified stock options to purchase
153,250 shares of Echelon Common Stock. The exercise price for 64,836
nonqualified stock options is equal to the market price of the Common Stock on
the date of grant. No compensation expense was recorded for these stock options
in accordance with APB No. 25. The remaining 88,414 nonqualified stock options
were granted to an Executive Officer of the Company at an exercise price less
than the market value of the Common Stock on the date of grant. The Company
will record compensation expense totaling $.5 million over the four year
vesting period of the nonqualified stock options.

     During 1996, the Company granted nonqualified stock options to purchase
134,840 shares of Common Stock at an exercise price equal to the closing price
for Echelon Common Stock eight months after the completion of the Distribution.
No compensation expense was recorded for these stock options in 1996 in
accordance with APB No. 25.

     As of December 31, 1998, 84,588 of the 444,590 total nonqualified stock
options outstanding were exercisable at a weighted average exercise price of
$21.35. The weighted average remaining contractual life of the exercisable
stock options at December 31, 1998 was 8.09 years.

                                      F-31
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(10) DESCRIPTION OF STOCK AND STOCK OPTION PLANS--(CONTINUED)

     Echelon applies APB No. 25 and related Interpretations in accounting for
the Company's stock plans. If compensation costs for the Company's outstanding
stock options had been determined based on the fair value of the Common Stock
at the grant dates for awards under these plans consistent with the method
prescribed by SFAS No. 123, the Company's net income and both basic and diluted
earnings per share on a pro-forma basis for the years ended December 31, 1998
and 1997 would have been $8.5 million and $6.7 million, respectively, and $1.25
and $.99 basic and diluted earnings per share, respectively.

     The fair value of each stock option was estimated using the Black-Scholes
option-pricing model. The following assumptions were used for the years ended
December 31, 1998 and 1997: (1) risk-free interest rate of 5.10% and 5.75%,
respectively; (2) volatility of 30%; (3) weighted average expected dividends of
$0 and (4) expected life of three years. Using the Black-Scholes option-pricing
model, the estimated weighted average fair values of stock options granted
during 1998, 1997 and 1996 were $2.57 per stock option, $1.92 per stock option
and $2.04 per stock option, respectively.

     The Black-Scholes option-pricing model was developed for use in estimating
the fair value of trade options which have no vesting restrictions. Such models
also require the use of subjective assumptions, including expected stock price
volatility. Results can vary materially depending on the assumptions applied
within the model and the resulting compensation expense may not be
representative of compensation expense to be incurred in the future.

(11) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS

     At December 31, 1998 and 1997, investments in unconsolidated partnerships
were as follows:

<TABLE>
<CAPTION>
                                                                         DECEMBER 31,
                                                                      -------------------
                                                                        1998       1997
                                                                      --------   --------
                                                                         (IN MILLIONS)
<S>                                                                   <C>        <C>
   Joint venture for leasing aircraft equipment ...................    $  --      $22.9
   Investments in affordable housing limited partnerships .........     21.8       24.3
                                                                       -----      -----
                                                                       $21.8      $47.2
                                                                       =====      =====
</TABLE>

     The Company includes equity in earnings (losses) from the unconsolidated
partnerships in revenues.

                                      F-32
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(11) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS--(CONTINUED)

     As of July 31, 1998, a joint venture in which the Company had a 50%
interest was dissolved and the Company received net assets totaling $19.1
million. Presented below is summarized financial information for this joint
venture as of December 31, 1997 and for the seven-month period ended July 31,
1998 and the years ended December 31, 1997 and 1996, respectively. Amounts
reflect 100% of the joint venture's balances and results of its operations
through July 31, 1998, the date of dissolution.


<TABLE>
<CAPTION>
                                            DECEMBER 31,
                                                1997
                                           --------------
                                            (IN MILLIONS)
ASSETS
<S>                                        <C>
   Finance lease receivable ............        $43.5
   Property and equipment, net .........          2.5
   Current assets ......................          1.3
                                                -----
                                                $47.3
                                                =====
   LIABILITIES AND EQUITY INTEREST
   Noncurrent liabilities ..............        $ 1.3
   Other partner's equity ..............         23.0
                                                -----
                                                 24.3
   Company's equity interest ...........         23.0
                                                -----
                                                $47.3
                                                =====
</TABLE>

<TABLE>
<CAPTION>
                                                                  SEVEN-MONTH      YEARS ENDED
                                                                  PERIOD ENDED     DECEMBER 31,
                                                                    JULY 31,     ----------------
                                                                      1998        1997      1996
                                                                 -------------   ------   -------
                                                                          (IN MILLIONS)
<S>                                                              <C>             <C>      <C>
   REVENUES AND EXPENSES
   Revenues ..................................................        $5.4        $5.7     $6.0
   Expenses ..................................................          .1          .5       .5
                                                                      ----        ----     ----
   Combined net earnings of joint venture ....................        $5.3        $5.2     $5.5
                                                                      ====        ====     ====
   Company's equity in net earnings of joint venture .........        $2.7        $2.6     $2.7
                                                                      ====        ====     ====
</TABLE>

     The joint venture's revenues for the seven-month period ended July 31,
1998 include a $3.2 million gain on the sale of two aircraft engines.

     The Company's investments in affordable housing limited partnerships range
between a total ownership percentage of 7.1% to 11.6% as of both December 31,
1998 and 1997. The Company accounts for its investments in these limited
partnerships under the equity method

                                      F-33
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(11) INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED PARTNERSHIPS--(CONTINUED)

of accounting. Echelon recorded pre-tax losses of $2.4 million and $1.5 million
on these investments for the years ended December 31, 1998 and 1997,
respectively.

     During 1996 and 1997, Echelon signed commitments to provide total capital
contributions of $25.8 million to affordable housing tax credit limited
partnerships. Echelon has funded $22.9 million of these commitments as of
December 31, 1998. The total commitments of $25.8 million are included as
investments in unconsolidated partnerships in the Company's Consolidated
Balance Sheets. The remaining commitments to be funded in 1999 total $2.9
million.

(12) INCOME TAXES

     The components of the Company's income tax expense (benefit) in the years
ended December 31, 1998, 1997 and 1996 is as follows:


<TABLE>
<CAPTION>
                                                              1998        1997        1996
                                                           ----------   --------   ----------
                                                                     (IN MILLIONS)
<S>                                                        <C>          <C>        <C>
   Components of income tax expense (benefit):
    Payable currently:
     Federal ...........................................    $  10.5      $  8.9     $   4.2
     State .............................................         .9         1.0          .6
                                                            -------      ------     -------
                                                               11.4         9.9         4.8
                                                            -------      ------     -------
    Deferred, net:
     Federal ...........................................      (10.9)       (7.8)      (16.8)
     State .............................................       (1.8)       (1.3)       (2.2)
                                                            -------      ------     -------
                                                              (12.7)       (9.1)      (19.0)
                                                            -------      ------     -------
                                                               (1.3)         .8       (14.2)
    Less:
     Benefit of stock transactions with employees
       allocated to additional paid in capital .........        (.2)         --          --
     Income tax expense (benefit) included under
       extraordinary items .............................         .4        (1.3)        1.3
                                                            -------      ------     -------
                                                            $  (1.5)     $  2.1     $ (15.5)
                                                            =======      ======     =======
</TABLE>

                                      F-34
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(12) INCOME TAXES--(CONTINUED)

     The provision for (benefit from) income taxes differs from income taxes
computed at the statutory federal income tax rate for each of the above years.
The primary differences between the statutory rates and the effective income
tax rates are detailed as follows:


<TABLE>
<CAPTION>
                                                                       1998          1997         1996
                                                                   ------------   ----------   ---------
<S>                                                                <C>            <C>          <C>
   Federal statutory income tax rate ...........................        35.0%         35.0%       35.0%
   State income taxes, net of federal tax benefit ..............        (5.4)         (2.2)        2.4
   Affordable housing limited partnership tax credits ..........       (33.3)        (11.2)         --
   Investment tax credit differences ...........................        (8.3)         (2.5)         .1
   Change in estimates .........................................        (8.3)           --        (4.4)
   Other .......................................................         (.5)         (1.0)         .9
                                                                       -----         -----        ----
                                                                       (20.8)%        18.1%       34.0%
                                                                       =====         =====        ====
</TABLE>

     The following summarizes the components of deferred tax liabilities and
assets at December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                       DECEMBER 31,
                                                                   ---------------------
                                                                      1998        1997
                                                                   ---------   ---------
                                                                       (IN MILLIONS)
<S>                                                                <C>         <C>
   Deferred tax liabilities:
    Difference in accounting for leveraged leases ..............    $152.8      $163.6
    Depreciation ...............................................      19.3        18.5
    Difference in accounting for direct finance leases .........       4.1         6.2
    Other ......................................................        .8          .7
                                                                    ------      ------
      Total deferred tax liabilities ...........................     177.0       189.0
                                                                    ------      ------
   Deferred tax assets:
    Impairment on long-lived assets ............................      18.7        19.1
    Accrued book expenses ......................................       2.2         2.3
    Allowance for losses .......................................       9.2         9.8
    Differences in carrying value of real estate ...............       3.6         3.1
    Other ......................................................       1.8          .5
                                                                    ------      ------
      Total deferred tax assets ................................      35.5        34.8
                                                                    ------      ------
   Net deferred tax liabilities ................................     141.5       154.2
    Less: Current portion of deferred income taxes .............      10.1         8.4
                                                                    ------      ------
   Net non-current deferred tax liabilities ....................    $131.4      $145.8
                                                                    ======      ======
</TABLE>

     The Company believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to allow for the
utilization of deferred tax assets.

                                      F-35
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(12) INCOME TAXES--(CONTINUED)

     As of December 31, 1998 and 1997, income taxes receivable were $.2 million
and $1.0 million, respectively, and are included in other current assets in the
Company's Consolidated Balance Sheets.

(13) OPERATING SEGMENTS

     As of December 31, 1998, the Company has adopted SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
establishes standards for additional disclosure about operating segments for
interim and annual financial statements. The standard requires financial and
descriptive information be disclosed for segments whose operating results are
reviewed by the chief operating officer for decisions on resource allocation.
It also establishes standards for related disclosures about products and
services, geographic areas, and major customers.

     The Company has three principal operating segments. These segments are 1)
Commercial Real Estate, 2) Multi-Family Residential Real Estate and 3)
Investments in Financial Assets. Commercial Real Estate includes ownership,
operation and development of office and industrial properties, land sales,
marina operations and real estate brokerage services. Multi-Family Residential
Real Estate includes the development, ownership and operation of multi-family
residential communities. Investments in Financial Assets includes leveraged
leases, direct finance leases, an operating lease, investments in affordable
housing limited partnerships and commercial finance loans. The airline industry
is the primary industry included in the Investments in Financial Assets
segment.

     The accounting policies of the segments are the same as those described in
Note 1, "Summary of Business and Significant Accounting Policies".

                                      F-36
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(13) OPERATING SEGMENTS--(CONTINUED)

     Segment information for the years ended December 31, 1998, 1997 and 1996
is summarized below. Revenues received from Florida Progress and subsidiaries
accounted for 11.8% of the Company's revenues during the year ended December
31, 1998. No single customer accounted for more than 10% of the Company's
revenues during the years ended December 31, 1997 and 1996.


<TABLE>
<CAPTION>
                                                         YEAR ENDED DECEMBER 31,
                                                     --------------------------------
                                                       1998        1997        1996
                                                     --------   ----------   --------
                                                              (IN MILLIONS)
<S>                                                  <C>        <C>          <C>
   Sales and revenues:(1)
    Commercial real estate .......................    $25.3      $  23.0      $ 40.5
    Multi-family residential real estate .........      0.9           --          --
    Investments in financial assets ..............     10.7         17.9        22.7
                                                      -----      -------      ------
                                                       36.9         40.9        63.2
      Non-segment ................................      3.7          3.3         0.1
                                                      -----      -------      ------
                                                      $40.6      $  44.2      $ 63.3
                                                      =====      =======      ======
   Operating expenses:(2)
    Commercial real estate .......................    $21.2      $  42.8      $ 53.5
    Multi-family residential real estate .........      1.4           --          --
    Investments in financial assets ..............      2.2        (15.8)       37.8
                                                      -----      -------      ------
                                                       24.8         27.0        91.3
      Non-segment ................................      8.6          5.6        16.8
                                                      -----      -------      ------
                                                      $33.4      $  32.6      $108.1
                                                      =====      =======      ======
   Interest expense, net:(2)
    Commercial real estate .......................    $ 2.6      $   3.8      $  8.2
    Multi-family residential real estate .........       .3           --          --
    Investments in financial assets ..............      2.6          5.2        10.5
                                                      -----      -------      ------
                                                        5.5          9.0        18.7
      Non-segment ................................       --           --          --
                                                      -----      -------      ------
                                                      $ 5.5      $   9.0      $ 18.7
                                                      =====      =======      ======
   Depreciation expense:(2)
    Commercial real estate .......................    $ 4.1      $   3.5      $  4.5
    Multi-family residential real estate .........       .3           --          --
    Investments in financial assets ..............      1.1          1.1         1.1
                                                      -----      -------      ------
                                                        5.5          4.6         5.6
      Non-segment ................................       .5           .1          --
                                                      -----      -------      ------
                                                      $ 6.0      $   4.7      $  5.6
                                                      =====      =======      ======
</TABLE>

                                      F-37
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(13) OPERATING SEGMENTS--(CONTINUED)

<TABLE>
<CAPTION>
                                                                 YEAR ENDED DECEMBER 31,
                                                          -------------------------------------
                                                             1998         1997          1996
                                                          ----------   ----------   -----------
                                                                      (IN MILLIONS)
<S>                                                       <C>          <C>          <C>
   Extraordinary gain (loss), net of income tax effect:
    Commercial real estate ............................     $  0.8       $ (1.0)      $   (.3)
    Multi-family residential real estate ..............         --           --            --
    Investments in financial assets ...................         --          (.9)          2.1
                                                            ------       ------       -------
                                                               0.8         (1.9)          1.8
      Non-segment .....................................         --           --            --
                                                            ------       ------       -------
                                                            $  0.8       $ (1.9)      $   1.8
                                                            ======       ======       =======
   Income tax expense (benefit) .......................     $ (1.5)      $  2.1       $ (15.5)
                                                            ======       ======       =======
   Consolidated net income (loss) .....................     $  9.5       $  7.6       $ (27.5)
                                                            ======       ======       =======
   Capital expenditures:
    Commercial real estate ............................     $ 36.8       $  2.1       $   9.1
    Multi-family residential real estate ..............       52.4         11.0            --
    Investments in financial assets ...................         --           --            --
                                                              89.2         13.1           9.1
                                                            ------       ------       -------
      Non-segment .....................................        1.2           --            --
                                                            ------       ------       -------
                                                            $ 90.4       $ 13.1       $   9.1
                                                            ======       ======       =======
   Assets:
    Commercial real estate ............................     $143.7       $122.8       $ 146.5
    Multi-family residential real estate ..............       61.9         10.6            --
    Investments in financial assets ...................      266.4        276.0         334.0
                                                            ------       ------       -------
                                                             472.0        409.4         480.5
      Non-segment .....................................       22.2         51.1          63.3
                                                            ------       ------       -------
                                                            $494.2       $460.5       $ 543.8
                                                            ======       ======       =======
</TABLE>

---------------------
(1) Non-segment sales and revenues to reconcile to total revenue are comprised
    of investment income and net realized gain on sale of investments.
(2) Non-segment operating expenses to reconcile to total operating expenses are
    comprised of corporate general and administrative expenses and corporate
    depreciation.

(14) COMMITMENTS AND CONTINGENCIES

     The Company is subject to regulation with respect to the environmental
effects of its operations. The Company's disposal of hazardous waste through
third party vendors may result in costs to clean up facilities found to be
contaminated. Federal and state statutes

                                      F-38
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(14) COMMITMENTS AND CONTINGENCIES--(CONTINUED)

authorize governmental agencies to compel responsible parties to clean up
certain abandoned or uncontrolled hazardous waste sites. The Company may be
responsible for environmental cleanup at certain sites. Based on information
currently available to Echelon, the Company estimates that its share of
liability for cleaning up these sites ranges from $.1 million to $1.0 million
and has reserved $.3 million for potential costs that management estimates to
be probable. Management currently believes that the ultimate outcome of these
matters will not have a material adverse effect upon the Company's results of
operations, financial condition or liquidity.

     The Company is currently involved in the construction of several
commercial projects and multi-family residential communities and had remaining
commitments of $37.1 million with construction contractors at December 31,
1998.

     As of December 31, 1998, Echelon had a total of seven contracts, subject
to the Company's final due diligence, to acquire land for the development of an
estimated 1,959 multi-family residential units at an aggregate estimated
development cost of $177.0 million.

     Through a previous partnership, the Company remains contingently liable
for first mortgage bonds issued to residents of the life care communities owned
by such partnership. The contingent liability reduces over time as those who
were residents at the time of the sale of Echelon's partnership interest
discontinue their residency. If the current owners fail to perform their
obligations and if the partnership assets, consisting primarily of land and
buildings, were worthless, the Company could be liable for an additional $24.0
million as of December 31, 1998. The Company considers the incurrence of this
liability to be remote based on asset values and the indemnification agreement
from the current owners to Echelon.

(15) EXTRAORDINARY ITEMS

     During the year ended December 31, 1998, the Company negotiated a
modification in an agreement with the University of Florida Foundation, Inc.
("Foundation"). As a result of the modification, a $.6 million long-term debt
obligation owed by the Company and $.6 million of related accrued interest were
canceled by the Foundation, resulting in a $.8 million after-tax extraordinary
gain to the Company. As a condition of the modification, Echelon constructed
roads and other infrastructure totaling $.6 million on Company-owned land in
the ECHELON BUSINESS AND TECHNOLOGY PARK. The infrastructure enhances both the
Company's land and provides additional access to Foundation-owned land.

     On December 30, 1997, Echelon refinanced a significant portion of the
Company's debt (see Note 6). The Company wrote off the related debt issuance
costs of approximately

                                      F-39
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(15) EXTRAORDINARY ITEMS--(CONTINUED)

$1.3 million and paid a prepayment penalty of $.4 million, resulting in an
after-tax extraordinary loss of $1.0 million. In addition, during 1997 the
Company also wrote off debt issuance costs of approximately $1.5 million
related to the early payment of principal on long-term debt, resulting in an
after-tax extraordinary loss of $.9 million.

     On September 30, 1996, Echelon extinguished debt and accrued interest that
resulted in an after-tax extraordinary gain of $2.1 million. This gain was
offset by a write-off of debt issuance costs of approximately $.4 million
related to the early payment of principal on long-term debt, resulting in an
after-tax extraordinary loss of $.3 million.

(16) RETIREMENT PLAN

     As of January 1, 1997, the Company created the Echelon International
Employee Savings Plan ("Savings Plan") under Section 401(k) of the Internal
Revenue Service Code (the "Code"), to which participants may contribute a
percentage of their pay up to limits established by the Code. The Company may
make discretionary contributions to the Savings Plan. Echelon did not
contribute to the Savings Plan during the years ended December 31, 1998 or
1997.

(17) FAIR VALUE OF FINANCIAL INSTRUMENTS

     The following disclosures of estimated fair value of financial instruments
were determined by management using available market information and
appropriate valuation methodologies. Considerable judgment is necessary to
interpret market data and develop estimated fair value. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts the
Company could realize on disposition of the financial instruments. The use of
different market assumptions and/or estimation methodologies may have a
material effect on the estimated fair value amounts.

     CASH AND EQUIVALENTS, ACCOUNTS RECEIVABLE, INVENTORIES, OTHER CURRENT
ASSETS, ACCOUNTS PAYABLE AND OTHER CURRENT LIABILITIES -- The carrying amounts
approximate fair value due to the short maturity of these instruments.

     MARKETABLE SECURITIES -- The fair value of marketable securities is
estimated based on quoted market prices.

     LOANS RECEIVABLE -- The fair value of loans receivable is estimated using
discounted cash flows using rates at which similar loans would be made to
borrowers with similar credit ratings.

     LONG-TERM DEBT AND COMMITMENTS FOR RECEIPT OF LONG-TERM DEBT OBLIGATIONS
-- The fair value of long-term debt and commitments for receipt of long-term
debt obligations are

                                      F-40
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(17) FAIR VALUE OF FINANCIAL INSTRUMENTS--(CONTINUED)

estimated based on management's estimates for similar issues, giving
consideration to quality, interest rates, maturity and other significant
characteristics. Certain prepayment penalties associated with the early
repayment of long-term debt are not taken into consideration in determining
fair value.

     In the opinion of management, the estimated fair value of financial
instruments at December 31, 1998 and 1997 is as follows:


<TABLE>
<CAPTION>
                                                       CARRYING AMOUNT         FAIR VALUE
                                                     -------------------   -------------------
                                                       1998       1997       1998       1997
                                                     --------   --------   --------   --------
                                                                   (IN MILLIONS)
<S>                                                  <C>        <C>        <C>        <C>
   Marketable securities .........................    $   --     $42.0      $   --     $42.0
   Real estate loans .............................      38.8      42.1        38.8      40.5
   Aircraft loans ................................        .2       3.0          .2       3.0
   Long-term debt ................................     121.7      77.1       121.7      77.1
   Off-balance sheet
    Commitments for receipt of long-term debt.....        --        --       152.1      34.0
</TABLE>

     Disclosure about fair value of financial instruments is based on pertinent
information available to management as of December 31, 1998. Although
management is not aware of any factors that would significantly affect the
estimated fair value amounts, such amounts have not been comprehensively
revalued for purposes of these financial statements since that date and current
estimates of fair value may differ significantly from the amounts presented
herein.

                                      F-41
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(18) QUARTERLY DATA (UNAUDITED)

     The following is a summary of unaudited quarterly results of operations
for the years ended December 31, 1998 and 1997:

<TABLE>
<CAPTION>
                                                                            THREE MONTHS ENDED
                                                        ----------------------------------------------------------
                                                         MARCH 31,     JUNE 30,     SEPTEMBER 30,     DECEMBER 31,
                                                        -----------   ----------   ---------------   -------------
                                                                 (IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S>                                                     <C>           <C>          <C>               <C>
1998
Revenue .............................................      $ 13.2       $  9.1          $  9.3           $  9.0
Income before extraordinary item ....................         3.4          2.9             1.3              1.1
Net income ..........................................         3.4          2.9             2.1              1.1
Basic earnings per common share .....................         .50          .43             .31              .18
Diluted earnings per common share ...................         .50          .41             .31              .18
Common stock price per share:
 High ...............................................       23.38        27.81           26.63            22.88
 Low ................................................       20.63        22.63           20.19            18.88
------------------------------------------------------------------------------------------------------------------
1997
Revenue .............................................      $ 15.1       $  9.4          $ 10.5           $  9.2
Income before extraordinary item ....................         4.7          1.4             1.4              2.0
Net income ..........................................         3.9          1.4             1.3              1.0
Basic and diluted earnings per common share .........         .57          .21             .19              .15
Common stock price per share:
 High ...............................................       19.50        23.00           24.75            25.13
 Low ................................................       14.75        18.25           20.56            20.81
------------------------------------------------------------------------------------------------------------------
</TABLE>

     Revenues include $2.7 million for the sale of development property in the
quarter ended March 31, 1998 and $.4 million for the sale of development rights
in the quarter ended June 30, 1998. Revenues also include investment income and
net realized gain on sale of investments of $2.3 million, $.7 million, $.5
million and $.2 million for the quarters ended March 31, June 30, September 30,
and December 31, 1998, respectively.

     Revenues include a $4.1 million gain related to the sale of a loan
receivable in the quarter ended March 31, 1997. Revenues also include
investment income and net realized gain on sale of investments of $.7 million,
$.9 million, $.8 million and $.9 million for the quarters ended March 31, June
30, September 30, and December 31, 1997, respectively.

(19) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which established accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts, and for

                                      F-42
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(19) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS--(CONTINUED)

hedging activities. The Company will be required to adopt this standard as of
January 1, 2000 and based on current circumstances does not believe the
application of the new rules will have a material impact on the Company's
consolidated financial statements.

                                      F-43
<PAGE>

                         INDEPENDENT AUDITORS' REPORT

To the Venturers of
Progress Potomac Capital Ventures:

     We have audited the accompanying balance sheet of Progress Potomac Capital
Ventures ("PPCV") as of December 31, 1997 and the related statements of income,
changes in joint venturers' capital and cash flows for the seven-month period
ended July 31, 1998 ("Dissolution Date") and the two years ended December 31,
1997. These financial statements are the responsibility of PPCV's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

     We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we 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
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

     In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Progress Potomac Capital
Ventures as of December 31, 1997 and the results of its operations and its cash
flows for the seven-month period ended July 31, 1998 and the two years ended
December 31, 1997, in conformity with generally accepted accounting principles.


                                        KPMG LLP

St. Petersburg, Florida
February 22, 1999

                                      F-44
<PAGE>

                       PROGRESS POTOMAC CAPITAL VENTURES

                                 BALANCE SHEET

<TABLE>
<CAPTION>
                                                                            DECEMBER 31,
                                                                                1997
                                                                           -------------
<S>                                                                        <C>
                              ASSETS
Cash ...................................................................   $     1,462
Aircraft engines, net of accumulated depreciation of $2,703,948.........     2,496,052
Direct financing lease .................................................    43,487,086
Restricted cash ........................................................     1,312,764
                                                                           -----------
   Total Assets ........................................................   $47,297,364
                                                                           ===========
                 LIABILITIES AND JOINT VENTURERS' CAPITAL
Accrued expenses .......................................................   $    15,000
Maintenance deposits ...................................................     1,312,764
                                                                           -----------
   Total Liabilities ...................................................     1,327,764
                                                                           -----------
Joint Venturers' Capital:
 Echelon ...............................................................    22,984,800
 Potomac ...............................................................    22,984,800
                                                                           -----------
   Total Joint Venturers' Capital ......................................    45,969,600
                                                                           -----------
   Total Liabilities and Joint Venturers' Capital ......................   $47,297,364
                                                                           ===========
</TABLE>

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

                                      F-45
<PAGE>

                       PROGRESS POTOMAC CAPITAL VENTURES

                             STATEMENTS OF INCOME
     FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1998 (DATE OF DISSOLUTION)
                AND THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                         1998            1997            1996
                                    -------------   -------------   -------------
<S>                                 <C>             <C>             <C>
REVENUES:
 Finance lease revenue ..........   $2,159,925      $4,220,780      $4,826,177
 Rental income ..................        4,950         795,144         795,144
 Interest income ................           --         719,013         430,673
 Gain on sale of assets .........    3,203,948              --              --
                                    ----------      ----------      ----------
                                     5,368,823       5,734,937       6,051,994
                                    ----------      ----------      ----------
EXPENSES:
 Administration fee .............       35,000          60,000          60,000
 Depreciation ...................           --         444,000         444,000
 Other ..........................           --           3,007           3,000
                                    ----------      ----------      ----------
                                        35,000         507,007         507,000
                                    ----------      ----------      ----------
NET INCOME ......................   $5,333,823      $5,227,930      $5,544,994
                                    ==========      ==========      ==========
</TABLE>

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

                                      F-46
<PAGE>

                       PROGRESS POTOMAC CAPITAL VENTURES

               STATEMENTS OF CHANGES IN JOINT VENTURERS' CAPITAL
     FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1998 (DATE OF DISSOLUTION)
                AND THE YEARS ENDED DECEMBER 31, 1997 AND 1996

<TABLE>
<CAPTION>
                                       ECHELON INTERNATIONAL     POTAMAC CAPITAL
                                            CORPORATION            CORPORATION
                                          CAPITAL ACCOUNT        CAPITAL ACCOUNT       TOTAL
                                      -----------------------   -----------------   -----------
<S>                                   <C>                       <C>                 <C>
Balance December 31, 1995 .........        $  33,179,122          $  33,179,122     $66,358,244
 Net income .......................            2,772,497              2,772,497       5,544,994
 Cash distributions ...............           (5,675,519)            (5,675,519)    (11,351,038)
                                           -------------          -------------     -----------
Balance December 31, 1996 .........           30,276,100             30,276,100      60,552,200
 Net income .......................            2,613,965              2,613,965       5,227,930
 Cash distributions ...............           (6,917,813)            (6,917,813)    (13,835,626)
 Non-cash dividend ................           (2,987,452)            (2,987,452)     (5,974,904)
                                           -------------          -------------     -----------
Balance December 31, 1997 .........           22,984,800             22,984,800      45,969,600
 Net income .......................            2,666,912              2,666,911       5,333,823
 Cash distributions ...............           (6,563,908)            (6,563,908)    (13,127,816)
 Dissolution of partnership and
   distribution of net assets
   to partners ....................          (19,087,804)           (19,087,803)    (38,175,607)
                                           -------------          -------------     -----------
Balance July 31, 1998 .............        $          --          $          --     $        --
                                           =============          =============     ===========
</TABLE>

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

                                      F-47
<PAGE>

                       PROGRESS POTOMAC CAPITAL VENTURES

                            STATEMENTS OF CASH FLOWS
     FOR THE SEVEN-MONTH PERIOD ENDED JULY 31, 1998 (DATE OF DISSOLUTION)
                AND THE YEARS ENDED DECEMBER 31, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                 1998              1997              1996
                                                           ---------------   ---------------   ---------------
<S>                                                        <C>               <C>               <C>
Cash flows provided by (used in)
  operating activities:
 Net income ............................................   $ 5,333,823       $ 5,227,930       $ 5,544,994
 Adjustments to reconcile noncash items:
 Depreciation ..........................................            --           444,000           444,000
 Amortization of unearned lease income, net ............    (2,159,925)       (4,220,780)       (4,826,177)
 Gain on sale of jet engines ...........................    (3,203,948)               --                --
 Changes in assets and liabilities:
  Restricted cash ......................................    (1,312,764)          (26,262)          (28,188)
  Other receivable .....................................            --                --           222,660
  Unearned income ......................................            --                --          (198,786)
  Accrued expenses .....................................        15,000                --                --
  Maintenance deposits .................................     1,312,764            26,262            28,188
                                                           -----------       -----------       -----------
   Net cash provided by (used in)
      operating activities .............................       (15,150)        1,451,150         1,186,691
                                                           -----------       -----------       -----------
Cash flows provided by investing activities:
 Proceeds from collections of leases ...................     7,441,504        11,207,104         9,066,104
 Proceeds from collections of notes receivable .........            --         1,129,018           947,816
 Proceeds from sale of jet engines .....................     5,700,000                --                --
                                                           -----------       -----------       -----------
   Net cash provided by investing activities ...........    13,141,504        12,336,122        10,013,920
                                                           -----------       -----------       -----------
Cash flows used in financing activities:
 Distributions to Venturers ............................   (13,127,816)      (13,835,626)      (11,351,038)
                                                           -----------       -----------       -----------
   Net decrease in cash ................................        (1,462)          (48,354)         (150,427)
Cash at beginning of period ............................         1,462            49,816           200,243
                                                           -----------       -----------       -----------
Cash at end of period ..................................   $        --       $     1,462       $    49,816
                                                           ===========       ===========       ===========
</TABLE>

Supplemental disclosure of noncash investing and financing activities:

     As of July 31, 1998, the joint venture was dissolved and the partnership's
net assets of $38,175,607 were distributed equally to the joint venture
partners.

     In 1997, the joint venture distributed notes receivable totaling
$5,974,904 to Potomac Capital Corporation and Echelon International
Corporation. Each venturers' portion of the distribution equaled $2,987,452.

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

                                      F-48
<PAGE>

                       PROGRESS POTOMAC CAPITAL VENTURES

                         NOTES TO FINANCIAL STATEMENTS

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS AND PRINCIPLES OF PRESENTATION

     Progress Potomac Capital Ventures ("PPCV") was a joint venture, formed in
February 1988, between Echelon International Corporation ("Echelon"), successor
to Progress Credit Corporation, and Potomac Capital Corporation ("Potomac").
The purpose of the joint venture was to purchase, lease, and finance aircraft
and aircraft equipment. The joint venture was controlled 50/50 and all
decisions required unanimous consent of the venture partners. The income or
loss generated in each fiscal year was distributed annually based on the
pro-rata share of each venturer's capital account as of the end of the
respective fiscal year. Per the joint venture agreement, PPCV was to be
dissolved in 2027, unless all assets owned by the joint venture were sold or
disposed of prior to this date or by agreement of the venture partners. As of
July 31, 1998 (the "Dissolution Date"), the joint venture distributed the net
assets of the partnership equally to the venture partners in accordance with
the joint venture agreement.

     Through the Dissolution Date, PPCV's operations consisted of a direct
finance lease and an operating lease. The direct finance lease was for two
DC10-30s leased to Continental Airlines, Inc. ("Continental"). The lease
originated in February of 1990 and expires in February of 2002. In 1992,
Echelon and Potomac agreed to revise the terms of the lease in exchange for a
deferred rent note. The note represented four months of deferred rent
(including accrued interest) to be repaid over 48 months at an interest rate of
10.42%. In 1995, all parties again agreed to revise the terms of the
Continental lease by deferring a portion of the rent payable for 16 months,
retroactive to February 1995, and issuing another deferred rent note specific
to the 1995 deferment. This note earned interest at 8% annually and required
monthly payments of principal and interest. Both of these notes were either
repaid or distributed to the venturers in 1997 (see Note 3).

     The operating lease involved two CFM-56 aircraft engines leased to America
West Airline ("America West"). The lease expired on December 31, 1997 and in
January 1998, PPCV sold the two CFM-56 jet engines for $5,700,000 cash, at a
pre-tax gain of $3,203,948. As part of the leasing arrangement, America West
was required to make payments to PPCV in order to provide a maintenance and
repair reserve for the aircraft engines. The funds deposited were recorded as
restricted cash and as a liability for maintenance and repair of the aircraft
engines. The excess funds were returned to America West at the termination of
the lease.

     The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and

                                      F-49
<PAGE>

                       PROGRESS POTOMAC CAPITAL VENTURES

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(1) SUMMARY OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)

liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reported period. Actual results could differ
from those estimates.

EARNED INCOME ON DIRECT FINANCING LEASE

     Income on direct financing leases was recognized by a method which
produces a constant periodic rate of return on the outstanding investment in
the lease.

DEPRECIATION

     The aircraft engines were depreciated on a straight line basis over
sixteen years.

INCOME TAXES

     The joint venture was not a taxable entity. The taxable income was passed
through to each of the venturers as allocated in accordance with the joint
venture agreement.

LOANS RECEIVABLE

     The joint venture accounted for loans receivable in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by
Creditors for the Impairment of a Loan, as amended by SFAS No. 118, "Accounting
by Creditors for Impairment of a Loan -- Income Recognition and Disclosure."
These standards required the joint venture to compute present values for
impaired loans when determining allowances for credit losses.

IMPAIRED ASSETS

     The joint venture adopted SFAS No. 121, "Accounting for the Impairment of
the Long-Lived Assets and for Long-Lived Assets to be Disposed Of," as of
January 1, 1996. This standard requires that long lived assets and certain
intangible assets be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable through future cash flows from the use and disposition of the
asset.

                                      F-50
<PAGE>

                       PROGRESS POTOMAC CAPITAL VENTURES

                   NOTES TO FINANCIAL STATEMENTS--(CONTINUED)

(2) NET INVESTMENT IN DIRECT FINANCING LEASE

     As of December 31, 1997, the net investment in the direct financing lease
was as follows:

<TABLE>
<S>                                                            <C>
   Minimum lease payments receivable .......................    $  46,542,435
   Initial direct cost .....................................          622,428
   Estimated residual value of the leased property .........        7,800,000
   Less unearned income ....................................      (11,477,777)
                                                                -------------
   Net investment in direct finance lease ..................    $  43,487,086
                                                                =============
</TABLE>

(3) NOTES RECEIVABLE

     In March 1997, Continental paid off the 1992 deferred rent note. In
September 1997, the 1995 deferred rent note was distributed to the venture
partners. The balance at the time of distribution was $5,974,904, which
included $401,483 of accrued interest. Continental subsequently paid to Potomac
their portion of the note, which equaled $2,987,452, and issued a new note to
Echelon for the balance of the note.

                                      F-51
<PAGE>

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     None.

                                   PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Information concerning the directors, nominees for directors and executive
officers of Echelon is included under the headings "Management" in Echelon's
Proxy Statement and is incorporated herein by reference. Information concerning
compliance by Echelon's directors and officers, and persons who own more than
10% of Echelon's common stock, with the reporting requirements of Section 16(a)
of the Securities Exchange Act of 1934 is set forth under the heading
"Compliance with Section 16(a) of the Securities Exchange Act" in Echelon's
Proxy Statement and is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

     Information required by this Item is included under the headings
"Compensation of Directors," "Compensation Committee Interlocks and Insider
Participation," "Executive Compensation" and "Employment Agreements" in
Echelon's Proxy Statement and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     Information required by this Item is included under the heading "Security
Ownership" in Echelon's Proxy Statement and is incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Information required by this Item is included under the heading "Certain
Relationships and Related Transactions" in Echelon's Proxy Statement and is
incorporated herein by reference.

                                    PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
         FORM 8-K

   1. Financial statements, notes to Financial Statements and report thereon
      of KPMG LLP are found in Item 8 "Financial Statements and Supplementary
      Data," herein.

        Echelon International Corporation
        Progress Potomac Capital Ventures

                                     III-1
<PAGE>

     2. The following Financial Statement Schedules are included herein:

        II  --  Valuation and Qualifying Accounts for the years ended December
                31, 1998, 1997 and 1996

        III --  Real Estate and Accumulated Depreciation as of December 31, 1998

        IV  --  Mortgage Loans on Real Estate as of December 31, 1998

     3. The following Exhibits are filed herewith:

<TABLE>
<CAPTION>
 EXHIBIT
   NO.                                            DESCRIPTION
--------   -----------------------------------------------------------------------------------------
<S>        <C>
 23        Consent of Independent Auditors to the incorporation by reference of their report on the
           consolidated financial statements into the following registration statements of Echelon
           International Corporation: Form S-8 (No. 333-18171) Form S-8 (No. 333-18175), Form S-8
           (No. 333-18177) and Form S-8 (No. 333-18179), relating to the Echelon International
           Corporation Long-Term Incentive Plan, the Echelon International Corporation Non-Employee
           Directors' Plan, the Echelon International Corporation 1996 Employee Stock Purchase Plan
           and the Echelon International Corporation 1996 Stock Option Plan

 99        Echelon International Corporation News Release dated March 9, 1999 regarding 1998 fourth
           quarter and the year ended December 31, 1998 financial results.

 27        Financial Data Schedule of Echelon International Corporation
</TABLE>

   (b) Reports on Form 8-K:

       None.

                                     III-2
<PAGE>

                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                                 ECHELON INTERNATIONAL CORPORATION

                                 BY:       /s/ DARRYL A. LeCLAIR
                                 -----------------------------------------------
                                              Darryl A. LeClair
                                    President and Chief Executive Officer

Dated: March 16, 1999

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
        NAME AND SIGNATURE                           TITLE                        DATE
----------------------------------   ------------------------------------   ---------------
<S>                                  <C>                                    <C>
/s/ DARRYL A. LECLAIR                President, Chief Executive Officer     March 16, 1999
---------------------------------    and Chairman of the Board
    Darryl A. LeClair

/s/ LARRY J. NEWSOME                 Senior Vice President and              March 16, 1999
---------------------------------    Chief Financial Officer
    Larry J. Newsome

/s/ JAMES R. HOBBS, JR.              Vice President and Controller          March 16, 1999
--------------------------------
    James R. Hobbs, Jr.

/s/ JONATHAN BLUM                    Director                               March 16, 1999
--------------------------------
    Jonathan Blum

/s/ W. Michael Doramus               Director                               March 16, 1999
--------------------------------
    W. Michael Doramus

/s/ L. RAYMOND EASTIN                Director                               March 16, 1999
--------------------------------
    L. Raymond Eastin

/s/ THOMAS W. MAHR                   Director                               March 16, 1999
--------------------------------
    Thomas W. Mahr

/s/ JOSEPH H. RICHARDSON             Director                               March 16, 1999
--------------------------------
    Joseph H. Richardson
</TABLE>

                                     III-3
<PAGE>

                   INDEPENDENT AUDITORS' REPORT ON SCHEDULES

The Board of Directors and Stockholders of
Echelon International Corporation:

     Under the date of February 22, 1999, we reported on the consolidated
balance sheets of Echelon International Corporation as of December 31, 1998 and
1997, and the related consolidated statements of operations, comprehensive
income, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1998, which are included in the Form 10-K.
In connection with our audits of the aforementioned consolidated financial
statements, we also audited the related consolidated financial statement
schedules in the Form 10-K. These financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statement schedules based on our audits.

     In our opinion such financial statement schedules, when considered in
relation to the basic consolidated financial statements taken as a whole,
present fairly, in all material respects, the information set forth therein.

                                        KPMG LLP

February 22, 1999
St. Petersburg, Florida

                                      S-1
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

          SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                                               ADDITIONS
                                                 BALANCE AT   CHARGED TO     DEDUCTIONS                 BALANCE AT
                                                  BEGINNING    COSTS AND        FROM                      END OF
                                                  OF PERIOD    EXPENSES       RESERVES      OTHER (A)     PERIOD
                                                ------------ ------------ ---------------- ----------- -----------
<S>                                             <C>          <C>          <C>              <C>         <C>
Year Ended December 31, 1998:
 Allowance for losses on loans and leases .....     $20.1      $    --       $   (1.6)(b)    $    --      $18.5
 Allowance for assets held for sale ...........        --           --             --             --         --
 Allowance for doubtful accounts ..............        .1           --            (.1)            --         --
Year Ended December 31, 1997:
 Allowance for losses on loans and leases .....     $20.1      $    --       $     --        $    --      $20.1
 Allowance for assets held for sale ...........      36.1           --          (36.1)(b)         --         --
 Allowance for doubtful accounts ..............        .3           --            (.2)            --         .1
Year Ended December 31, 1996:
 Allowance for losses on loans and leases .....     $32.0      $   2.3(b)    $     --        $ (14.2)     $20.1
 Allowance for assets held for sale ...........        --         21.5(b)          --           14.6       36.1
 Allowance for doubtful accounts ..............       1.0           --            (.7)            --         .3
</TABLE>

---------------------
(a) Represents a balance sheet transfer from investment in unconsolidated
    partnerships.
(b) Reconciliation of provision for losses charged to operations:

<TABLE>
<CAPTION>
                                                           1998        1997        1996
                                                        ---------   ----------   --------
<S>                                                     <C>         <C>          <C>
      Amount credited to allowance account ..........    $   --      $    --      $23.8
      Amount debited to allowance account ...........      (1.6)       (36.1)        --
      Amount charged directly to real estate asset
       account due to impairment ....................        --         19.0        7.6
      Net book value of assets held for sale at
       date of disposal .............................        --         16.4         --
                                                         ------      -------      -----
        Total provision (recovery) charged
          to operations .............................    $ (1.6)     $   (.7)     $31.4
                                                         ======      =======      =====
</TABLE>

                                      S-2
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
                            AS OF DECEMBER 31, 1998
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                         GROSS CARRYING VALUE
                                      INITIAL COSTS                                      AT DECEMBER 31, 1998
                                 -----------------------      COSTS                 ------------------------------
                                                          CAPLITALIZED
                                            BUILDINGS &   SUBSEQUENT TO  IMPAIRMENT           BUILDINGS &
REAL ESTATE PROPERTY               LAND    IMPROVEMENTS    ACQUISITION   WRITE-DOWN   LAND   IMPROVEMENTS   TOTAL
-------------------------------- -------- -------------- -------------- ----------- ------- -------------- -------
<S>                              <C>      <C>            <C>            <C>         <C>     <C>            <C>
HELD FOR DEVELOPMENT                                                           (A)
 OR SALE
St. Petersburg, Florida:
 9th Street Property ........... $ 3.3          $--           $ 2.1       $  (2.8)  $2.6         $  --     $2.6
 4th Street Property ...........   2.5           --             1.0          (1.9)   1.6            --      1.6
 Carillon Park .................  13.7           --            11.0          (2.8)  21.9            --     21.9
Gainesville, Florida:
 Echelon Business &
   Technology Park Property.....    .6           --             3.5          (3.3)    .8                     .8
                                 -----          ---           -----       -------   ----                   ----
Sub-Total ......................  20.1           --            17.6         (10.8)  26.9            --     26.9
                                 -----          ---           -----       -------   ----         -----     ----
UNDER DEVELOPMENT/
 CONSTRUCTION
 OFFICE AND MULTI-USE
 BUILDINGS
St. Petersburg, Florida:
 Castille at Carillon ..........    .6           --             7.8            --    1.0           7.4      8.4
 700 Carillon ..................    --           --              .8            --     --            .8       .8
 Carillon Town Center ..........    --           --             1.0            --     --           1.0      1.0
 Miscellaneous .................    --           --             1.3            --     --           1.3      1.3
                                 -----          ---           -----       -------   ----         -----     ----
Sub-Total ......................    .6           --            10.9            --    1.0          10.5     11.5
                                 -----          ---           -----       -------   ----         -----     ----
MULTI-FAMILY RESIDENTIAL
 COMMUNITIES
St. Petersburg, Florida:
 Echelon at Bay Isle Key .......    .2           --             1.7            --     .2           1.7      1.9
 Echelon at The Reserve ........   1.3           --            13.4            --    2.2          12.5     14.7
Colorado Springs, Colorado:
 Echelon at Briargate ..........   1.9           --             1.0            --    1.9           1.0      2.9
Atlanta, Georgia:
 Echelon at Northlake ..........   4.0           --             2.2            --    4.0           2.2      6.2
Tulsa, Oklahoma:
 Echelon at Woodland Park ......   1.0           --             2.1            --    1.0           2.1      3.1
 Echelon at Memorial Creek .....   1.6           --             1.1            --    1.6           1.1      2.7
Memphis, Tennessee:
 Echelon at The Ballpark .......   1.2           --              .8            --    1.2            .8      2.0
Allen, Texas:
 Echelon at Watters Creek ......   1.2           --              .2            --    1.2            .2      1.4
Mesquite, Texas:
 Echelon at Mission Ranch ......   1.4           --             1.0            --    1.4           1.0      2.4
Other ..........................    .6           --             2.2            --     .6           2.2      2.8
                                 -----          ---           -----       -------   ----         -----     ----
Sub-Total ......................  14.4           --            25.7            --   15.3          24.8     40.1
                                 -----          ---           -----       -------   ----         -----     ----
</TABLE>

                                      S-3
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

            SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
                            AS OF DECEMBER 31, 1998
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                            GROSS CARRYING VALUE
                                        INITIAL COSTS                                       AT DECEMBER 31, 1998
                                   -----------------------      COSTS                 ---------------------------------
                                                            CAPLITALIZED
                                              BUILDINGS &   SUBSEQUENT TO  IMPAIRMENT             BUILDINGS &
REAL ESTATE                          LAND    IMPROVEMENTS    ACQUISITION   WRITE-DOWN    LAND    IMPROVEMENTS    TOTAL
---------------------------------- -------- -------------- -------------- ----------- --------- -------------- --------
<S>                                <C>      <C>            <C>            <C>         <C>       <C>            <C>
INCOME PRODUCING OFFICE                                                          (A)
  AND INDUSTRIAL BUILDINGS
  & PARKING GARAGES
St. Petersburg, Florida:
 NationsBank Tower ...............   3.6            --           48.1         (14.0)     3.6          34.1       37.7
 Central Station .................    --           2.4            5.8            --       --           8.2        8.2
 McNulty Station .................   1.0           1.5            7.0          (2.3)     1.4           5.8        7.2
 The New McNulty .................    .6            --            8.4            --       .6           8.4        9.0
 Bayboro Station .................   1.0            .9            8.0            --      1.0           8.9        9.9
 Bayboro Property ................   1.8            --            1.6          (1.2)     1.8            .4        2.2
 3rd & 3rd .......................    .3            --            2.6            --       .8           2.1        2.9
 100 Carillon ....................   1.5            --            6.6            --      1.5           6.6        8.1
Tampa, Florida:
 7th Avenue ......................   1.4            --            4.4           (.9)     1.4           3.5        4.9
 Progress Packaging ..............    .4           1.2             .3            --       .4           1.5        1.9
Tallahassee, Florida:
 Highpoint Center ................    .8            --           13.5            --       .8          13.5       14.3
Gainesville, Florida:
 Progress Center .................    .3            --            9.1          (4.5)      .3           4.6        4.9
DOCKAGE AND MARINE
  SERVICES
St. Petersburg, Florida:
 Harborage Marina
   and Bayboro ...................   1.7           4.4           10.6          (9.1)     1.7           5.9        7.6
                                     ---           ---           ----         -----      ---          ----       ----
Sub-Total ........................  14.4          10.4          126.0         (32.0)    15.3         103.5      118.8
                                    ----          ----          -----         -----     ----         -----      -----
MULTI-FAMILY RESIDENTIAL
  COMMUNITIES
St. Petersburg, Florida:
 Echelon at Bay Isle Key .........   1.9            --           18.7            --      1.9          18.7       20.6
                                    ----          ----          -----         -----     ----         -----      -----
CORPORATE ........................    --            --            2.3            --       --           2.3        2.3
                                    ----          ----          -----         -----     ----         -----      -----
Grand Total ...................... $51.4         $10.4         $201.2       $ (42.8)  $ 60.4        $159.8     $220.2
                                   =====         =====         ======       =======   ======        ======     ======
</TABLE>

---------------------
(A) See "Notes to Schedule III--Real Estate and Accumulated Depreciation."

                                      S-4
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
                            AS OF DECEMBER 31, 1998
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                                             ACCUMULATED     CONSTRUCTION        YEAR
REAL ESTATE PROPERTY                                        DEPRECIATION         YEAR          ACQUIRED
--------------------------------------------------------   --------------   --------------   ------------
<S>                                                        <C>              <C>              <C>
HELD FOR DEVELOPMENT OR SALE
St. Petersburg, Florida:
 9th Street Property ...................................         $--              n/a            1991
 4th Street Property ...................................          --              n/a            1990
 Carillon Park .........................................          --              n/a            1990
Gainesville, Florida:
 Echelon Business and Technology Park Property .........          --              n/a            1984
                                                                 ---
Sub-Total ..............................................          --
                                                                 ---
UNDER DEVELOPMENT/CONSTRUCTION
  OFFICE AND MULTI-USE BUILDINGS
St. Petersburg, Florida:
 Castille At Carillon ..................................          --              n/a        1990 (land)
 700 Carillon ..........................................          --              n/a        1990 (land)
 Carillon Tower Center .................................          --              n/a        1990 (land)
 Miscellaneous .........................................          --              n/a        1990 (land)
                                                                 ---
Sub-Total ..............................................          --
                                                                 ---
MULTI-FAMILY RESIDENTIAL COMMUNITIES
St. Petersburg, Florida:
 Echelon at Bay Isle Key ...............................          --              n/a        1991 (land)
 Echelon at The Reserve ................................          --              n/a        1990 (land)
Colorado Springs, Colorado:
 Echelon at Briargate ..................................          --              n/a        1998 (land)
Atlanta, Georgia:
 Echelon at Northlake ..................................          --              n/a        1998 (land)
Tulsa, Oklahoma:
 Echelon at Woodland Park ..............................          --              n/a        1998 (land)
 Echelon at Memorial Creek .............................          --              n/a        1998 (land)
Memphis, Tennessee:
 Echelon at The Ballpark ...............................          --              n/a        1998 (land)
Allen, Texas:
 Echelon at Watters Creek ..............................          --              n/a        1998 (land)
Mesquite, Texas:
 Echelon at Mission Ranch ..............................          --              n/a        1998 (land)
Other ..................................................          --
                                                                 ---
Sub-Total ..............................................          --
                                                                 ---
</TABLE>

                                      S-5
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
                            AS OF DECEMBER 31, 1998
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                           ACCUMULATED     CONSTRUCTION       YEAR
REAL ESTATE PROPERTY                      DEPRECIATION         YEAR         ACQUIRED
--------------------------------------   --------------   --------------   ----------
<S>                                      <C>              <C>              <C>
INCOME PRODUCING OFFICE
  AND INDUSTRIAL BUILDINGS
  AND PARKING GARAGES
St. Petersburg, Florida:
 NationsBank Tower ...................          2.7           1990            1986
 Central Station .....................           .3           1998             --
 McNulty Station .....................           .5         1984-1988      1983-1996
 The New McNulty .....................           .1           1998            n/a
 Bayboro Station .....................          1.4           1998            n/a
 Bayboro Property ....................           .4            n/a         1984-1985
 3rd & 3rd ...........................          1.1           1984            1993
 100 Carillon ........................          2.0           1987            1994
Tampa, Florida:
 7th Avenue ..........................          1.4           1986            1986
 Progress Packaging ..................           .6           1993            1993
Tallahassee, Florida:
 Highpoint Center ....................          4.6           1990            1995
Gainesville, Florida:
 Progress Center .....................           .3         1984-1988         1984
DOCKAGE AND MARINE SERVICES
St. Petersburg, Florida:
 Harborage Marina at Bayboro .........          4.7         1984-1988         1984
                                                ---
Sub-Total ............................         20.1
                                               ----
MULTI-FAMILY RESIDENTIAL COMMUNITIES
St. Petersburg, Florida:
 Echelon at Bay Isle Key .............           .3         1997-1998         n/a
CORPORATE ............................          1.0            n/a         1997-1998
                                               ----
Grand Total ..........................        $21.4
                                              =====
</TABLE>

                                      S-6
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

      SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION (CONTINUED)
                            AS OF DECEMBER 31, 1998
                                 (IN MILLIONS)

(A) Impairment writedown is based on management's estimate of fair value of
    assets determined to be impaired.

(B) The aggregate cost for Federal income tax purposes is $234.9 million at
    December 31, 1998.

(C) Reconciliation:

<TABLE>
<CAPTION>
                                                         1998        1997         1996
                                                      ---------   ----------   ---------
<S>                                                   <C>         <C>          <C>
     REAL ESTATE
     Balance at beginning of period ...............    $131.6      $ 154.2      $ 173.6
      Additions:
       Acquisitions and Improvements ..............      90.4         13.1          4.7
      Deductions:
       Cost of Real Estate Sold ...................      (1.4)          --        (20.8)
       Writedown of assets due to impairment and
          disposal of assets ......................        --        (35.7)          --
       Write-off of development projects previously
          capitalized .............................       (.4)          --           --
       Transfer to Assets Held for Sale ...........        --           --         (3.3)
                                                       ------      -------      -------
     Balance at end of period .....................    $220.2      $ 131.6      $ 154.2
                                                       ======      =======      =======
     ACCUMULATED DEPRECIATION
     Balance at beginning of period ...............    $ 16.5      $  29.3      $  26.2
      Additions:
       Depreciation ...............................       4.9          3.6          4.1
      Deductions:
       Transfer to Assets Held for Sale ...........        --           --         (1.0)
       Accumulated Depreciation Write-off .........        --        (16.4)          --
                                                       ------      -------      -------
     Balance at end of period .....................    $ 21.4      $  16.5      $  29.3
                                                       ======      =======      =======
</TABLE>

                                      S-7
<PAGE>

                       ECHELON INTERNATIONAL CORPORATION

                  SCHEDULE IV--MORTGAGE LOANS ON REAL ESTATE
                            AS OF DECEMBER 31, 1998
                                 (IN MILLIONS)

<TABLE>
<CAPTION>
                                                FINAL                             TOTAL FACE   CARRYING
                                               MATURITY      PERIODIC     PRIOR    AMOUNT OF   AMOUNT OF
DESCRIPTION                   INTEREST RATE      DATE     PAYMENT TERMS   LIENS    MORTGAGES   MORTGAGES
---------------------------- --------------- ----------- --------------- ------- ------------ ----------
<S>                          <C>             <C>         <C>             <C>     <C>          <C>
FIRST MORTGAGE LOANS--
 OFFICE BUILDINGS:
 Vine Street Investors--     Prime + .75%    Apr. 1999   $5.8 balloon     $ --       $ 5.8       $ 5.8
   Capitol View I ..........
 Vine Street Investors--     Prime + .75%    Dec. 1999   $5.0 balloon        --        5.0         5.0
   Capitol View II .........
 Vine Street Associates--    Prime + .75%     May 2001   $4.5 balloon        --        4.5         4.5
                                                                          -----      -----       -----
   Town Square VI ..........
                                                                             --       15.3        15.3
                                                                          -----      -----       -----
 INDUSTRIAL PROPERTY:
 Marquardt Company ......... Prime + 2%      June 1999   $23.5 balloon       --       35.0        23.5
                                                                          -----      -----       -----
                                                                          $ --       $50.3       $38.8
                                                                          =====      =====       =====
</TABLE>

---------------------
(A) At December 31, 1998 and 1997, there were no loans subject to delinquent
    principal or interest.
(B) Reconciliation of the carrying amount of mortgage loans to total carrying
    amount of mortgages:

<TABLE>
<CAPTION>
                                              1998        1997         1996
                                            --------   ----------   ---------
<S>                                         <C>        <C>          <C>
      Beginning balance .................    $ 42.1     $  87.9      $ 110.9
      Collections of principal ..........      (3.3)      (45.8)       (23.0)
                                             ------     -------      -------
       Ending balance ...................    $ 38.8     $  42.1      $  87.9
                                             ======     =======      =======
</TABLE>

     Total amount of mortgages extended as of December 31, 1998 is $29.3
million.

(C) The aggregate cost for Federal income tax purposes is $38.8 million at
    December 31, 1998.

                                      S-8