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

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

                                   FORM 10-KSB

(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, 2002

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

                                       OR

[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 or  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934


     For the transition period from ________________ to __________________


                          Commission File Number 1-9900


                         ARIZONA LAND INCOME CORPORATION
              (Exact name of small business issuer in its charter)

   Arizona                                                       86-0602478
(State or other                                               (I.R.S. Employer
jurisdiction of                                              Identification No.)
incorporation or
organization)

                        2999 North 44th Street, Suite 100
                             Phoenix, Arizona 85018
               (Address of principal executive offices) (Zip Code)

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

          Issuer's telephone number, including area code (602) 952-6800

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

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

       Title of each class             Name of each exchange on which registered
----------------------------------     -----------------------------------------
Class A Common Stock, no par value              American Stock Exchange

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

                                      None
                                (Title of Class)
<PAGE>
     Check  whether  the issuer:  (1) filed all reports  required to be filed by
Section 13 or 15(d) of the  Exchange  Act during the past 12 months (or for such
shorter period that the  registrant was required to file such reports),  and (2)
has been subject to such filing  requirements for the past 90 days.
Yes [X] No [ ]

     Check if there is no disclosure  of  delinquent  filers in response to Item
405 of Regulation S-B is not contained in this form,  and no disclosure  will 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-KSB
or any amendment to this Form 10-KSB. [X]

     The  issuer's  revenues  for the fiscal year ended  December  31, 2002 were
$182,140.

     The aggregate  market value of the voting stock held by  non-affiliates  of
the  registrant,  based  upon the  average of the high and the low prices of the
registrant's Series A Common Stock as reported by the American Stock Exchange on
March 14, 2003,  was  approximately  $7,073,121.  Shares of voting stock held by
each  executive  officer and  director and by each person who owns 5% or more of
the  outstanding  voting  stock have been  excluded in that such  persons may be
deemed  affiliates.  This  determination  of affiliate status is not necessarily
conclusive.

                    APPLICABLE ONLY TO CORPORATE REGISTRANTS

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

     1,851,025 shares of Class A Common Stock outstanding on March 24, 2003
           100 shares of Class B Common Stock outstanding on March 24, 2003

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

                       DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Proxy Statement for the registrant's 2003 Annual Meeting of
Shareholders  (the "Proxy  Statement") are  incorporated  herein by reference in
Part  III,  Items 9, 10,  11 and 12 of this Form  10-KSB  to the  extent  stated
herein.

     Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
                                TABLE OF CONTENTS
                                                                            Page

PART I ......................................................................  1
  ITEM 1.  Description of Business...........................................  1
  ITEM 2.  Description of Property...........................................  3
  ITEM 3.  Legal Proceedings.................................................  3
  ITEM 4.  Submission of Matters to a Vote of Security Holders...............  3

PART II .....................................................................  4
  ITEM 5.  Market for Common Equity and Related Stockholder Matters..........  4
  ITEM 6.  Management's Discussion and Analysis or Plan of Operation.........  5
  ITEM 7.  Financial Statements..............................................  8
  ITEM 8.  Changes in and Disagreements With Accountants on Accounting
           and Financial Disclosure.......................................... 19

PART III .................................................................... 20
  ITEM 9.  Directors, Executive Officers, Promoters and Control Persons;
           Compliance With Section 16(a) of the Exchange Act................. 20
  ITEM 10. Executive Compensation............................................ 20
  ITEM 11. Security Ownership of Certain Beneficial Owners and Management.... 20
  ITEM 12. Certain Relationships and Related Transactions.................... 20

PART IV ..................................................................... 21
  ITEM 13. Exhibits and Reports on Form 8-K.................................. 21

                                       i
<PAGE>
PART I

ITEM 1. DESCRIPTION OF BUSINESS.

     BACKGROUND.  Arizona  Land Income  Corporation  (the  "Company")  is a real
estate  investment trust organized as an Arizona  corporation on March 10, 1988.
On that same date, the Company issued 100 shares of the Company's Class B Common
Stock to YSP Holdings,  Inc.,  the Company's  sponsor,  in return for an initial
capital contribution of $1,000.  Operations of the Company commenced on June 13,
1988, the date on which the Company completed its initial public offering.

     In June 1988,  the  Company  began  investing  in first  mortgage  loans on
unimproved real property  located  primarily in the  metropolitan  Phoenix area.
Such loans included mortgage loans secured or collateralized by first mortgages,
first  deeds of trust  and real  property  subject  to  agreements  for sale and
subdivision  trusts ("First Mortgage Loans").  From its inception until December
31, 1991, the Company purchased  interests totaling  $34,120,000 in twenty First
Mortgage Loans.  Since January 1, 1992, the Company has purchased only two First
Mortgage Loans, and has had to institute foreclosure proceedings with respect to
certain  properties   securing  other  First  Mortgage  Loans.  See  "Investment
Objectives  and Criteria"  below.  See also Note 4 to the  financial  statements
included in Item 7 for additional  information  concerning  the Company's  First
Mortgage  Loans.  The Company has not identified any  opportunities  to make new
loans;  therefore,  in the event of a loan  maturity  or sale of  property,  the
Company currently intends to distribute the proceeds,  beyond what is needed for
day-to-day operations of the Company, to its shareholders.

     The  Company's  goal has been to pay  distributions  of  available  cash to
shareholders and to preserve and protect  shareholders' net capital  investment.
The Company pays  extraordinary cash distributions to its shareholders when such
distributions  are warranted  based upon the Company's cash reserves at the time
of the  distribution  as well as the  Company's  projected  need  for  operating
capital.  During the 2002 fiscal year,  the Company  declared and paid four cash
distributions.  The  first  distribution  was for $.50 per share and was paid on
April  16,  2002 to  shareholders  of  record  on  April  2,  2002.  The  second
distribution  was  for  $.10  per  share  and  was  paid  on  July  16,  2002 to
shareholders of record on July 1, 2002. The third  distribution was for $.10 per
share and was paid on October 15, 2002 to  shareholders  of record on October 1,
2002. The fourth distribution was for $.35 per share and was paid on January 16,
2003 to shareholders of record on January 2, 2003.

     NO PRESENT INTENTION TO DISSOLVE.  As disclosed in the Company's prospectus
used in  connection  with  the  Company's  1988  initial  public  offering,  the
Company's  intent at the time of the  public  offering  was to  dissolve  within
approximately eight years after the date of such offering. The Company currently
has no immediate plans to dissolve and may not voluntarily  dissolve  anytime in
the immediate future. Any decision by the Company to dissolve will be determined
by the Company's  Board of Directors and will depend upon market  conditions and
other  pertinent  factors.  The  Company's  Board  of  Directors  possesses  the
discretion  to (i) continue to operate the Company and hold such First  Mortgage
Loans or real property until the Company's Board of Directors determines that it
is in the Company's best interest to dispose of such investments, (ii) sell such
First Mortgage Loans or real property on or about any proposed dissolution date,
in which case the sale  proceeds  in excess of monies owed by the Company to its
creditors would be distributed to the shareholders on a pro rata basis, or (iii)
issue to the shareholders  participating  interests in such First Mortgage Loans
or real property on a basis  proportionate  to their  respective stock ownership
interests in the Company.  In the event the Company  issues to its  shareholders
participating  interests in a First Mortgage Loan, the Advisor  (defined  below)
will continue to act as servicing  agent for the First Mortgage Loan and will be
paid a quarterly servicing fee equal to 1/16 of 1% of the aggregate  outstanding
loan balance of the First Mortgage Loan until the First Mortgage Loan is sold or
repaid.

                                       1
<PAGE>
     QUALIFICATION AS A REAL ESTATE  INVESTMENT TRUST. The Company has qualified
for real estate  investment  trust  ("REIT")  status for all tax years since its
inception, and management and the Company's Board of Directors believes that the
Company has completed the necessary steps to permit the Company to continue,  if
it so chooses, REIT status for the tax year ended December 31, 2002. REIT status
allows the Company to deduct from its federal  taxable income (and not pay taxes
upon) qualified  dividends paid to its  shareholders.  See Item 6 - Management's
Discussion and Analysis or Plan of Operation.

     Generally,  if the Company is to maintain its REIT  status,  it must meet a
series of qualifications  including: (i) restrict its investments principally to
assets that produce interest from mortgage loans  collateralized  by real estate
or which produce real property  rental income;  (ii) pay out at least 90% of its
taxable income (excluding capital gains) to its shareholders; (iii) pay taxes at
corporate tax rates on capital gains or distribute capital gains as dividends to
its shareholders; (iv) hold less than 10% of the voting securities of any single
issuer;  and (v) have an independent  manager or advisor for its assets.  If the
Company  fails to  maintain  its  status  as a REIT,  the  Company  would not be
entitled  to  deduct  from  its  federal   taxable  income   dividends  paid  to
shareholders.

     INVESTMENT  OBJECTIVES AND CRITERIA.  In evaluating potential  investments,
the Company has historically considered such factors as: (i) the borrower's cash
investment  in the real  property  securing the First  Mortgage  Loan;  (ii) the
loan-to-value  ratio of the First Mortgage Loan;  (iii) the maturity date of the
First Mortgage Loan;  (iv) the appraised  value, if any, or past purchase prices
of the real property  securing the First Mortgage  Loan;  (v) the existence,  if
any, of significant  debt junior to the first lien;  (vi) the potential that the
real property will appreciate in value;  (vii) the identity,  financial strength
and payment  history,  if any, of the borrower  under the First  Mortgage  Loan;
(viii) the growth,  tax and regulatory  environment of the  communities in which
the  properties  are or will be located;  (ix) the location and condition of the
real property;  (x) the supply of, and demand for, properties of similar type in
the vicinity;  (xi) the prospects for liquidity  through the sale or foreclosure
of the real property;  and (xii) such other factors that become  relevant in the
course of the Company's evaluation process.

     The Company's historical  investment objective was to locate First Mortgage
Loans that satisfied the foregoing  investment  criteria.  Due to generally poor
economic  conditions  in Arizona and in  metropolitan  Phoenix  during the early
1990s, the Company did not acquire any additional First Mortgage Loans from 1989
until 1998 (other than  refinancings or restructuring of existing First Mortgage
Loans). The Company did not acquire any new First Mortgage Loans in 2002.

     MANAGEMENT  ARRANGEMENTS.  The  Company  has no  employees.  The  Company's
affairs are managed by its  non-salaried  officers under the  supervision of its
Board of Directors.  The Company and ALI Advisor,  Inc. (the "Advisor")  entered
into an advisory and servicing agreement (the "Advisory  Agreement") at the time
of the Company's  incorporation.  The Advisory  Agreement has expired by its own
terms;  however,  the Company and the Advisor have agreed to continue to operate
as if the terms and conditions of the Advisory Agreement are still in effect.

     Pursuant  to the  Advisor's  agreement  with the  Company,  the  Advisor is
authorized  to:  (i)  purchase  First  Mortgage  Loans,  subject  to review  and
ratification  by the Company's  Board of Directors;  (ii) serve as the exclusive
investment and financial advisor and provide research,  economic and statistical
data in connection with investments and financial  policies;  (iii) investigate,
select and conduct relations with accountants,  attorneys,  brokers,  investors,
and  others as  necessary;  (iv)  maintain  bank  accounts  and  records  deemed
appropriate  or  requested  by  the  Company's  Board;  (v)  perform  or  obtain
accounting  and other  services;  (vi) collect and remit  principal and interest
payments due on the First Mortgage Loans;  and (vii) perform such other services
as set forth in the Advisory Agreement.

                                       2
<PAGE>
     The Company has agreed to pay the Advisor a servicing fee for servicing the
Company's  First  Mortgage  Loans.  The servicing  fee is payable  quarterly and
equals 1/16 of 1% of the sum of (i) the  aggregate  outstanding  loan balance of
the First Mortgage Loans in the Company's mortgage loan portfolio,  and (ii) the
recorded value of property  acquired by the Company through  foreclosure,  as of
the first day of each fiscal quarter. During 2002 and 2001, the Company paid the
Advisor a servicing fee of approximately $17,281 and $24,363, respectively.

     The Company also agreed to pay the Advisor a management  fee for aiding the
Company  in  developing  investment  policies  and  analyzing  and  recommending
investments to the Company. The management fee will be paid for each quarter the
shareholders'  cumulative  return on  capital  investment  as of the end of such
quarter  exceeds  12.7%,  and will equal 30% of the Company's  available cash in
excess of that  necessary to provide  shareholders  with a cumulative  return on
capital  investment  in excess of 12.7%.  The  Company  did not  accrue or pay a
management fee to the Advisor in 2002 or 2001.

     The  Company  also agreed to  reimburse  the  Advisor  quarterly  for other
expenses  incurred in servicing  the Company's  First  Mortgage  Loans,  such as
legal, accounting and transfer agent fees and copying and mailing costs incurred
in preparing and mailing periodic  reports to shareholders.  The Company did not
reimburse the Advisor for any such expenses in 2002 or 2001.

     2002  TRANSACTIONS AND LOAN  MODIFICATIONS.  Set forth below is information
concerning the  transactions  and  modifications  that affect the First Mortgage
Loans and which  occurred  during 2002.  The mortgage  loan numbers  referred to
below are  identifiers  for those loans on the books and records of the Company.
Additionally,  these numbers are  identified in the Company's  initial  offering
prospectus  dated June 6, 1988 and in Notes 4 and 5 to the  Company's  financial
statements set forth in Item 7 hereof.

     2002 LAND SALES.  The  Company did not have any land sales  during the 2002
fiscal year.

ITEM 2. DESCRIPTION OF PROPERTY.

     The  Company's  principal  offices  are  located at the offices of Peacock,
Hislop, Staley and Given ("PHS&G"),  2999 North 44th Street, Suite 100, Phoenix,
Arizona, 85018. Messrs. Peacock, Hislop and Staley are officers and/or directors
of the Company, and Messrs.  Peacock,  Hislop and Staley are the shareholders of
ALI Advisor, Inc. The Company does not pay for the use of PHS&G's facilities.

     Information  regarding the status of real property  acquired by the Company
pursuant to the foreclosure of certain First Mortgage Loans is set forth in Note
5 to the Company's Financial Statements contained in Item 7.

ITEM 3. LEGAL PROCEEDINGS.

     Not applicable.

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

     Not applicable.

EXECUTIVE OFFICERS OF THE COMPANY.

     Thomas  R.  Hislop,  age 54,  has  served as  Chairman  of the Board of the
Company since September 22, 1988, and as Vice President, Chief Financial Officer
and Treasurer of the Company since its inception.  Mr. Hislop is Chief Executive
Officer and a director of Peacock, Hislop, Staley & Given, Inc. ("PHS&G"), where

                                       3
<PAGE>
he has been employed since that company's inception in 1989. Prior to that date,
Mr. Hislop was a director of Young, Smith & Peacock, Inc. ("YSP"),  where he was
employed from 1967 to 1989.

     Barry W. Peacock,  age 65, has served as the Company's  President since its
inception in 1988.  Mr. Peacock is Chairman of the Board of PHS&G, a position he
has held since the inception of that company in June 1989. Mr. Peacock served as
a senior  executive  with YSP from 1964 until June 1989,  and most  recently  as
Managing Director-Municipal Bonds.

     Larry P. Staley,  age 60, has served as the Company's Vice President  since
its  inception in 1988.  Mr.  Staley is Vice  Chairman of the Board of PHS&G,  a
position he has held since June 1989.  Prior to that date,  Mr. Staley served in
various  capacities  with YSP,  where he was employed  from 1973 until he joined
PHS&G in 1989.

     David W. Miller,  age 54, has served as Secretary of the Company  since his
election to such office on September  22, 1988.  Mr. Miller has served as Senior
Vice President,  Chief Financial  Officer and a member of the Board of Directors
of PHS&G  since June  1989.  Prior to that date,  Mr.  Miller  served in various
capacities  with YSP,  where he was employed  from 1971 until he joined PHS&G in
1989.

                                     PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     The  Company has two classes of common  equity  securities,  Class A Common
Stock and Class B Common Stock.  All 100 shares of the Company's  Class B Common
Stock were  purchased by YSP  Holdings,  Inc.  ("YSP  Holdings"),  the Company's
sponsor, in connection with the formation of the Company and are currently owned
by YSP  Holdings.  The  Company's  Class B  Common  Stock is not  traded  on any
exchange.

     The  Company's  Class A Common  Stock is listed for trading on the American
Stock  Exchange  ("AMEX").  As of March 14, 2003,  there were  approximately  50
holders  of record of the Class A Common  Stock.  In the  Company's  estimation,
based upon information  available to the Company,  there are  approximately  650
beneficial  owners of the Company's  Class A Common  Stock.  The market price of
Class A Common  Stock at the close of  trading  on March 14,  2003 was $4.26 per
share. The following table sets forth the high and low closing prices on AMEX of
the Class A Common Stock for each quarterly period in 2001 and 2002 and the cash
distributions paid per share of Class A Common Stock for such periods.

     On March  15,  1994,  the  Company's  Board  of  Directors  authorized  the
repurchase  of  shares  of the  Company's  Class A Common  Stock in open  market
transactions.  Since  authorizing the repurchase of shares of Common Stock,  the
Company has  repurchased  758,975  shares of Class A Common  Stock.  The Company
intends to continue to  periodically  make open market  purchases of its Class A
Common Stock. During the 2002 fiscal year, 91,650 shares were repurchased.

                                       4
<PAGE>
                                                     DIVIDENDS/DISTRIBUTIONS
                                                     DECLARED PER SHARE OF
CALENDAR QUARTER            HIGH         LOW         CLASS A COMMON STOCK (1)(2)
----------------            ----         ---         ---------------------------
2001
   First Quarter            5.375        4.68        0.10
   Second Quarter           5.10         4.65        0.10
   Third Quarter            5.90         4.80        1.00
   Fourth Quarter           4.90         4.45        0.10
2002
   First Quarter            6.09         4.50        0.50
   Second Quarter           5.35         3.81        0.10
   Third Quarter            4.30         3.35        0.10
   Fourth Quarter           3.99         3.20        0.35

----------
(1)  See Note 7 to the financial statements included in Item 7.
(2)  The Company pays  extraordinary cash distributions to its shareholders when
     such  distributions are warranted based upon the Company's cash reserves at
     the time of the  distribution  as well as the Company's  projected need for
     operating  capital.  During 2002,  the Company  declared and paid four cash
     distributions.  The first  distribution was for $.50 per share and was paid
     on April 16, 2002 to  shareholders  of record on April 2, 2002.  The second
     distribution  was for $.10  per  share  and was  paid on July  16,  2002 to
     shareholders of record on July 1, 2002. The third distribution was for $.10
     per share and was paid on October  15,  2002 to  shareholders  of record on
     October 1, 2002.  The  fourth  distribution  was for $.35 per share and was
     paid on January 16, 2003 to shareholders of record on January 2, 2003.

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

RESULTS OF OPERATIONS

     YEAR ENDED  DECEMBER  31,  2002 VS.  2001.  The  Company  had net income of
approximately  $41,500 or $.02 per share of Class A Common  Stock,  for the year
ended  December 31, 2002,  compared to net income of  approximately  $498,000 or
$.25 per share of Class A Common  Stock,  for the year ended  December 31, 2001.
The decrease in the net income for the year ended December 31, 2002 is primarily
attributable  to the  decrease  in income  from  interest  earned on  mortgages.
Interest income from First Mortgage Loans decreased from approximately  $588,000
in 2001 to approximately $154,000 in 2002.

     The Company's expenses decreased in the aggregate to approximately $140,000
in 2002 compared to  approximately  $145,000 in 2001. This decrease of $5,000 is
primarily   attributable   to  the  decrease  in   professional   services  from
approximately  $46,000 in 2001 to  approximately  $38,000 in 2002, a decrease in
advisory  fees  to  related  party  from   approximately   $24,000  in  2001  to
approximately   $17,000  in  2002,   offset  by  an   increase  in  general  and
administration to approximately $50,000 from approximately $40,000 in 2001.

     The Company did not record any loan loss  reserves or land  write-downs  in
2002 or 2001.

     Net cash provided by operating activities was approximately $85,800 in 2002
as compared to net cash used in operating  activities of approximately  $378,000
in  2001.  Net  cash  provided  by  investing  activities  in 2002  and 2001 was
approximately  $2,340,000  and  $1,909,000,   respectively.  Net  cash  used  in
financing  activities  in  2002  and  2001  was  approximately   $2,332,000  and
$3,042,000, respectively.

                                       5
<PAGE>
OUTLOOK

FORWARD-LOOKING  STATEMENTS.  The following discussion contains statements about
future  events,   expectations,   risks  and   uncertainties   that   constitute
forward-looking statements. Forward-looking statements are based on management's
beliefs, assumptions and expectations of our future economic performance, taking
into account the information currently available to management. These statements
are not statements of historical fact.  Forward-looking statements involve risks
and  uncertainties  that may cause  actual  results,  performance  or  financial
condition  to  differ  materially  from  the  expectations  of  future  results,
performance  or financial  condition we express or imply in any  forward-looking
statements.   The  words  "believe,"  "may,"  "will,"  "should,"   "anticipate,"
"estimate," "expect," "intend,"  "objective," "seek," "strive" or similar words,
or the negative of these words, identify forward-looking statements. The Company
qualifies any forward-looking statements entirely by these cautionary factors.

     REAL  ESTATE  INVESTMENT  OUTLOOK.  Refinancing  of the loan or sale of the
underlying  real  property  serves as a principal  method for borrowers to repay
mortgage loans on unimproved  real property such as the Company's First Mortgage
Loans.  In Arizona in general,  and in  metropolitan  Phoenix in  particular,  a
number of factors combined to negatively impact borrowers'  ability to refinance
their loans on unimproved  real property or sell the underlying  property during
the early 1990s.  First,  the shortage of  available  financing  for real estate
development  and  improvement  reduced the demand for unimproved  real property,
causing a lack of liquidity in the market for unimproved property.  Second, real
estate  values in  metropolitan  Phoenix  had been in decline  and only began to
stabilize in the middle to late 1990s.  Third, the lack of liquidity and decline
in values resulted in a large number of defaults on mortgage loans on unimproved
real property.  In turn,  this resulted in the  acquisition of large real estate
portfolios by Arizona financial institutions. These financial institutions, some
of which were under  government  supervision,  contributed to the illiquidity in
the market by holding their portfolios for extended periods of time.

     The Company  believes  these and other  factors  have  negatively  impacted
borrowers'  ability  to pay on their  First  Mortgage  Loans.  Because  interest
payments on First  Mortgage  Loans  constitute  the Company's  primary source of
income,  borrowers'  failure  to pay on their  First  Mortgage  Loans have had a
significant  adverse impact on the Company's  operating results.  In appropriate
circumstances,  the Company has modified a First Mortgage Loan at the request of
the borrower.  These  modifications have included the deferral by the Company of
principal due, the deferral of interest and, in certain instances, a decrease in
the interest rate paid by the borrower. In other circumstances,  the Company has
instituted  foreclosure  and other legal  proceedings to protect its interest in
the First Mortgage Loan and the underlying  property.  As a result,  the Company
now owns and has sold a number of properties. See Notes 4 and 5 to the financial
statements,  included  in  Item  7 for  additional  information  concerning  the
Company's First Mortgage Loans and for information regarding land held for sale.
The Company has not identified any  opportunities to make new loans;  therefore,
in the event of a loan  maturity  or sale of  property,  the  Company  currently
intends  to  distribute  the  proceeds,  beyond  what is needed  for  day-to-day
operations of the Company, to its shareholders.

     POTENTIAL  DISSOLUTION.  As disclosed in the Company's  prospectus  used in
connection with the Company's 1988 initial public offering, the Company's intent
at the time of the public  offering was to dissolve within  approximately  eight
years after the date of such  offering.  The Company  currently has no immediate
plans to dissolve  and may not  voluntarily  dissolve  anytime in the  immediate
future.  Any  decision  by the  Company to dissolve  will be  determined  by the
Company's  Board of Directors and will depend upon market  conditions  and other
pertinent factors.  The Company's Board of Directors possesses the discretion to
(i) continue to operate the Company and hold such First  Mortgage  Loans or real
property  until the Company's  Board of Directors  determines  that it is in the
Company's  best  interest to dispose of such  investments,  (ii) sell such First
Mortgage  Loans or real property on or about any proposed  dissolution  date, in

                                       6
<PAGE>
which  case the sale  proceeds  in  excess  of  monies  owed by the  Company  to
creditors would be distributed to the shareholders on a pro rata basis, or (iii)
issue to the shareholders  participating  interests in such First Mortgage Loans
or real property on a basis  proportionate  to their  respective stock ownership
interests in the Company.  In the event the Company  issues to its  shareholders
participating  interests in a First  Mortgage Loan, the Advisor will continue to
act as servicing  agent for the First Mortgage Loan and will be paid a quarterly
servicing fee equal to 1/16 of 1% of the aggregate  outstanding  loan balance of
the First Mortgage Loan until the First Mortgage Loan is sold or repaid.

LIQUIDITY AND CAPITAL RESOURCES

     The Company believes that the funds generated from interest on and payments
of First Mortgage Loans as well as the sale of its properties will be sufficient
to meet the Company's working capital requirements and to finance any additional
investments.  No other arrangements,  such as lines of credit, have been made to
obtain external  sources of liquidity.  However,  the Company believes that such
arrangements could be obtained by the Company, if necessary.

     The  Company   currently  has  no  commitments  for  any  material  capital
expenditures  and does not anticipate any such  expenditures  in the foreseeable
future.

DIVIDENDS

     In 2002, the Company declared and paid four cash  distributions.  The first
distribution  was  for  $.50  per  share  and  was  paid on  April  16,  2002 to
shareholders  of record on April 2, 2002. The second  distribution  was for $.10
per share  and was paid on July 16,  2002 to  shareholders  of record on July 1,
2002. The third  distribution was for $.10 per share and was paid on October 15,
2002 to shareholders of record on October 1, 2002. The fourth  distribution  was
for $.35 per share and was paid on January 16, 2003 to shareholders of record on
January 2, 2003.

     In 2001, the Company declared and paid four cash  distributions.  The first
distribution  was  for  $.10  per  share  and  was  paid on  April  11,  2001 to
shareholders  of record on April 2, 2001. The second  distribution  was for $.10
per share and was paid on July 12,  2001 to  shareholders  of record on June 29,
2001. The third distribution was for $1.00 per share and was paid on October 12,
2001 to shareholders of record on October 2, 2001. The fourth  distribution  was
for $.10 per share and was paid on January 15, 2002 to shareholders of record on
January 2, 2002.

     In order for the Company to maintain  its status as a  qualified  REIT,  it
must, among other requirements, pay out in the form of dividends at least 95% of
its taxable income (excluding  capital gains) to shareholders and must pay taxes
at corporate  tax rates on capital  gains or  distribute at least 95% of capital
gains as dividends to shareholders.  If the Company fails to maintain its status
as a REIT,  the  Company  would no longer be entitled to deduct from its federal
taxable income (and not pay federal taxes on) dividends paid to shareholders.

                                       7
<PAGE>
ITEM 7. FINANCIAL STATEMENTS

                                      INDEX

                                                                            PAGE
                                                                            ----
Independent Auditors' Report                                                  9

Financial Statements-

  Balance Sheet - December 31, 2002                                          10

  Statements of Operations - For the Years Ended December 31,
    2002 and 2001                                                            11

  Statements of Stockholders' Equity - For the Years Ended December 31,
    2002 and 2001                                                            12

  Statements of Cash Flows - For the Years Ended December 31,
    2002 and 2001                                                            13

Notes to Financial Statements - December 31, 2002 and 2001                   14

     Certain schedules are omitted as the information is not required or already
included in the notes.

                                       8
<PAGE>
                          INDEPENDENT AUDITORS' REPORT

To the Stockholders and Board of Directors of
     Arizona Land Income Corporation:

We  have  audited  the  accompanying   balance  sheet  of  Arizona  Land  Income
Corporation  as of December 31, 2002 and the related  statements of  operations,
stockholders'  equity and cash flows for the year then  ended.  These  financial
statements   are  the   responsibility   of  the   Company's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audits.  The financial  statements of Arizona Land Income  Corporation as of
and for the year ended  December 31, 2001,  were audited by Arthur  Andersen LLP
whose report,  dated March 25, 2002,  expressed an unqualified  opinion on those
financial statements.

We conducted our audit in accordance with auditing standards  generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation. We believe our audit provides 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 Arizona Land Income Corporation
as of December 31, 2002,  and the results of its  operations  and cash flows for
the year then ended in conformity with accounting  principles generally accepted
in the United States.

     /s/ EPSTEIN, WEBER & CONOVER, P.L.C.
     Scottsdale, Arizona
     January 15, 2003

                                       9
<PAGE>
                         ARIZONA LAND INCOME CORPORATION

                                  BALANCE SHEET
                                DECEMBER 31, 2002


ASSETS:
    Cash and cash equivalents                                      $    120,675
                                                                   ------------
    Investments --
      Trading securities                                              1,532,278
      Accrued interest receivable                                        38,570
      Mortgage notes receivable                                         824,048
      Investment in partnership                                         342,500
      Land held for sale                                              3,135,089
      Less - reserve for losses on land                                (590,898)
                                                                   ------------
    Total investments, net                                            5,281,587

                                                                   ------------
    TOTAL ASSETS                                                   $  5,402,262
                                                                   ============
LIABILITIES AND STOCKHOLDERS' EQUITY:

    Accounts payable and other liabilities                         $      5,959
    Accrued property taxes                                                  767
    Dividends payable                                                   647,841
                                                                   ------------
    TOTAL LIABILITIES                                                   654,567
                                                                   ------------
STOCKHOLDERS' EQUITY:
    Class A common stock, $.10 stated value,
      10,000,000 shares authorized,
      1,851,025 shares issued and outstanding                           185,103
    Class B common stock, $.10 stated value,
      10,000 shares authorized,
      100 shares issued and outstanding                                      10
    Additional paid-in capital                                       21,670,997
    Distributions in excess of earnings                             (17,108,415)
                                                                   ------------
      Total stockholders' equity                                      4,747,695
                                                                   ------------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                     $  5,402,262
                                                                   ============

       The accompanying notes are an integral part of this balance sheet.

                                       10
<PAGE>
                         ARIZONA LAND INCOME CORPORATION

                            STATEMENTS OF OPERATIONS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

                                                       2002             2001
                                                    -----------     -----------
REVENUES:
     Interest on mortgages                          $   154,094     $   588,375
     Interest on trading securities                      39,379          55,973
     Loss from investment in partnership                (11,333)        (13,629)
     Other income                                            --          12,000
                                                    -----------     -----------
         Total revenues                                 182,140         642,719
                                                    -----------     -----------
EXPENSES:
     Property taxes                                      11,901          12,500
     Professional services                               37,848          45,851
     Advisory fees to related party                      17,281          24,363
     General and administration                          50,430          39,925
     Directors' fees                                     23,200          22,400
                                                    -----------     -----------
         Total expenses                                 140,660         145,039
                                                    -----------     -----------

INCOME BEFORE GAIN ON SALE OF PROPERTIES                 41,480         497,680
                                                    -----------     -----------

GAIN ON SALE OF PROPERTIES, net                              --              --
                                                    -----------     -----------

NET INCOME                                          $    41,480     $   497,680
                                                    ===========     ===========

NET INCOME PER SHARE                                $      0.02     $      0.25
                                                    ===========     ===========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING            1,918,428       1,954,762
                                                    ===========     ===========

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

                                       11
<PAGE>
                         ARIZONA LAND INCOME CORPORATION

                   STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE
                     YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                      COMMON STOCK             ADDITIONAL   DISTRIBUTIONS IN
                                              ----------------------------      PAID-IN         EXCESS OF
                                                 SHARES          AMOUNT         CAPITAL         EARNINGS         TOTAL
                                              ------------    ------------    ------------    ------------    ------------
<S>                                           <C>          <C>             <C>             <C>             <C>
BALANCE, December 31, 2000                       2,046,580    $    204,658    $ 22,482,338    $(13,114,366)   $  9,572,630

   Repurchase of Class A common stock             (103,805)        (10,381)       (496,049)             --        (506,430)

   Dividends declared                                   --              --              --      (2,525,477)     (2,525,477)

   Net income                                           --              --              --         497,680         497,680

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

BALANCE, December 31, 2001                       1,942,775    $    194,277    $ 21,986,289    $(15,142,163)   $  7,038,403

   Repurchase of Class A common stock              (91,650)         (9,164)       (315,292)             --        (324,456)

   Dividends declared                                   --              --              --      (2,007,732)     (2,007,732)

   Net income                                           --              --              --          41,480          41,480

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

BALANCE, December 31, 2002                       1,851,125    $    185,113    $ 21,670,997    $(17,108,415)   $  4,747,695
                                              ============    ============    ============    ============    ============
</TABLE>

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

                                       12
<PAGE>
                         ARIZONA LAND INCOME CORPORATION

                            STATEMENTS OF CASH FLOWS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

<TABLE>
<CAPTION>
                                                                         2002           2001
                                                                     -----------    -----------
<S>                                                                  <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                         $    41,480    $   497,680
  Adjustments to reconcile net income to net cash
    provided by operating activities:
  Loss from investment in partnership                                     11,333         13,629
  Changes in assets and liabilities:
    Trading securities                                                  (535,727)      (996,551)
    Accrued interest receivable                                          123,854        112,421
    Accounts payable and other liabilities                                (7,168)        (3,268)
    Accrued property taxes                                                (1,538)        (2,092)
    Dividends payable                                                    453,573             --
                                                                     -----------    -----------
          Net cash provided by operating activities                       85,807       (378,181)
                                                                     -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Principal payments received under mortgage notes receivable          2,346,750      1,945,839
  Additional investment in partnership                                    (7,000)       (36,800)
                                                                     -----------    -----------
          Net cash used for investing activities                       2,339,750      1,909,039
                                                                     -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Payment of dividends                                                (2,007,732)    (2,535,856)
  Repurchase of Class A common stock                                    (324,456)      (506,430)
                                                                     -----------    -----------
          Net cash used for financing activities                      (2,332,188)    (3,042,286)
                                                                     -----------    -----------

INCREASE IN CASH AND CASH EQUIVALENTS                                     93,369     (1,511,428)

CASH AND CASH EQUIVALENTS, beginning of year                              27,306      1,538,734
                                                                     -----------    -----------

CASH AND CASH EQUIVALENTS, end of year                               $   120,675    $    27,306
                                                                     ===========    ===========

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

      Dividends declared in excess of dividends paid                 $   453,573    $   194,268
                                                                     ===========    ===========
</TABLE>

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

                                       13
<PAGE>
                         ARIZONA LAND INCOME CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001

1.   ORGANIZATION AND OPERATIONS

     Arizona Land Income Corporation (the Company) was incorporated in the State
     of Arizona on March 10, 1988 as a wholly owned  subsidiary of YSP Holdings,
     Inc. and  completed an initial  public  offering on June 13, 1988.  The net
     proceeds of the initial public offering of $25,808,600 were used to acquire
     and originate  mortgage loans secured by unimproved  real property  located
     primarily in the Phoenix  metropolitan area. The Company has two classes of
     common  stock,  Class A and  Class B. The  Class A shares  are  listed  for
     trading on the American Stock Exchange.

     The  current   capitalization   of  the  Company  and  minimal   cash  flow
     requirements  afford the Company the ability to hold properties and finance
     future sales with a cash down payment and terms.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     CASH AND CASH  EQUIVALENTS:  Investments with an original  maturity of less
     than 90 days when purchased are considered cash equivalents.

     TRADING  SECURITIES:  U.S.  Treasury Notes with original  maturities of 120
     days or more are  classified as trading  securities  upon  acquisition  and
     recorded  at fair  value.  Unrealized  gains and  losses  are  included  in
     interest  on  trading   securities  in  the   accompanying   statements  of
     operations.

     MORTGAGE NOTES RECEIVABLE: Mortgage notes receivable are presented at their
     unpaid  principal  balances in the  accompanying  balance sheet.  It is the
     Company's  policy to  discontinue  the  accrual  of  interest  for notes in
     default as of the default date. In  management's  opinion,  mortgage  notes
     receivable are stated at amounts not in excess of net realizable value.

     INCOME TAXES: The Company provides for income taxes based on the provisions
     of Statement of Financial  Accounting  Standards  No. 109,  ACCOUNTING  FOR
     INCOME TAXES,  which,  among other things,  requires  that  recognition  of
     deferred  income taxes be measured by the provisions of enacted tax laws in
     effect at the date of financial statements.

     INVESTMENT IN  PARTNERSHIP:  The Company owns a 19.46% limited  partnership
     interest in Pinnacle Peak Office/Resort Investors. The Company accounts for
     this  investment  under the equity method.  The Company  recorded a loss of
     $11,333 in 2002 and a loss of $13,629 in 2001,  related to this investment.
     The Company  did not receive any return on capital  during 2002 or 2001 and
     invested an additional  $7,000 in 2002 and $36,800 in 2001. In management's
     opinion,  the  carrying  value of this  investment  is not in excess of net
     realizable value.

     REVENUE  RECOGNITION: Revenue from land sales is recognized in accordance
     with Statement of Financial  Accounting Standards (SFAS) No. 66, ACCOUNTING
     FOR  SALES OF REAL  ESTATE,  which  requires  that  there is a valid  sales
     contract,  an adequate  down  payment,  a  reasonable  likelihood  that any
     related  receivable will be collected and that all conditions  precedent to
     the closing have been performed.

                                       14
<PAGE>
     Interest  income from mortgage  notes  receivable  is recognized  using the
     interest  method.  Accrual of interest  income is suspended  when a loan is
     contractually  delinquent  for ninety days or more.  The accrual is resumed
     when the loan becomes current,  and past-due  interest income is recognized
     at that time. In addition, a detailed review of commercial loans will cause
     earlier suspension of interest accrual if collection is deemed doubtful.

     INCOME TAXES AND REIT STATUS:  The Company has elected  treatment as a real
     estate  investment  trust (REIT) under Internal Revenue Code (IRC) Sections
     856-860. A REIT is taxed in the same manner as any corporation; except that
     it may deduct certain  qualifying  distributions  made to shareholders  and
     reduce or eliminate any potential income taxes. This distribution deduction
     must be at least 90% of the REIT's taxable income.  The Company has met the
     distribution requirement for all years presented, and thus has not recorded
     any income tax provision in the accompanying statements of operations.

     For income  tax  purposes,  certain  expenses  or  reserves  for  financial
     reporting  purposes are not allowed as current tax  deductions.  Similarly,
     the Company may take certain  current  deductions for tax purposes that are
     not current expenses for financial reporting purposes. As a result of these
     differences,  taxable  income before  deductions for dividends paid totaled
     approximately  $42,000 in 2002 and $511,000 in 2001.  Net operating  losses
     for federal  income tax purposes  available to offset future taxable income
     totaled approximately $2.24 million at December 31, 2002 and expire through
     the year  ending  2010.  Capital  loss  carryforwards  total  approximately
     $216,000 and will expire if unused through the year ending 2006.

     INCOME PER COMMON SHARE: Income per common share is computed based upon the
     weighted  average number of shares of common stock  outstanding  during the
     year.  There  are  no  stock  options,   warrants  or  other  common  stock
     equivalents.

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

     IMPAIRMENT OF LONG-LIVED  ASSETS:  The Company  assesses land held for sale
     for impairment in accordance  with the  provisions of SFAS 121,  ACCOUNTING
     FOR THE  IMPAIRMENT OF LONG-LIVED  ASSETS AND FOR  LONG-LIVED  ASSETS TO BE
     DISPOSED  OF.  SFAS 121  requires  that the  Company  assess the value of a
     long-lived  asset whenever there is an indication  that its carrying amount
     may not be  recoverable.  Recoverability  of the  asset  is  determined  by
     comparing the forecasted undiscounted cash flows generated by said asset to
     its carrying value.  The amount of impairment  loss, if any, is measured as
     the  difference  between the net book value of the asset and its  estimated
     fair value.

     RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS:  In August 2001, the FASB issued
     SFAS No. 144,  ACCOUNTING  FOR THE  IMPAIRMENT  OR  DISPOSAL OF  LONG-LIVED
     ASSETS. The Company will be required to adopt SFAS No. 144 at the beginning
     of its 2003 fiscal year. SFAS No. 144 supersedes SFAS 121, but carries over
     most of its general guidance. The Company is currently reviewing the impact
     of  adoption of SFAS 144,  but does not  believe the  adoption of such will
     have a material effect on the financial  position and results of operations
     of the Company.

                                       15
<PAGE>
3.   CONCENTRATION OF CREDIT RISK

     The Company's  financial  instruments that are exposed to concentrations of
     credit risk consist  primarily of treasury  securities  and mortgage  notes
     receivable. The Company's treasury securities are placed with a major bank.
     The Company's  mortgage notes receivable  result primarily from the sale of
     property  to a  broad  base  of  borrowers  although  several  loans  are a
     significant portion of total assets (see Note 4). The Company's  investment
     policy limits its overall exposure to concentrations of credit risk.

4.   MORTGAGE NOTES RECEIVABLE

     Management determines the rate and related terms on its individual mortgage
     notes  receivable  based on the underlying  collateral,  the quality of the
     borrower, and the down payment received. The majority of the mortgage notes
     receivable outstanding at December 31, 2002, originated within the last 1-8
     years, and in management's opinion, the factors used to determine the rates
     and  related  terms  have not  changed  significantly.  Given  the  varying
     structures  and payment  terms,  management  believes  that the fair market
     values of the mortgage notes receivable  approximate their carrying amounts
     when  compared to mortgage  notes  receivable  with similar risk  profiles,
     structures  and payment  terms.  As of  December  31,  2002,  all loans are
     current. Therefore, no adjustment for impairment during 2002 was necessary.

     Mortgage notes receivable consist of the following at December 31, 2002:

<TABLE>
<CAPTION>
  Original                               Stated
    Loan        Collateral Location     Interest     Final         Periodic Payment         Company's
   Number             and Size            Rate      Maturity            Terms             Participation    Balance
   ------             --------            ----      --------            -----             -------------    -------
<S>           <C>                        <C>       <C>         <C>                        <C>             <C>
    3-1       635  acres - Section  9,      8%      02/02/11   Annual   principal   and        80%        $ 794,385
              Township  6, South Range                         interest   payments   of
              3 East of the  Gila  and                         $158,000         through
              Salt   River   Base  and                         maturity.
              Meridian     -     Pinal
              County, Arizona

    6         27   lots   in    Hidden   9% to      07/01/05   Multiple  borrowers make       86.47%         29,663
              Valley   Ranch,    Pinal   12.3%                 monthly    payments   of
              County    Arizona.    12                         principal  and  interest
              parcels     in    either                         of    varying    payment
              Bellflower    Ranch   or                         amounts.   Approximately
              Butterfield    Ranch   -                         $14,000  of these  loans
              Cochise County, Arizona                          are  late or in  default
                                                               but      are       fully
                                                               collateralized.
                                                                                                          ---------
                                                                                                          $ 824,048
                                                                                                          =========
</TABLE>

                                       16
<PAGE>
     Scheduled principal repayments of mortgage notes receivable at December 31,
     2002 are as follows:

                 Year                    Amount
              ----------               ---------
              2003                     $  63,614
              2004                        68,703
              2005                       103,862
              2006                        80,135
              2007                        86,546
              Thereafter                 421,188
                                       ---------

                                       $ 824,048
                                       =========

5.   LAND HELD FOR SALE

     Prior to the year ended December 31, 2002,  the Company  received land as a
     result of foreclosures on several loans. The mortgage  receivable  balance,
     related  accrued  interest and foreclosure  costs were  transferred to land
     held for sale at cost,  which did not exceed net realizable  value,  on the
     date the titles were transferred.  In management's  opinion,  land held for
     sale is stated at amounts not in excess of fair value less estimated  costs
     to sell.

     Land held for sale by the Company is as follows at December 31, 2002:

<TABLE>
<CAPTION>
   Original
     Loan                                                            Company's
    Number                Property Location and Size               Participation             Balance
    ------                --------------------------               -------------             -------
<S>             <C>                                                <C>                     <C>
     6          354.5 acres -  Southwest  corner of Warner and         86.47%              $ 3,079,199
                Sossaman Roads - Maricopa County, Arizona

     17         .01  acres -  Southwest  corner  of  I-17  and          100%                    55,890
                Deer Valley Road - Phoenix, Arizona                                        -----------

                                                                                           $ 3,135,089
                                                                                           ===========
</TABLE>

     The  reserve  for losses of  $590,898  at  December  31,  2002,  relates to
     original  Loan 6. This reserve will be absorbed  when the land is sold.  No
     additional reserves were provided in 2002 or 2001.

                                       17
<PAGE>
6.   RELATED PARTY TRANSACTIONS

     The Company is a party to the  following  agreements  with  affiliates  who
     share common management and directors with the Company:

    Affiliate                              Agreement
    ---------                              ---------
ALI Advisor, Inc.   The  Company  pays  a  quarterly  advisory  fee  of  30%  of
                    available cash in any quarter in which the cumulative return
                    to investors  is in excess of 12.7%.  No such fees were paid
                    in 2002 or 2001 as the cumulative return requirement was not
                    met.  The Company  also pays a quarterly  servicing  fee for
                    servicing  loans of 1/16 of 1% of total assets,  as defined.
                    These fees  totaled  $17,281  and  $24,363 in 2002 and 2001,
                    respectively.  In  addition,  from  time  to  time,  certain
                    overhead expenses may be paid. No such payments were made in
                    2002 or 2001.

PHS Mortgage, Inc.  All loans made after the initial  purchase at June 13, 1988,
                    have been  originated by PHS Mortgage,  Inc. and origination
                    fees  were  paid by the  borrowers.  There  were no new loan
                    originations in 2002 or 2001.

Peacock, Hislop,    The   Company   utilizes   PHS&G   on   certain   investment
Staley & Given      transactions  involving  excess  cash.  No fees are paid for
(PHS&G)             such services.

     In addition,  Directors  fees  totaling  $23,200  were paid to  independent
     directors for board service during the year.

7. DIVIDENDS

     Distributions related to Class A dividends for 2002 are as follows:

       Date       Record        Date        Amount         Total
     Declared      Date         Paid      Per Share       Amount
     --------      ----         ----      ---------       ------
     03/20/02    04/02/02     04/16/02     $  0.50     $   971,357
     06/18/02    07/01/02     07/16/02        0.10         194,267
     09/24/02    10/01/02     10/15/02        0.10         194,267
     12/20/02    01/02/03     01/16/03        0.35         647,841
                                           -------     -----------

                                           $  1.05     $ 2,007,732
                                           =======     ===========

     Approximately   3%  of  the  dividends   per  share  in  2002   represented
     distributions  of ordinary  taxable  income.  The  remainder  represented a
     return of capital or capital gain income.

                                       18
<PAGE>
     Distributions related to Class A dividends for 2001 were as follows:

       Date       Record        Date        Amount         Total
     Declared      Date         Paid      Per Share       Amount
     --------      ----         ----      ---------       ------
     03/20/01    04/02/01     04/11/01     $  0.10     $   194,267
     06/08/01    06/29/01     07/12/01        0.10         194,267
     09/19/01    10/02/01     10/12/01        1.00       1,942,675
     12/13/01    01/02/02     01/15/02        0.10         194,268
                                           -------     -----------

                                           $  1.30     $ 2,525,477
                                           =======     ===========

     Approximately   20%  of  the  dividends  per  share  in  2001   represented
     distributions  of ordinary  taxable  income.  The  remainder  represented a
     return of capital or capital gain income.

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

     On July 2, 2002, the Company's Board of Directors, in consultation with its
Audit Committee,  decided to dismiss its independent  auditors,  Arthur Andersen
LLP ("Arthur Andersen"). The Board subsequently engaged the services of Epstein,
Weber & Conover,  P.L.C.  ("Epstein,  Weber &  Conover")  as the  Company's  new
independent auditors. The change in auditors became effective July 2, 2002.

     The  audit  reports  of  Arthur  Andersen  on  the  Company's  consolidated
financial  statements  of and for the fiscal  years ended  December 31, 2001 and
2000 did not contain any adverse opinion or disclaimer of opinion, nor were they
qualified or modified as to uncertainty, audit scope or accounting principles.

     During the Company's  two most recent fiscal years ended  December 31, 2001
and  2002,  and  through  the date of the  Board's  decision  to  terminate  the
engagement of Arthur Andersen as the Company's  independent public  accountants,
there were no  disagreements  with Arthur  Andersen on any matter of  accounting
principles or practices,  financial statement  disclosure,  or auditing scope or
procedure which, if not resolved to Arthur Andersen's  satisfaction,  would have
caused  Arthur  Andersen  to  make  reference  to  the  subject  matter  of  the
disagreement  in  connection  with its  reports  on the  Company's  consolidated
financial statements for such years.

     None  of the  reportable  events  described  under  Item  304(a)(1)(iv)  of
Regulation S-B occurred  during the Company's two most recent fiscal years ended
December 31, 2001 and 2002,  or through the date of the Board's  termination  of
Arthur Andersen.

     During the Company's  two most recent fiscal years ended  December 31, 2001
and 2002, and through the date of the Board's decision to hire Epstein,  Weber &
Conover,  the Company did not consult  Epstein,  Weber & Conover with respect to
any of the  matters  or  events  set  forth  in Items  304(a)(2)(i)  and (ii) of
Regulation S-B.

                                       19
<PAGE>
                                    PART III

     The  information  required  by  this  Part  III  will  be  provided  in our
definitive  Proxy Statement for our 2003 Annual Meeting of  Shareholders,  which
definitive  Proxy  Statement  will be filed  with the  Securities  and  Exchange
Commission  pursuant to  Regulation  14A not later than 120 days  following  our
fiscal year ended December 31, 2002, and is incorporated  herein by reference to
the following extent:

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
        WITH SECTION 16(A) OF THE EXCHANGE ACT.

     Information  responsive to this item is incorporated herein by reference to
the "Information  Concerning  Directors and Nominees"  section  contained in the
Company's  definitive  Proxy  Statement.  With the  exception  of the  foregoing
information and other  information  specifically  incorporated by reference into
this report on Form 10-KSB,  the Company's Proxy Statement is not being filed as
a part hereof.  Information respecting executive officers of the Company who are
not continuing directors or nominees is set forth at Part I of this Report.

ITEM 10. EXECUTIVE COMPENSATION.

     The Company did not compensate its executive officers for their services in
the fiscal year ending December 31, 2002. Additional  information  responsive to
this item is  incorporated  herein by reference to the "Executive  Compensation"
section of the Company's Proxy Statement.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     Information  concerning the Class A Common Stock beneficially owned by each
director of the Company, by all officers and directors of the Company as a group
and by each shareholder  known by the Company to be the beneficial owner of more
than 5% of the  outstanding  Class A Common  Stock  is  incorporated  herein  by
reference  to  the  "Security   Ownership  of  Certain   Beneficial  Owners  and
Management" section of the Company's Proxy Statement.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     Information  responsive to this item is incorporated herein by reference to
the "Certain  Relationships and Related  Transactions"  section of the Company's
Proxy Statement.

                                       20
<PAGE>
                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

     The following is a list of the financial  statements of Arizona Land Income
Corporation included at Item 7 of Part II of this Form 10-KSB.

FINANCIAL STATEMENTS

                                                                        Page or
                                                                       Method of
                                                                         Filing
                                                                         ------
Independent Auditors' Report                                             Page 9
Financial Statements:
     Balance Sheet - December 31, 2002                                   Page 10
     Statements of Operations - For the Years Ended December 31,
       2002 and 2001                                                     Page 11
     Statements of Stockholders' Equity - For the Years Ended
       December 31, 2002 and 2001                                        Page 12
     Statements of Cash Flows - For the Years Ended December 31,
       2002 and 2001                                                     Page 13
     Notes to Financial Statements - December 31, 2002 and 2001          Page 14

(a)  Exhibits.

<TABLE>
<CAPTION>
Exhibit                                                                                   Page or Method
Number      Description Method of Filing                                                     of Filing
------      ----------------------------                                                     ---------
<S>         <C>                                                                       <C>
3-A         Articles of Incorporation of the Company, as amended.                     Incorporated          by
                                                                                      Reference   to   Exhibit
                                                                                      3-A to  Amendment  No. 3
                                                                                      to S-18 No. 33-20625.

3-B         Bylaws of the Company, as amended.                                        Incorporated          by
                                                                                      Reference   to   Exhibit
                                                                                      3-B to  Amendment  No. 3
                                                                                      to S-18 No. 33-20625.

10-A        June 13, 1988 Advisory and Servicing  Agreement between ALI Advisor,      Incorporated          by
            Inc. and the Company.                                                     Reference   to   Exhibit
                                                                                      10-A  to  the  Company's
                                                                                      Annual  Report  on  Form
                                                                                      10-K for the year  ended
                                                                                      December 31, 1998

10-B        January 17, 1989 Stock  Purchase and Sale  Agreement  between Young,      Incorporated          by
            Smith & Peacock Holdings,  Inc., Young, Smith & Peacock, Inc., Barry      Reference     to     the
            W. Peacock, Thomas R. Hislop and Larry P. Staley.                         Company's    Report   on
                                                                                      Form 8-K  dated  January
                                                                                      30, 1989
</TABLE>

                                       21
<PAGE>
<TABLE>
<CAPTION>
Exhibit                                                                                   Page or Method
Number      Description Method of Filing                                                     of Filing
------      ----------------------------                                                     ---------
<S>         <C>                                                                       <C>
10-C        Modification  of Loan  Document  dated July 21,  1990,  between  ALI      Incorporated          by
            Advisor,  Inc. and Pinnacle  Peak  Office/Resort  Investors  Limited      Reference   to   Exhibit
            Partnership, an Arizona limited partnership (Loan 1).                     10-E  to  the  Company's
                                                                                      Annual  Report  on  Form
                                                                                      10-K for the year  ended
                                                                                      December 31,        1990
                                                                                      ("1990 Form 10-K")

10-D        Modification  of Loan  Documents  dated  July 1, 1990,  between  ALI      Incorporated          by
            Advisor,   Inc.  and  North   Scottsdale   Horseman's  Park  Limited      Reference   to   Exhibit
            Partnership III, an Arizona limited partnership (Loan 5b). 10-K           10-F  to the  1990  Form

10-E(1)     Indemnification  Agreement  dated May 12, 1992 between  Arizona Land      Incorporated          by
            Income Corporation and Robert Blackwell.                                  Reference   to   Exhibit
                                                                                      10-L  to  the  Company's
                                                                                      Annual  Report  on  Form
                                                                                      10-K for the year  ended
                                                                                      December 31, 1993

10-E(2)     Indemnification  Agreement  dated  October 1,  1991 between  Arizona      Incorporated          by
            Land Income Corporation and Burton Freireich.                             Reference     to     the
                                                                                      Company's  Annual Report
                                                                                      on  Form  10-K  for  the
                                                                                      year ended  December 31,
                                                                                      1994

24          Powers of Attorney                                                        See Signature page

99.1        Certification  Pursuant  to  18 U.S.C.   Section  1350,  as  Adopted      filed herewith
            Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2        Certification  Pursuant  to  18 U.S.C.   Section  1350,  as  Adopted      filed herewith
            Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.3        Report of Independent Public Accounts for Fiscal Year 2001                filed herewith
            [Not Reissued by Arthur Andersen]
</TABLE>

(b)  Reports on Form 8-K

     During the last quarter of 2002, the Company filed no reports on Form 8-K.

                                       22
<PAGE>
                                   SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities  Exchange
Act of 1934, the Company has duly caused this report on Form 10-KSB to be signed
on its behalf by the undersigned,  thereunto duly  authorized,  this 28th day of
March, 2003.

                                        ARIZONA LAND INCOME CORPORATION


                                        By: /s/ Thomas R. Hislop
                                            ------------------------------------
                                            Thomas R. Hislop
                                            Vice President and Chief Financial
                                            Officer

                                POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE  PRESENT,  that each person  whose  signature  appears
below hereby  constitutes  and appoints  Barry W. Peacock,  Thomas R. Hislop and
Larry P. Staley, and any of them (with full power to each of them to act alone),
as his  true  and  lawful  attorneys-in-fact  and  agents,  with  full  power of
substitution  and  resubstitution,  for him and in his name, place and stead, in
any and all  capacities,  to sign any and all  amendments  to this  Form  10-KSB
Annual  Report,  and to file the  same,  with all  exhibits  thereto,  and other
documents in connection  therewith with the Securities and Exchange  Commission,
granting unto said  attorneys-in-fact  and agents,  and each of them, full power
and  authority to do and to perform each and every act and thing  requisite  and
necessary to be done in and about the premises,  as fully and to all intents and
purposes as he might or could do in person,  hereby ratifying and confirming all
that said  attorneys-in-fact and agents and/or any of them, or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
on Form 10-KSB has been signed below by the  following  persons on behalf of the
Company and in the capacities and on the date indicated.

Signature                   Title                                 Date
---------                   -----                                 ----

/s/ Barry W. Peacock        President                             March 28, 2003
------------------------
Barry W. Peacock

/s/ Thomas R. Hislop        Chairman of the Board, Vice           March 28, 2003
------------------------    President, Treasurer, Chief
Thomas R. Hislop            Executive Officer and Chief
                            Financial Officer

/s/ Larry P. Staley         Vice President                        March 28, 2003
------------------------
Larry P. Staley

/s/ Robert Blackwell        Unaffiliated Director                 March 28, 2003
------------------------
Robert Blackwell

/s/ Burton P. Freireich     Unaffiliated Director                 March 28, 2003
------------------------
Burton P. Freireich

                                       23
<PAGE>
                                  CERTIFICATION

I, Thomas R. Hislop, certify that:

1.   I have  reviewed  this annual  report on Form 10-KSB of Arizona Land Income
     Corporation;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of material  fact or omit to state a material  fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

                                       24
<PAGE>
6.   The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

Date: March 28, 2003.

                                        /s/ Thomas R. Hislop
                                        ----------------------------------------
                                        Thomas R. Hislop
                                        Chief Executive Officer

                                       25
<PAGE>
                                  CERTIFICATION

I, Thomas R. Hislop, certify that:

1.   I have  reviewed  this annual  report on Form 10-KSB of Arizona Land Income
     Corporation;

2.   Based on my  knowledge,  this  annual  report  does not  contain any untrue
     statement of material  fact or omit to state a material  fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this annual report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information included in this annual report,  fairly present in all material
     respects the financial  condition,  results of operations and cash flows of
     the registrant as of, and for, the periods presented in this annual report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a)   designed  such  disclosure  controls  and  procedures  to ensure  that
          material  information  relating  to  the  registrant,   including  its
          consolidated subsidiaries,  is made known to us by others within those
          entities,  particularly  during the period in which this annual report
          is being prepared;

     b)   evaluated the  effectiveness of the registrant's  disclosure  controls
          and procedures as of a date within 90 days prior to the filing date of
          this annual report (the "Evaluation Date"); and

     c)   presented   in  this   annual   report  our   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures based on our
          evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent function):

     a)   all  significant  deficiencies  in the design or operation of internal
          controls  which could  adversely  affect the  registrant's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the  registrant's  auditors any material  weaknesses in
          internal controls; and

     b)   any fraud, whether or not material,  that involves management or other
          employees who have a  significant  role in the  registrant's  internal
          controls; and

                                       26
<PAGE>
6.   The  registrant's  other  certifying  officer and I have  indicated in this
     annual  report  whether or not there were  significant  changes in internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.


Date: March 28, 2003.

                                        /s/ Thomas R. Hislop
                                        ----------------------------------------
                                        Thomas R. Hislop
                                        Chief Financial Officer

                                       27
<PAGE>
                                  EXHIBIT INDEX

<TABLE>
<CAPTION>
Exhibit                                                                              Page or Method
Number    Description Method of Filing                                                 of Filing
------    ----------------------------                                                 ---------
<S>       <C>                                                                   <C>
3-A       Articles of Incorporation of the Company, as amended.                 Incorporated          by
                                                                                Reference   to   Exhibit
                                                                                3-A to  Amendment  No. 3
                                                                                to S-18 No. 33-20625.

3-B       Bylaws of the Company, as amended.                                    Incorporated          by
                                                                                Reference   to   Exhibit
                                                                                3-B to  Amendment  No. 3
                                                                                to S-18 No. 33-20625.

10-A      June  13,  1988  Advisory  and  Servicing  Agreement  between  ALI    Incorporated          by
          Advisor, Inc. and the Company.                                        Reference   to   Exhibit
                                                                                10-A  to  the  Company's
                                                                                Annual  Report  on  Form
                                                                                10-K for the year  ended
                                                                                December 31, 1998

10-B      January 17, 1989 Stock Purchase and Sale Agreement  between Young,    Incorporated          by
          Smith & Peacock  Holdings,  Inc.,  Young,  Smith & Peacock,  Inc.,    Reference     to     the
          Barry W. Peacock, Thomas R. Hislop and Larry P. Staley.               Company's    Report   on
                                                                                Form 8-K  dated  January
                                                                                30, 1989

10-C      Modification  of Loan  Document  dated July 21, 1990,  between ALI    Incorporated          by
          Advisor,  Inc. and Pinnacle Peak  Office/Resort  Investors Limited    Reference   to   Exhibit
          Partnership, an Arizona limited partnership (Loan 1).                 10-E  to  the  Company's
                                                                                Annual  Report  on  Form
                                                                                10-K for the year  ended
                                                                                December 31,        1990
                                                                                ("1990 Form 10-K")
</TABLE>

                                       28
<PAGE>
<TABLE>
<CAPTION>
Exhibit                                                                              Page or Method
Number    Description Method of Filing                                                 of Filing
------    ----------------------------                                                 ---------
<S>       <C>                                                                   <C>
10-D      Modification  of Loan  Documents  dated July 1, 1990,  between ALI    Incorporated          by
          Advisor,   Inc.  and  North  Scottsdale  Horseman's  Park  Limited    Reference   to   Exhibit
          Partnership III, an Arizona limited partnership (Loan 5b).            10-F  to the  1990  Form
                                                                                10-K

10-E(1)   Indemnification  Agreement dated May 12, 1992 between Arizona Land    Incorporated          by
          Income Corporation and Robert Blackwell.                              Reference   to   Exhibit
                                                                                10-L  to  the  Company's
                                                                                Annual  Report  on  Form
                                                                                10-K for the year  ended
                                                                                December 31, 1993

10-E(2)   Indemnification  Agreement dated  October 1,  1991 between Arizona    Incorporated          by
          Land Income Corporation and Burton Freireich.                         Reference     to     the
                                                                                Company's  Annual Report
                                                                                on  Form  10-K  for  the
                                                                                year ended  December 31,
                                                                                1994

24        Powers of Attorney                                                    See Signature page

99.1      Certification  Pursuant  to  18 U.S.C.  Section  1350,  as Adopted    filed herewith
          Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.2      Certification  Pursuant  to  18 U.S.C.  Section  1350,  as Adopted    filed herewith
          Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.3      Report of Independent Public Accounts for Fiscal Year 2001            filed herewith
          [Not Reissued by Arthur Andersen]
</TABLE>

                                       29