UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                   FORM 10-KSB/A
(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

                        Commission File Number: 333-11625
                        ---------------------------------

                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

             (Exact name of registrant as specified in its charter)
--------------------------------------------------------------------------------

           Delaware                                             94-3240473
           --------                                             ----------
(State or other Jurisdiction of                              (I.R.S. Employer
incorporation or organization)                            Identification Number)
         50 California Street
         Suite 2020
         San Francisco, California                                 94111
         (Address of principal executive office)                 (zip code)

                                 (415) 288-9575
                                 --------------
              (Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class                    Name of each exchange on which registered
-------------------                    -----------------------------------------
Common Stock $0.01 par value                             American Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None.

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

Registrant meets the condition of General Instruction G(1)(a) and (b) of Form
10-KSB and is filing this form 10-KSB pursuant to its reduced disclosure format.

[X] No disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is
contained herein 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.

Registrants Revenues for its most recent fiscal year were $2,866,253.

As of April 11, 2003, the Registrant's common shares closed at $16.25 and the
aggregate market value of the Registrant's shares of Common Stock, $.01 par
value, held by non-affiliates of the registrant was approximately $5,200,000. At
that date approximately 425,000 common shares were outstanding and 320,000
common shares were held by non-affiliates.

<PAGE>
                                TABLE OF CONTENTS

PART I.........................................................................5

ITEM 1. DESCRIPTION OF BUSINESS................................................5
    General....................................................................5

MORTGAGE INVESTMENT BUSINESS...................................................5
    General....................................................................5
    Mortgage Loan Portfolio....................................................5
    Financing..................................................................6

MORTGAGE CONDUIT BUSINESS......................................................6
    General....................................................................6
    Marketing and Production...................................................7
    Underwriting...............................................................7
    Whole Loan Sales...........................................................8

WAREHOUSE LENDING BUSINESS.....................................................8

HEDGING........................................................................9

SERVICING......................................................................9
    Servicing Portfolio........................................................9
    Geographical Distribution.................................................10
    Interest..................................................................10
    Maturity..................................................................10
    Delinquencies.............................................................11

REGULATION....................................................................11

COMPETITION...................................................................11

EMPLOYEES.....................................................................12

SELECTED FINANCIAL DATA.......................................................13

ITEM 2. DESCRIPTION OF PROPERTY...............................................14

ITEM 3. LEGAL PROCEEDINGS.....................................................14

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS...................14

PART II.......................................................................14

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS..............14

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.............16

                                       2
<PAGE>
OVERVIEW......................................................................16

CRITICAL ACCOUNTING POLICIES..................................................16
    Operating Strategy........................................................17
    Loan Origination and Loan Servicing.......................................17
    Contingencies and Commitments.............................................18

YEAR ENDED DECEMBER 31, 2002
     COMPARED TO YEAR ENDED DECEMBER 31, 2001.................................18

INFLATION.....................................................................19

LIQUIDITY AND CAPITAL RESOURCES...............................................19

LIQUIDITY AND CAPITAL RESOURCES
     FOR THE YEAR ENDED DECEMBER 31, 2002.....................................19

LIQUIDITY AND CAPITAL RESOURCES
     FOR THE YEAR ENDED DECEMBER 31, 2001.....................................20

QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK..................................................20
    Market Risk...............................................................20
    Asset and Liability Management............................................21

ITEM 7. FINANCIAL STATEMENTS..................................................21

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
     AND FINANCIAL DISCLOSURES................................................23

PART III......................................................................23

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF
REGISTRANT; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT................ 23

EXECUTIVE OFFICERS............................................................24

ITEM 10. EXECUTIVE COMPENSATION...............................................25

COMPENSATION OF OFFICERS......................................................25

COMPENSATION OF DIRECTORS.....................................................25
    Director Fees.............................................................25
    Committee and Other Meeting Fees..........................................25
    Reimbursements............................................................25

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
     AND RELATED STOCKHOLDER MATTERS..........................................26
    (a) Equity Compensation Plan Information..................................26
    (b) Security Ownership of Certain Non-Management or Non-Affiliate
        Beneficial Owners.....................................................26

                                       3
<PAGE>
    (c)    Security Ownership of Management...................................26
    (d)    Changes in Control.................................................28

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................28
    Arrangements and Transactions with Members of the Management of CAAI......28
    Sale and Purchase of Loans................................................28
    Other Business Activities.................................................29

PART IV.......................................................................29

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.....................................29
    (a)    Exhibits...........................................................29
    (b)    Reports on Form 8-K................................................30
    (c)    Miscellaneous Exhibits.............................................30

ITEM 14. CONTROLS AND PROCEDURES..............................................30

ITEM 15. NOT APPLICABLE.......................................................30

ITEM 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES...............................30

SIGNATURES....................................................................31

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002.................................32

CERTIFICATION OF FORM 10-KSB OF CAPITAL ALLIANCE INCOME TRUST LTD.............33

                                       4

<PAGE>
--------------------------------------------------------------------------------
                                     PART I
--------------------------------------------------------------------------------

ITEM 1. DESCRIPTION OF BUSINESS

         General. Unless the context otherwise requires, references herein to
the "Company" refer to Capital Alliance Income Trust Ltd., A Real Estate
Investment Trust (the "Trust"), and Capital Alliance Funding Corporation
("CAFC"), collectively. The Trust was incorporated in Delaware on December 12,
1995. On April 29, 1996 two Delaware business trusts, Capital Alliance Income
Trust I and Capital Alliance Income Trust II were merged into the Trust. On
April 15, 1997 the Trust formed its non-qualified REIT subsidiary to conduct a
mortgage conduit business and hold a 99% economic interest in CAFC through
ownership of all of its Series "A" Preferred Stock. The Trust's Manager holds
all of the Common Shares of CAFC and a 1% economic interest in CAFC

         Capital Alliance Income Trust Ltd., A Real Estate Investment Trust, is
a specialty mortgage finance company which, together with its subsidiary,
operates a mortgage banking concern which emphasizes three areas referred to
herein as (1) the Mortgage Investment Business, (2) the Mortgage Conduit
Business, and (3) the Warehouse Lending Business. All mortgage investments
originated by the Company are originated by CAFC and portfolio investments are
sold to the Trust by CAFC at par. The Trust directly conducts its Mortgage
Investment Business, which invests for the Trust's portfolio of
collateral-oriented, high-yielding, non-conforming residential mortgage loans
and home equity loans and its Warehouse Lending Business which provides secured
warehouse and repurchase financing to CAFC and an affiliated mortgage banker.
The Mortgage Conduit Business, which originates and purchases as a wholesale
mortgage banker, non-conforming residential mortgage loans is conducted through
CAFC in which the Trust holds a 99% economic interest. Both the Company and CAFC
are externally advised by Capital Alliance Advisors, Inc. ("CAAI" or "Manager").

         References to financial information of the Trust for the years ending
2000, 2001, and 2002 reflect the financial operations of the Trust and its
Mortgage Investment and Mortgage Warehouse businesses and the Trust's equity
interest in the Mortgage Conduit Business conducted by CAFC.

         MORTGAGE INVESTMENT BUSINESS

         General. The Trust, through its Mortgage Investment Business, acquires
mortgage loans which are principally non-conforming residential mortgage loans
with a maximum 75% combined loan-to-value ratio for investment. The Mortgage
Investment Business invests in both first and junior mortgage loans. Income is
earned principally from the net interest income received by the Trust on
mortgage loans held in its portfolio and secondarily from fees received in
connection with their origination. Such acquisitions are financed with the
Trust's shareholders' equity and borrowings. The Company's borrowings, other
than warehouse lines of credit and repurchase financing obtained by CAFC, are
restricted by the Trust's Bylaws to four (4) times the Trust's total
shareholders' equity.

         Mortgage Loan Portfolio. The Trust invests a substantial portion of its
portfolio in non-conforming first and second mortgage loans. Although the Trust
may purchase such loans from unaffiliated third parties, mortgage investments
are primarily purchased from CAFC. Management believes that non-conforming
mortgage loans provide an attractive net earnings profile and produce higher
yields without commensurately higher credit risks when compared with conforming
mortgage loans. As a matter of investment policy, all loans held for the Trust's
portfolio have a combined loan-to-value, at the time of origination, of not more
than 75% of the collateral's value. The collateral's value is verified by
independent appraisal. As of December 31, 2002 the Trust's loan portfolio
totaled $19,906,391 with an average loan size of $199,064, an average weighted
yield of 13.19%, a weighted average adjusted maturity of 29.71 months and a
weighted average combined loan-to-value ratio of 66.9%. First deeds of trust
comprised 36% of the portfolio's dollar value and junior deeds of trust were
64%. As of December 31, 2001 the Trust's loan portfolio totaled $17,738,923 with
an average loan size of $179,181, an average weighted yield of 13.21%, a
weighted average adjusted maturity of 24.92 months and a weighted average
loan-to-value ratio of 65.10%. First deeds of trust comprised 26% of the
portfolio's dollar value and junior deeds of trust were 74%. The highest

                                       5
<PAGE>
concentration of nonconforming mortgage loans, owned by the Trust are located in
California because of the general prevalence of higher property values and
mortgage loan balances.

        Financing. The Mortgage Investment Business is financed by the Trust's
shareholders' equity and bank borrowings. The Trust's Bylaws restrict the
encumbrance of the Trust's assets to four (4) times the Trust's total
shareholders' equity. The Trust's portfolio of mortgage loans at December 31,
2002 was partially encumbered by two different bank lines of credit in the
amounts of $7,000,000 and $4,000,000 respectively. Effective January 1, 2003 the
$7,000,000 credit facility was increased by $3,000,000 to $10,000,000. This
encumbrance limitation does not apply to CAFC.

        The Trust may plan to issue Mortgage-backed Securities, such as
Collateralized Mortgage Obligations or mortgage pass-through certificates
representing an undivided interest in pools of mortgage loans formed by the
Trust. However, there is no assurance that the Trust will adopt financing
strategies in the future which will include the issuance of mortgage-backed
securities as an alternative financing of its Mortgage Investment Business.
Similarly, the investment policies of the Trust for its Mortgage Investment
Business and its Bylaws may be modified by the Trust's Board of Directors.

         The Trust is negotiating for additional lines of credit secured by a
portion of the Trust's mortgage loan portfolio and at rates that are consistent
with its financing objectives described herein. The Trust, through CAFC, has
obtained third-party warehouse financing at interest rates that are consistent
with its financing objectives described herein. The Trust also extends a
warehouse reverse repurchase facility to CAFC which at December 31, 2002
aggregated $3,382,940. A reverse repurchase agreement, although structured as a
sale and repurchase obligation, acts as a financing vehicle under which CAFC
effectively pledges its mortgage loans as collateral to secure a short-term
loan. Generally, the other party to the agreement makes the loan in an amount
equal to a percentage of the market value of the pledged collateral.

         MORTGAGE CONDUIT BUSINESS

         General. CAFC was organized on April 15, 1997 as a taxable subsidiary
and began its mortgage origination and whole loan sales operations on a start-up
basis in August, 1997. The Mortgage Conduit Business consists primarily of the
origination and the purchase and sale of mortgage loans with a complete spectrum
of credit grades secured by first liens and second liens on single (one-to-four)
family residential properties that are originated in accordance with its
underwriting guidelines. The Trust's Mortgage Conduit Business acts as a conduit
between the originators of such mortgage loans and permanent investors in such
loans. Capital Alliance Advisors, Inc. contracts with CAFC for its management
and for its mortgage origination, loan processing and underwriting, and
secondary sales services. CAFC has its executive offices in San Francisco, a
branch office in Irvine, and a satellite office in San Diego, California. The
Trust's Manager owns a 1% economic interest and 100% of the voting control of
CAFC.

         Management believes that non-conforming credit-rated mortgage loans,
when properly underwritten, provide an attractive net earnings profile,
producing higher yields without disproportionately higher credit risks when
compared to mortgage loans that qualify for purchase by FNMA or FHLMC. The
Trust's policy for its Mortgage Investment Business, which limits the financing
or leveraging of its mortgage loan portfolio, does not apply to its Mortgage
Conduit Business since such mortgage loans are generally held in CAFC for less
than ninety days prior to their sale to investors who securitize such loans in
the secondary market.

         Correspondents originate and close mortgage loans under CAFC's mortgage
loan programs on a loan-by-loan basis. Correspondents include mortgage bankers
and mortgage brokers. However, the Mortgage Conduit Business will assume the
potential risk of any increased delinquency rates and/or credit losses as well
as interest rate risk in the event there is a delay in the sale of such loans.
Normally, such on-going risks, upon the sale of a loan will pass to the
purchaser without recourse to CAFC and are reduced by the relatively short
period that such loans are held and accumulated prior to their sale. All
non-conforming loans purchased or originated by CAFC which meet the Trust's
underwriting guidelines, which include its 75% Loan-to-Value limitation, are

                                       6
<PAGE>
made available for sale to the Trust at fair market value at the date of sale
and subsequent transfer to the Trust. Loans not purchased by the Trust for its
Mortgage Investment Business will be sold in the secondary market through whole
loan sales.

         The Mortgage Conduit Business acquires all of the servicing rights on
loans it originates or purchases and such servicing rights will normally be
relinquished when loans are sold into the secondary market. The Mortgage Conduit
Business generally has no on-going risk of loss after a whole loan sale other
than liability with respect to normal warranties and representations given in
such sales, fraud in the origination process or early default on such mortgage
loan.

         Marketing and Production. CAFC's competitive strategy in its Mortgage
Conduit Business is to offer to its mortgage loan broker and correspondent
network, a complete spectrum of credit-grade residential mortgage loans to be
sold in the secondary market network. This should enable CAFC to shift the high
fixed costs of interfacing with the homeowner to the correspondents and brokers.
The marketing strategy for the Mortgage Conduit Business is designed to
accomplish three objectives: (1) attract a diverse group of loan originators and
loan correspondents throughout California and the western United States, (2)
establish relationships with such brokers and correspondents and, (3) originate
and/or purchase the loans on both an individual and bulk basis and sell them
into the secondary market or, where they meet the Trust's underwriting
standards, to the Trust's Mortgage Investment Business. To accomplish these
objectives, the Mortgage Conduit Business intends to provide responsive and
consistent underwriting and funding services to its mortgage broker and
correspondent networks. CAFC and the Trust emphasize flexibility in their
mortgage loan products to attract, establish and maintain relationships. CAFC
also maintains relationships with numerous end-investors so that it may develop
products that they may be interested in as market conditions change, which in
turn may be offered through the origination network.

         A substantial portion of the mortgage loans to be originated or
purchased through the Mortgage Conduit Business are non-conforming mortgage
loans. Such non-conforming loans may involve some greater risk as a result of
underwriting and product guidelines which will differ from those applied by FNMA
and FHLMC primarily with respect to loan size, borrower income or credit
history, required documentation, interest rates, and borrower occupancy of the
mortgaged property. In general, nonconforming residential mortgage loans made to
borrowers with lower credit ratings than borrowers of higher quality, or so
called "A" grade mortgage loans, are normally subject to higher rates of loss
and delinquency than the other non-conforming loans to be purchased by the
Mortgage Conduit Business. As a result, these loans normally bear a higher rate
of interest, and may be subject to higher fees (including greater prepayment
fees and late payment penalties), than non-conforming loans of "A" quality.

         The mortgage loans originated or acquired by the Mortgage Conduit
Business that are identified for sale into the secondary mortgage market will be
secured by first liens and/or second liens on single (one-to-four) family
residential properties with either fixed or adjustable interest rates.
Fixed-rate mortgage loans have a constant interest rate over the life of the
loan, which is generally 15, 20 or 30 years. The interest rate on an adjustable
rate mortgage ("ARM") is typically tied to an index (such as LIBOR) and is
adjusted periodically at various intervals.

         The Trust's Manager, through its origination network, including the
Trust's subsidiary CAFC which is managed by CAAI, accounted for 100% of the
total mortgage loans acquired by the Trust during the year ended December 31,
2002. The Trust's acquired loans generally have a maturity of not more than 15
years.

         Underwriting. The Trust's Manager, CAAI, provides documentation for the
origination or purchase of mortgage loans and performs the underwriting function
for all of the Trust's loans on a contract basis with the Trust. The Trust's
Manager also performs a full credit review and analysis to ensure compliance
with its loan eligibility requirements. This review specifically includes, among
other things, an analysis of the underlying property and associated appraisal
and an examination of the credit, employment and income history of the borrower.
Under all of these methods, loans are originated or purchased only after
completion of a legal documentation and eligibility criteria review.

                                       7
<PAGE>
         Under all of the Trust's and CAFC's underwriting methods, loan
documentation requirements for verifying the borrowers' income and assets vary
according to loan-to-value ratios, credit ratings and other factors. This
variation is necessary to be competitive and responsive to the needs of the
non-conforming mortgage loan sellers. Generally, as the standards for required
documentation are lowered, borrowers' down payment requirements are increased
and the required loan-to-value ratios are decreased. These types of loans with
less documentation are reviewed on a risk analysis underwriting basis. Reduced
documentation loans require the borrower to have a stronger credit history and
larger cash reserves and the appraisal of the property is validated by either an
enhanced desk or field review. The underwriters utilize a risk analysis approach
to determine the borrower's ability and willingness to repay the debt and to
determine if the property taken as security has sufficient value to recover the
debt in the event that the loan defaults. Each loan is reviewed for compensating
factors (i.e., credit reports, sufficient assets, appraisal, job stability,
ability to repay the loan), and overall compensating factors are reviewed to
fully analyze the risk.

         CAAI reviews each loan prior to the Trust's commitment to originate or
purchase a mortgage loan to ensure that the mortgage loans meet its quality
standards. The type and extent of the quality control review depends on the
nature of the seller and the characteristics of the loans. In performing a
quality control review on a loan, CAAI analyzes the underlying property
appraisal and examines the credit and income history of the borrower. In
addition, all documents submitted in connection with the origination or purchase
of the loans, including insurance policies, title policies, deeds of trust or
mortgages and promissory notes, are examined for compliance with the Trust's and
CAFC's guidelines and to ensure compliance with state and federal regulations.

         Whole Loan Sales. CAFC sells its mortgage loans on a loan-by-loan or
"flow" basis, service released. CAFC does not accumulate a pool of mortgage
loans for sale to investors in whole loan sale transactions. While the loans
sold by the Trust's Mortgage Conduit Business will generally be sold on a
non-recourse basis with respect to economic interest and rate risk, such sales
will generally be made pursuant to agreements that provide for recourse by the
purchaser against the Trust's Mortgage Conduit Business in the event of a breach
of any representation or warranty made by the Trust's Mortgage Conduit Business,
any fraud or misrepresentation during the mortgage loan origination process or
upon early default on such mortgage loans. The Trust's Mortgage Conduit Business
will generally try to limit the remedies of such purchasers to the remedies the
Trust's Mortgage Conduit Business receives from the persons from whom the
Trust's Mortgage Conduit Business purchases a portion of such mortgage loans.
However, in some cases, the remedies available to a purchaser of mortgage loans
may be broader than those available to the Trust's Mortgage Conduit Business
against its seller, and should a purchaser exercise its remedies and rights
against it, the Mortgage Conduit Business may not always be able to enforce
whatever remedies it may have against its sellers.

         WAREHOUSE LENDING BUSINESS

         The Trust's third line of business is its Warehouse Lending Business.
Such operations consist primarily of financing for its affiliated mortgage
bankers, including CAFC and Calliance Realty Fund, LLC. The non-conforming
mortgage loans funded with such financing maybe acquired by the Trust for its
portfolio when such loans meet its investment criteria. These facilities provide
reverse financing for mortgage loans from the time of closing the loan to the
time of its sale or other settlement with the pre-approved investor. The Trust's
financing is non-recourse and the Trust can only look to the sale or liquidation
of the mortgage loans as a source of repayment or repurchase. Any claim of the
Trust as a secured lender in a bankruptcy proceeding may be subject to
adjustment and delay. Borrowings under these facilities are presented on the
Trust's balance sheet as "Notes receivables from related party."

         The Trust provides $5 million and $1.5 million reverse repurchase
facilities to CAFC and Calliance Realty Fund, LLC. The lines of credit
outstanding on the Trust's balance sheet is structured to qualify under the REIT
asset tests and to generate income qualifying under the 75% gross income test.
The terms of the line are market based and may include a per loan fee of up to
$500 with an advance rate of 100% of the fair value of the mortgage loans
outstanding.

                                       8
<PAGE>
        Utilizing reverse repurchase agreements, at December 31, 2002, the Trust
had outstanding balances of $3,382,940 to CAFC and $0 to Calliance Realty Fund.
As of December 31, 2001, the Trust had outstanding balances of $4,217,407 to
CAFC and $0 to Calliance Realty Fund, LLC. Both CAFC and Calliance Realty Fund,
LLC are affiliated mortgage banking companies.

         HEDGING

         The mortgage loans held by the Mortgage Investment Business mostly
carry fixed rates and have relatively short maturities. As the portfolio of
fixed-rate mortgage loans increases or if the portfolio's scheduled maturities
increase, it is anticipated that various hedging strategies will be implemented
to provide protection against interest rate risks. The nature and quantity of
hedging transactions will be determined by the Manager based on various factors,
including market condition, the expected volume of mortgage loan originations
and purchases for investment and the mortgage volume and period of time required
to accumulate and to sell mortgage loans.

         However, an effective hedging strategy is complex and no hedging
strategy can completely insulate the Mortgage Conduit Business or Mortgage
Investment Business from interest rate risks. In addition, hedging involves
transaction and other costs, and such costs could increase as the period covered
by the hedging protection increases or in period of rising and fluctuating
interest rates. Therefore, the Mortgage Conduit Business or Mortgage Investment
Business may be prevented from effectively hedging its interest rate risks,
without significantly reducing its return on equity.

         SERVICING

         As the Trust or CAFC originates mortgage loans, they acquire the
servicing rights. The Trust and CAFC subcontract all of their servicing
obligations under such loans to CAAI, the Trust's Manager. Servicing includes
collecting and remitting loan payments, making required advances, accounting for
principal and interest, holding escrow or impound funds for payment of
improvement holdbacks, interest, taxes and insurance, if applicable, making
required inspections of the mortgaged property, contacting delinquent borrowers
and supervising foreclosures and property dispositions in the event of
unremedied defaults in accordance with the Trust's guidelines. All or a portion
of the aforementioned servicing responsibilities may be subcontracted by the
Trust's Manager.

         Servicing Portfolio. The following tables set forth certain information
regarding the Trust's servicing portfolio of loans for the years ended.




                [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]




                                       9
<PAGE>
<TABLE>
<CAPTION>
                                           December 31, 2000    December 31, 2001   December 31, 2002
                                           -----------------    -----------------   -----------------

<S>                                            <C>                 <C>                 <C>
Beginning servicing portfolio                  $10,807,644         $11,906,586         $17,738,923
Loans added to the servicing portfolio         $ 7,457,537         $15,380,173         $14,195,708

Loans sold, servicing released and principal
     paydowns (1)                              $ 6,358,592         $ 9,547,836         $12,028,240
              --                               -----------         -----------         -----------

Ending servicing portfolio                     $11,906,589         $17,738,923         $19,906,391

Number of loans serviced                                84                  99                 100
Average loan size                              $   141,745         $   179,181         $   199,064
</TABLE>

         (1) Includes normal loan payoffs, principal amortization prepayments,
and loans contributed as capital to CAFC, less reserves and foreclosures.

         Geographical Distribution. The following table sets forth the
geographic distribution of the Trust's servicing portfolio at the dates
presented:

             December 31, 2000      December 31, 2001     December 31, 2002
             -----------------      -----------------     -----------------
             Number     $-% of      Number     $-% of      Number     $-% of
State       of loans   Portfolio   of loans   Portfolio   of loans  Portfolio
-----       --------   ---------   --------   ---------   --------  ---------

CA             75         89%         95         96%        96         97%
OR              1          1%          1          1%         0          0%
UT              4          5%          2          2%         2          2%
Other           4          5%          1          1%         2          1%
               --        ---          --        ---        ---        ---

Totals:        84        100%         99        100%       100        100%

         Interest. The weighted average interest for the Trust's portfolio of
loans in its Mortgage Investment Business at December 31, 2000 was 12.46%, at
December 31, 2001 was 13.21%, and at December 31, 2002 was 13.19%.

         Maturity. The weighted average adjusted maturity of the Trust's
portfolio of loans in its Mortgage Investment Business at December 31, 2000 was
27.48 months, at December 31, 2001 was 24.92 months, and at December 31, 2002
was 29.71 months. The following table shows the Trust's loan maturities at the
dates presented.

<TABLE>
<CAPTION>
                  December 31, 2000        December 31, 2001         December 31, 2002
                  -----------------        -----------------         -----------------

  Terms           Amount       $-% of       Amount       $-% of       Amount      $-% of
of Loans         of loans    Portfolio     of loans    Portfolio     of loans    Portfolio
--------         --------    ---------     --------    ---------     --------    ---------

<C>            <C>              <C>      <C>             <C>       <C>             <C>
0-12 months    $ 3,254,592      27%      $ 7,339,035      41%      $ 6,659,116      34%
13-24 months     1,094,670       9%        1,143,689       6%        2,097,044      10%
25-36 months       505,576       4%           84,946       1%        1,227,613       6%
37-48 months       544,132       5%        2,208,485      13%        3,816,916      19%
Over 48          6,507,619      55%        6,962,768      39%        6,105,703      31%
                 ---------     ---         ---------     ---         ---------     ---

  Totals:      $11,906,589     100%      $17,738,923     100%      $19,906,392     100%
</TABLE>

                                       10
<PAGE>
         Delinquencies. The following table shows the Trust's delinquency
statistics for its servicing portfolio at the dates presented.

<TABLE>
<CAPTION>
                    December 31, 2000         December 31, 2001          December 31, 2002
                    -----------------         -----------------          -----------------
   Loans           Number         $-% of       Number      $-% of       Number         $-% of
Delinquent For:   of loans      Portfolio    of loans     Portfolio     of loans      Portfolio
---------------   --------      ---------    --------     ---------     --------      ---------

<C>                <C>            <C>           <C>          <C>          <C>           <C>
31-60 days          3              3%            6            4%          10            11%
61-90 days          3              4%            8            5%           0             0%
91 days +           8(1)          10%            5(2)         3%          16(3)         19%
                   ---            --             ---         --           ----          --
Totals:            14             17%           19           12%          26            30%
</TABLE>

(1)  Four of the 91 days+ delinquent loans were either paid off in full or
     brought current by March 31, 2002.
(2)  Three of the 91 days+ delinquent loans were either paid off in full or
     brought current by March 31, 2002.
(3)  12 of the 91 days+ delinquent loans were either paid off in full or brought
     current by March 31, 2002.

         REGULATION

         The Trust at all times intends to conduct its business so as not to
become regulated as an investment Trust under the Investment Trust Act. The
Investment Trust Act exempts entities that are "primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate" ("Qualifying Interest"). Under the current
interpretation of the staff of the Commission, in order to qualify for this
exemption, the Trust must maintain at least 55% of its assets directly in
mortgage loans, and certain other Qualifying Interests in real estate. If the
Trust fails to qualify for exemption from registration as an investment trust,
its ability to use leverage in its Mortgage Investment Business would be
substantially reduced, and it would be unable to conduct its business as
described herein. The Trust has not requested a legal opinion from counsel
indicating that, it will be exempt from the Investment Trust Act.

         Because the Trust's business is highly regulated, the laws, rules and
regulations applicable to the Trust are subject to regular modifications and
change. There are currently proposed various laws, rules and regulations which,
if adopted, could impact the Trust. There can be no assurance that these
proposed laws, rules and regulations, or other such laws, rules or regulations,
will not be adopted in the future which could make compliance much more
difficult or expensive, restrict the Trust's ability to originate, broker,
purchase or sell loans, further limit or restrict the amount of commissions,
interest and other charges earned on loans originated, brokered, purchased or
sold by the Trust, or otherwise affect the business or prospects of the Trust.
Also, members of Congress and government officials have from time to time
suggested the elimination of the mortgage interest deduction for federal income
tax purposes, either entirely or in part, based on borrower income, type of loan
or principal amount. Because many of the Trust's loans are made to borrowers for
the purpose of consolidating consumer debt or financing other consumer needs,
the competitive advantages of tax deductible interest, when compared with
alternative sources of financing, could be eliminated or seriously impaired by
such government action. Accordingly, the reduction or elimination of these tax
benefits could have a material adverse effect on the demand for loans of the
kind offered by the Trust.

         Additionally, there are various state and local laws and regulations
affecting the Mortgage Conduit Business. CAFC is licensed in those states
requiring such a license. Mortgage operations also may be subject to applicable
state usury statutes. The Trust is presently in material compliance with all
material rules and regulations to which it is subject.

         COMPETITION

         The Trust believes that it will continue to be able to compete in both
its Mortgage Investment Business and its Mortgage Conduit Business on the basis
of providing prompt and responsive service and flexible underwriting for
independent mortgage brokers and correspondents.

                                       11
<PAGE>
         Continued consolidation in the mortgage banking industry may also
reduce the number of current correspondents to the Mortgage Conduit Business,
thus reducing the Trust's potential customer base, resulting in CAFC or the
Trust purchasing a larger percentage of mortgage loans from a smaller number of
sellers. Such changes could negatively impact the Mortgage Conduit Business.

         The Trust faces competition in its Mortgage Investment Business and
Mortgage Conduit Business from other financial institutions, including but not
limited to banks, investment banks, specialty finance companies and private
mortgage investors. At present such competition is not material to the Trust's
Warehouse Lending Operations. Many of the institutions with which the Trust
competes have significantly greater financial resources than the Trust.

         EMPLOYEES

         The Trust has no employees. The Manager employs and provides all of the
persons required for the operation of the Trust and its Mortgage Investment
Business. At December 31, 2002, the Manager employed 17 persons. Additional
employees will be required to staff the anticipated growth of the Mortgage
Conduit Business. None of the Manager's employees is subject to a collective
bargaining agreement. The Manager believes that its relations with its employees
are satisfactory.



                [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]




                                       12
<PAGE>
         SELECTED FINANCIAL DATA

         The following table presents selected historical financial data of the
Trust derived from the audited financial statements for the years ended December
31, 1998, December 31, 1999, December 31, 2000, December 31, 2001, and December
31, 2002.

         The historical financial information is not necessarily indicative of
future operations and should not be so construed. The selected financial data
should be read in conjunction with "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS."

<TABLE>
<CAPTION>
                                                        Year Ended December 31
                                                        ----------------------

Financial Summary                    1998          1999          2000          2001          2002
                                     ----          ----          ----          ----          ----
Operations:

<S>                              <C>           <C>           <C>           <C>           <C>
Revenue                          $ 1,677,233   $ 1,243,866   $ 1,623,656   $ 2,858,179   $ 2,866,253

Net income                         1,003,706       450,605       515,023     1,142,896     1,108,264

Per Share Data:

Weighted average basic
     earnings (split-adjusted)   $      1.05          --            --     $      1.46   $      1.81

Weighted average diluted
     earnings (split-adjusted)   $      1.02          --            --     $      1.05   $      1.50

Balance Sheet Data:

Mortgage notes receivable        $ 8,986,645   $10,807,644   $11,906,589   $17,738,923   $19,906,391

Total assets                      16,804,983    17,006,696    19,299,332    25,343,401    25,973,457

Total liabilities                    757,532     1,579,862     4,589,168    11,248,860    11,713,401

Shareholder's equity              16,047,451    15,426,834    14,710,164    14,094,541    14,260,056

Common share equity               10,259,271     9,754,458     9,125,847     8,510,224     8,675,739

Common shares (split-adjusted)       494,913       494,913       467,754       410,095       424,144

Common share book value          $     20.73   $     19.71   $     19.51   $     20.75   $     20.45

</TABLE>

                                       13
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY

         The Trust and its Manager leased executive and administrative offices
located at 50 California Street, Suite 2020, San Francisco, California, 94111,
that consists of approximately 3,000 square feet.

         CAFC leases space in Irvine and San Diego, California for its branch
and satellite offices on a short-term basis.

         Management believes that the terms of the leases are at least as
favorable as could have been obtained from an unaffiliated third party.
Management believes that these facilities are adequate for the Manager's, the
Trust's and CAFC's foreseeable needs and that alternate space at reasonable
rental rates is available, if necessary.

ITEM 3. LEGAL PROCEEDINGS

         None.

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

         No matters were submitted to a vote of the Trust's security holders
during the last quarter of its fiscal year ended December 31, 2002.

--------------------------------------------------------------------------------
                                     PART II
--------------------------------------------------------------------------------

ITEM 5. MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS

The Trust's Common Stock was listed and began trading on the American Stock
Exchange under the symbol "CAA" on October 1, 1998. The range of high and low
split-adjusted sale prices of the Common Stock as quoted on the American Stock
Exchange and for the last two years were:

      Year            Quarter           High           Low          Dividend
                                                                       per Share
---------------- ----------------- -------------- -------------- ---------------
      2001              1st*           $11.70         $8.25          $0.255
                        2nd*            13.50         10.56           0.255
                        3rd             13.42         11.90           0.255
                        4th             13.70         12.10           0.28

      2002              1st             14.20         12.91           0.30
                        2nd             22.50         14.45           0.40
                        3rd             21.15         17.70           0.45
                        4th             18.99         17.25           0.45

      2003       January 1-March 31     17.25         15.90           0.45

         * All information is adjusted to reflect the May 14, 2001 one-for-three
reverse stock split.

         Holders: On December 31, 2002, there were approximately 68 holders of
record (including holders who are nominees for an undetermined number of
beneficial owners) of the Trust's Common Stock and 145 holders of record

                                       14
<PAGE>
(including holders who are nominees for an undetermined number of beneficial
owners) of the Trust's Preferred Stock which is not publicly traded. The Trust
believes that its Common Stock is beneficially held by in excess of 500
shareholders.

         On March 7, 2000, the Trust's Board of Directors authorized the Trust
to repurchase up to $250,000 of the Trust's Common Stock, in open market
purchases, from time to time, at the discretion of the Trust's management. On
December 21, 2000, the Board of Directors increased the Stock Purchase Plan to
$400,000, on June 19, 2001, to $550,000, and on March 13, 2002, to $695,000. As
of January 1, 2002, $119,489 is available to repurchase the Trust's Common
Stock. Separately, in a private transaction with Sutter Capital Management, the
Board authorized the purchase of 47,500 Common Shares at $13.50 per Share. This
transaction closed on September 3, 2001. The timing and extent of future
repurchases will depend on market conditions. The Trust intends to effect such
repurchase in compliance with Rule 10b-18 under the Securities Exchange Act of
1934. As of December 31, 2002, the Trust had acquired 97,966 post-split Common
Shares under the repurchase plan at a total cost of $1,216,761. No options to
acquire Common Shares were exercised until 2001. During 2001 and 2002, Treasury
Shares totaling 26,949 were used to satisfy exercised Common Share stock
options. As of December 31, 2002, the Trust held 71,017 shares of Common Stock
in the treasury.

         On April 17, 2001, the Board of Directors duly approved the amendment
of the Corporation's Certificate of Incorporation to affect a one-for-three
reverse stock split of the Trust's Common and Preferred Shares, which approval
was duly ratified by the shareholders of the Trust. The reverse stock split
became effective after the close of business on May 11, 2001.

         To maintain its qualification as a REIT, the Trust has made and intends
during 2003 to make annual distributions to stockholders of at least 90% of its
taxable income (which may not necessarily equal net income as calculated in
accordance with GAAP), determined without regard to the deduction for dividends
paid and excluding any net capital gains or loan loss reserves. The Trust
declares regular quarterly Common dividend distributions and monthly Preferred
dividend distributions. Any taxable income remaining after the distribution of
the regular quarterly or other dividends will be distributed annually on or
prior to the date of the first regular quarterly dividends payment date of the
following taxable year. The dividend policy is subject to revision at the
discretion of the Board of Directors. All distributions in excess of those
required for the Trust to maintain REIT status will be made by the Trust at the
discretion of the Board of Directors and will depend on the taxable earnings of
CAFC, the financial condition of the Trust and such other factors as the Board
of Directors deems relevant. The Board of Directors has not established a
minimum distribution level for the Trust's Common Stock. The Trust paid
quarterly dividends on the Trust's Common Stock for the quarters ending March
31, 2002, June 30, 2002, September 30, 2002, and December 31, 2002 at $0.30,
$0.40, $0.45, and $0.45 per post-split share respectively. The Trust during 2002
paid 12 consecutive monthly dividends on the Trust's Preferred Stock at an
average of $.138 per post-split share per month.

         Holders of the Preferred Shares are entitled to a dividend preference
in an amount equal to an "annualized return" on the Adjusted Net Capital
Contribution of Preferred Shares at each dividend record date during such year
(or, if the Directors do not set a record date, as of the first day of the
month). The annualized return is the lesser of: (a) 10.25%, (b) 1.50% over the
Prime Rate (determined on a not less than quarterly basis), or (c) the rate set
by the Board of Directors. The preferred dividend preference is not cumulative.

         After declaring dividends for a given year to the Preferred Shares in
the amount of the dividend preference, no further distributions may be declared
on the Preferred Shares for the subject year until the dividends declared on
each Common Share for that year equals the dividend preference for each
Preferred Share for such year. Any Distributions associated with a payment date
that are declared after the Directors have declared Distributions on Common
Shares in the amount of the additional dividend generally will be allocated such
that the amount of dividends per share to the Preferred Shares and Common Shares
for the subject year are equal. The Preferred Shares additional dividend is not
cumulative.

                                       15
<PAGE>
         Distributions to stockholders will generally be taxable as ordinary
income, although a portion of such distributions may be designated by the Trust
as capital gain or may constitute a tax-free return of capital. The Trust will
annually furnish to each of its stockholders a statement setting forth
distributions paid during the preceding year and their characterization as
ordinary income, capital gains or return of capital.

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

         Certain statements contained herein are not based on historical
information, and certain statements contained in future filings by the Trust
with the SEC, in the Trust's press releases or in the Trust's public and
stockholder communications may not be based on historical facts and are "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Forward looking statements may be identified by reference to
a future period or periods, or by the use of forward looking terms such as
"may", "will", "expect", "anticipate", or similar terms. Actual results could
materially differ from those in the forward-looking statements due to a variety
of factors.

         Preparation of Trust's financial statements are based upon the
operating results of the Trust. Management's discussion and analysis of the
results of operation for the years ended December 31, 2002, December 31, 2001,
and December 31, 2000 follow.

         OVERVIEW

         In May of 1997, the Trust registered its common shares with the
Securities and Exchange Commission under the Securities Act of 1933. On
September 30, 1998, the initial public offering of Common Shares was completed.
As of October 1, 1998, 1,484,740 Common Shares were issued and outstanding.
Since October 1, 1998, the common shares are listed on the American Stock
Exchange with the exchange symbol of "CAA".

         On November 17, 2000, the Trust duly approved a one share for each
three share reverse stock split of its Common and Preferred Shares which became
effective at the close of business on May 11, 2002. After the split,
approximately 494,913 Common Shares were issued and outstanding and 213,761
Preferred Shares were issued and outstanding. These outstanding totals include
27,160 Common Shares and 3,176 Preferred Shares held in the Treasury as of May
11, 2001.

         CRITICAL ACCOUNTING POLICIES

         The accounting and reporting policies of the Company are in accordance
with accounting principles generally accepted in the United States of America.
The Company's significant accounting policies are described in the notes to the
consolidated financial statements. Certain accounting policies require
management to make significant estimates and assumptions, which have a material
impact on the carrying value of certain assets and liabilities, and the Company
considers these to be critical accounting policies. The estimates and
assumptions used are based on historical experience and other factors, which
management believes to be reasonable under the circumstances. Actual results
could differ significantly from these estimates and assumptions, which could
have a material impact on the carrying value of assets and liabilities at the
balance sheet dates and results of operations for the reporting periods.

         The Company believes the following are critical accounting policies
that require the most significant estimates and assumptions that are
particularly susceptible to a significant change in the preparation of the
Company's financial statements.

Loan loss reserves. A provision for loan losses in based on management's
evaluation of an amount that is adequate to absorb losses inherent in the
existing loan portfolio. The evaluation, which includes a review of all loans on
which full collection may not be reasonable assumed, considers among other
matters, general economic conditions, the fair market value or the estimated net
realizable value of the underlying collateral, past loan loss experience,

                                       16
<PAGE>
trends in loan delinquency and other factors that warrant recognition in
providing for an adequate loan loss allowance to absorb inherent losses.
However, the recovery of all loan balances is susceptible to future market
forces beyond the Company's control.

Real estate owned. Real estate owned represents property acquired in foreclosure
of mortgage notes receivable. The real estate is carried at the lower of the
value of the mortgage note receivable less selling costs on the real estate or
fair market value. Certain estimates and assumptions are required in determining
the cost to sell or in estimating the fair market value of the real estate.

Interest recognition. The Company accrues interest income as it is earned. Loans
may be placed on a nonaccrual status when any portion of the principal or
interest is three scheduled payments past due or earlier when concern exists as
to the ultimate collectibility of principal or interest. Nonaccrual status loans
are returned to an accrual status when principal and interest become current and
are anticipated to be fully collectible.

Stock option. The Trust has issued stock options to certain employees of the
Manager and to its Directors. The stock options issued are accounted for using
the intrinsic-value method. Because the options were issued with exercise prices
no less than the market price of the Trust's common stock on the dates of grant
and because other key terms are fixed, use of the intrinsic-value method results
in the Trust not recognizing compensation expense for these options. If the
terms of these options were changed, variable accounting might need to be used,
and the Trust might then need to begin recognizing compensation expense for the
options.

Equity method of accounting. The Trust's 99% economic interest in CAFC is
presented in the Trust's financial statements according to the equity method of
accounting. This presentation requires the Trust to report the CAFC interest as
an investment. Included in the footnotes to the Trust's financial statements are
CAFC's Balance Sheet as of December 31, 2002 and December 31, 2001 and the
Statement of Operations for the year ended December 31, 2002 and December 31,
2001. If required, consolidation of CAFC's financial information into the Trust
may materially change the Trust's financial statement balances, but would not
affect the Trust's net income or the earnings per common share calculations.
FASB Interpretation No. 46 may require consolidation commencing with the Trust's
June 30, 2003 reporting period.

Management has discussed the Company's critical accounting policies and the
development, selection and disclosure of the estimates and alternatives with the
Audit Committee of the Board of Directors and obtained their approval prior to
filing this report with the Securities and Exchange Commission.

         Operating Strategy. The Trust invests as a portfolio lender primarily
in non-conforming mortgage loans on one-to-four unit residential properties
primarily secured by first and second deeds of trust. Management believes that
this segment of the mortgage market is inadequately served and that there is a
large demand for non-conforming mortgage loans with a complete spectrum of
credit grades.

         CAFC's operating strategy is to originate, through mortgage loan
brokers and a correspondent network, conforming and non-conforming home equity
loans to be sold to the Trust and to be sold in the secondary mortgage market
for cash. Although the loans currently made are concentrated in California, CAFC
plans to originate and/or purchase loans on both an individual and bulk basis
throughout the western United States. Loans will then be sold into the secondary
market for a premium or to the Trust at fair market value, when they meet the
Trust's underwriting standards (which include a combined loan-to-value ratio
that does not exceed 75% of the underlying collateral).

         Loan Origination and Loan Servicing. Mortgage loan origination consists
of establishing a relationship with a borrower or his broker, obtaining and
reviewing documentation concerning the credit rating and net worth of borrowers,
inspecting and appraising properties that are proposed as the collateral for a
home equity loan, processing such information and underwriting and funding the
mortgage loan. Mortgage loan servicing consists of collecting payments from
borrowers, accounting for interest payments, holding borrowed proceeds in escrow
until fulfillment of mortgage loan requirements, contacting delinquent
borrowers, foreclosing in the event of unremedied defaults and performing

                                       17
<PAGE>
other administrative duties. Mortgage loan origination and loan servicing are
provided to the Trust by CAAI, its Manager.

         Contingencies and Commitments. As of December 31, 2002, the Trust owned
a loan portfolio of $19,906,392 consisting of 100 loans, of which 16 loans
totaling $3,714,094 or 19% of the portfolio loan value were delinquent over 60
days. As of March 31, 2003, 12 of the delinquent loans were brought current or
paid off. Four loans totaling $837,788 or 4% of the December 31, 2002 portfolio
balance remained delinquent. As of December 31, 2002, the Trust held 0
properties as real estate investments.

         As of December 31, 2001, the Trust owned a loan portfolio of
$17,738,923 consisting of 99 loans of which 13 loans totaling $1,543,353 or 8%
of the portfolio loan value were delinquent over 60 days. The Trust's real
estate investments included two properties held for sale at a carrying value of
$234,527.

         In assessing the delinquent mortgage loans, management estimates a net
gain will be recognized, if it is necessary to foreclose on the delinquent
mortgage loans due the Trust. Management's estimate is based on an anticipated
sales price of the foreclosed property that includes a discount from the latest
appraised value of the property, less the sum of pre-existing liens, costs of
sale, the face amount of the mortgage loan and accrued interest receivable.

         The Trust generally issues loan commitments only on a conditional basis
and generally funds such loans promptly upon removal of all conditions.
Accordingly, the Trust did not have any commitments to fund loans as of December
31, 2002 and December 31, 2001.

<TABLE>
<CAPTION>
        Maximum Other          Total Amounts
 Commercial Commitments (a)      Committed                 Amount of Commitment Expiration Per Period
   as of December 31, 2002
------------------------------ --------------   ---------------------------------------------------------------
                                                 Less than                             4 - 5           After 5
                                                   1 year         1 - 3 years          years            years
                                                   ------         -----------          -----            -----
<S>                             <C>              <C>              <C>                    <C>              <C>
Lines of Credit (b)             $14,133,248      $4,133,248       $10,000,000            0                0

Standby Repurchase                  (c)              0                 0                 0                0
Obligations

Total Commercial Commitments    $14,133,248      $4,133,248       $10,000,000            0                0
</TABLE>

(a)  Commercial commitments are funding commitments that could potentially
     require registrant performance in the event of demands by third parties or
     contingent events, such as under lines of credit extended or under
     guarantees of debt.

(b)  Maximum potential liability. Actual amounts outstanding as of December 31,
     2002 due in less than 1 year was $3,973,248 and due in 1-3 years was
     $6,999,102.

(c)  The Company's mortgage conduit business has an unquantified ongoing
     liability with respect to normal warranties and representations which
     includes fraud in the origination process or early default on loans sold
     into the secondary mortgage market.

         YEAR ENDED DECEMBER 31, 2002
         COMPARED TO YEAR ENDED DECEMBER 31, 2001

         Revenues for the year ended December 31, 2002 increased to $2,866,253
as compared to $2,858,179 for 2001. The Trust's larger mortgage portfolio
provided $764,840 of additional interest income, interest income from affiliates
borrowings decreased $294,068 on account of decreased borrowings. Investment
income decreased by $406,778 on account of CAFC's loss. Other income for the
year ended December 31, 2002 decreased on account of fewer prepayment fees from
early mortgage payoffs.

                                       18
<PAGE>
         At year ended December 31, 2002, the mortgage notes receivable balance
was $2,167,468 greater than the year ended December 31, 2001 mortgage notes
receivable balance. At year ended December 31, 2002, the warehouse lines of
credit balance to related parties was $834,468 less than the year ended December
31, 2001 warehouse lines of credit. At year ended December 31, 2002, the real
estate held for sale balance was $234,527 less than the year ended December 31,
2001 balance.

         Expenses for the year ended December 31, 2002 increased to $1,724,753
as compared to $1,695,147 for the previous year. The increase in 2002 compared
to 2001 is due to higher compensation to the Manager of $41,877, and increased
general and administrative expenses of $31,143. During 2002, interest expenses
on loans from unrelated parties declined $30,418, amortization expenses declined
$29,262, and tax expenses declined $12,580.

         The 2002 and 2001 gains or losses from sales of real estate held and
real estate owned operating expenses were reported as a separate line item and
did not reduce either year's expenses or increase either year's revenues.

         Net Income for the year ended December 31, 2002 was $1,108,264. Net
Income for the year ended December 31, 2001 was $1,142,898.

         INFLATION

         The financial statements of the Trust, prepared in accordance with
accounting principles generally accepted in the United States of America, report
the Trust's financial position and operating results in terms of historical
dollars and does not consider the impact of inflation. Inflation affects the
Trust's operation primarily through the effect on interest rates, since interest
rates normally increase during periods of high inflation and decrease during
periods of low inflation. When interest rate increase, the demand for mortgage
loans and a borrower's ability to qualify for mortgage financing may be
adversely affected.

         LIQUIDITY AND CAPITAL RESOURCES

         As of January 1, 2003, the Trust has lines of credit of $10,000,000 and
$4,000,000 with two different lenders. Management believes that cash flow from
operations, the mortgage loans that are paid off, existing bank loan facilities,
additional lines of credit anticipated to be acquired during 2003 and if
necessary, the limited sale of investment mortgages will be sufficient to meet
the liquidity needs of the Trust's businesses for the next twelve months.

         LIQUIDITY AND CAPITAL RESOURCES
         FOR THE YEAR ENDED DECEMBER 31, 2002

         As of January 1, 2002, the Trust had $441,909 of cash and cash
equivalents. After taking into effect the various transactions discussed below,
cash and cash equivalents at December 31, 2002 were $494,443. The following
summarizes the changes in net cash provided by operating activities, net cash
used for investing activities and net cash provided by financing activities.

         The principal source of the Trust's increased liquidity was from
operating activities. The primary us of cash was investing activities.

         Net cash provided by the operating activities during the year ended
December 31, 2002 was $937,970. Net Income of $1,108,264 and the non-cash
provision for loan losses of $195,000 were the primary providers of cash. The
primary operating activity use of cash was the increase in affiliates
receivables of $254,023.

         Net cash of $1,283,968 was used in investing activities. $14,195,708
was invested in mortgage notes receivable and repayments provided $11,378,857.

                                       19
<PAGE>
         Net cash provided by financing activities during the year ended
December 31, 2002 was $398,532. The primary provider of cash from financing
activities was $1,359,058 drawn from bank lines of credit. Net treasury stock
sales of $79,150 also provided cash from financing activities. Dividends paid of
$1,020,176 was the largest use of cash from financing activities.

         LIQUIDITY AND CAPITAL RESOURCES
         FOR THE YEAR ENDED DECEMBER 31, 2001

         As of January 1, 2001, the Trust had $368,241 of cash and cash
equivalents. After taking into effect the various transactions discussed below,
cash and cash equivalents at December 31, 2001 were $441,909. The following
summarizes the changes in net cash provided by operating activities, net cash
used for investing activities and net cash provided by financing activities.

         Net cash used in investing activities was $5,221,000. Investments in
mortgage notes receivable used $15,500,173 and repayments provided $9,486,695.

         Net cash provided by the operating activities during the year ended
December 31, 2001 was $1,185,533. Net income of $1,142,898 and the non-cash
provision for loan losses of $203,549 were the primary suppliers of cash. The
primary operating activity use of cash was CAFC's net income of $381,156.

         Net cash provided in financing activities during the twelve months
ended December 31, 2001 was $4,109,760. The principal generator and of cash from
financing activities was $5,875,781 provided from bank lines of credit.
Dividends paid of $966,709 net treasury stock purchases of $791,812 were the
largest users of cash from financing activities.

         QUANTITATIVE AND QUALITATIVE
         DISCLOSURE ABOUT MARKET RISK

         Market Risk. Market risk is the exposure to loss resulting from changes
in interest rates, credit spreads, foreign exchange rates, commodity prices, and
equity prices. The primary market risks to which the Trust is exposed are
interest rate risk and credit risk.

         Interest Risk. Interest rate risk is highly sensitive to many factors,
including governmental, monetary and tax policies, domestic and international
economic and political considerations and other factors beyond the control of
the Trust. Changes in the general level of the U.S. Treasury yield curve can
have significant effects on the market value of the Trust's portfolio. The
majority of the Trust's assets are fixed-rate loans with a spread to U.S.
Treasuries. The Trust's loans are valued on the December 31, 2002 balance sheet
at the lower of cost or market.

         As U.S. Treasury securities are priced to a lower yield and/or the
spread to U.S. Treasuries used to price the Trust's assets are decreased, the
market value of the Trust's portfolio may increase. Conversely, as U.S. Treasury
securities are priced to a higher yield and/or the spread to U.S. Treasuries
used to price the Trust's assets is increased, the market value of the Trust's
portfolio may decline. Changes in the level of the U.S. Treasury yield curve can
also affect, among other things, the prepayment assumptions used to value
certain of the Trust's loans. In addition, changes in the general level of the
LIBOR money market rates can affect the Trust's net interest income. The
majority of the Trust's liabilities are floating rate based on a spread over one
month LIBOR. A portion of the Trust's liabilities are also based on a spread
over the daily Prime Rate. As the level of LIBOR and/or the Prime Rate increases
or decreases, the Trust's interest expense will move in the same direction.

         On account of the relatively short adjusted weighted average maturity
of the Trust's portfolio (29.71 months), a variety of financial instruments
available to limit the effects of interest rate fluctuations on its operations
have not been utilized. The use of these types of derivatives (such as interest
rate swaps, caps, floors and other interest rate exchange contracts) to hedge
interest-earnings assets and/or interest-bearing liabilities carry risks,
including the risk that the net losses on a hedge position may exceed the amount
invested in such instruments. As the level of variable rate mortgage financing

                                       20
<PAGE>
of the portfolio increases or the weighted average maturity of the portfolio
increases, the Trust may utilize a variety of financial instruments to limit the
effects of interest rate fluctuations.

         Credit Risk. Credit risk is the exposure to loss from loan defaults and
foreclosures. Default and foreclosure rates are subject to a wide variety of
factors, including, but not limited to, property values, supply/demand factors,
construction trends, consumer behavior, regional economics, interest rates, the
strength of the American economy and other factors beyond the control of the
Trust.

         All loans are subject to a certain probability of default and
foreclosure. An increase in default rates will reduce the book value of the
Trust's assets and the Trust's earnings and cash flow available to fund
operations and pay dividends.

         The Trust manages credit risk through the underwriting process,
limiting loans at the time of funding to 75% of the collateral's appraised
value, establishing loss assumptions and carefully monitoring loan performance.
Nevertheless, the Trust assumes that a certain portion of its loans will default
and adjusts the allowance for loan losses based on that assumption. For purposes
of illustration, a doubling of the reserve for loan losses in the Trust's
portfolio for 2002 would reduce the 2002 GAAP income applicable to common
shareholders by $310,000 or 30%.

         Asset and Liability Management. Asset and liability management is
concerned with the timing and magnitude of the maturity of assets and
liabilities. In general, management's strategy is to approximately match the
term of the Trust's liabilities to the portfolio's adjusted weighted average
maturity (29.71 months).

         The majority of the Trust's assets pay a fixed coupon and the income
from such assets are relatively unaffected by interest rate changes. The Trust's
borrowings are currently under variable rate lines of credit that reset monthly.
Given this relationship between assets and liabilities, the Trust's interest
rate sensitivity gap is highly negative. This implies that a period of falling
short term interest rates will tend to increase the Trust's net interest income,
while a period of rising short term rates will tend to reduce the Trust's net
interest income.


ITEM 7. FINANCIAL STATEMENTS

         The following Company financial statements are filed as part of this
report:

        Independent Auditors' Report ........................................F-1
        Balance Sheets ......................................................F-2
        Statements of Operation .............................................F-3
        Statements of Changes in Stockholders' Equity .......................F-4
        Statements of Cash Flows ............................................F-5
        Notes to Financial Statements .......................................F-6

         Selected Quarterly Financial Data required by Item 302(a) of Regulation
S-K is set forth in the financial statements filed as part of Registrant's Form
10-Qs for the quarters ended March 31, 2002, June 30, 2002 and September 30,
2002 are incorporated herein by reference and filed as part of this report.

         The unaudited 2002 and 2001 fourth quarter operating statement is
presented below with the accompanying notes to the operating statement
incorporated herein by reference to the Financial Statements with Independent
Auditor's Report for the two year period ended December 31, 2002.

                                       21
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.
                         A REAL ESTATE INVESTMENT TRUST

                            STATEMENTS OF OPERATIONS
                                   (unaudited)

                                                          Three months ended
                                                              December 31
                                                           2002         2001
                                                           ----         ----
REVENUES
       Interest income                                  $ 665,113    $ 560,025
       Interest income from affiliates                     51,290       81,881
       Equity in gain (loss) of affiliate                   9,278       49,908
       Other income                                         1,712       39,437
                                                        ---------    ---------
           Total revenues                                 727,393      731,251
                                                        ---------    ---------

EXPENSES
       Loan servicing fees to related parties              97,109       96,594
       Management fees to related parties                  76,532      102,229
       Interest expense on loans                           98,876       51,364
       Interest expense on loans from related parties       9,456       22,657
       Provision for loan losses                          100,000       60,162
       Taxes                                               (3,704)      10,802
       Amortization                                         3,900        8,697
       General and administrative                          54,200       77,981
                                                        ---------    ---------
             Total expenses                               436,369      430,486
                                                        ---------    ---------

INCOME BEFORE GAIN (LOSS) ON REO                        $ 291,024    $ 300,765
                                                        ---------    ---------
       Operating expenses of REO                           (1,010)        --
       Gain (Loss) on Real Estate Owned                    (7,000)        --
                                                        ---------    ---------

NET INCOME                                              $ 283,014    $ 300,765
                                                        =========    =========

PREFERRED DIVIDENDS                                     $  87,257    $ 104,709
                                                        ---------    ---------

NET INCOME AVAILABLE TO COMMON                          $ 195,757    $ 196,056
                                                        =========    =========

BASIC EARNINGS PER
       COMMON SHARE                                     $    0.47    $    0.48

DILUTED EARNINGS PER
       COMMON SHARE                                     $    0.39    $    0.33

DIVIDENDS PAID PER
       PREFERRED SHARE                                  $    0.41    $    0.50

DIVIDENDS PAID PER
       COMMON SHARE                                     $    0.45    $    0.28

WEIGHTED AVERAGE COMMON
       SHARES - BASIC                                     418,923      406,095

WEIGHTED AVERAGE COMMON
       SHARES - DILUTED                                   505,550      587,720


                 See accompanying notes to financial statements.

                                       22
<PAGE>
                                   NOVOGRADAC
                                  & COMPANY LLP

                          CERTIFIED PUBLIC ACCOUNTANTS
--------------------------------------------------------------------------------
ATLANTA                          SAN FRANCISCO                    WASHINGTON, DC
KANSAS                                                                    AUSTIN



            Report of Novogradac & Company LLP, Independent Auditors


To the Board of Directors and Stockholders of
     Capital Alliance Income Trust Ltd., A Real Estate Investment Trust:

We have audited the accompanying balance sheets of Capital Alliance Income Trust
Ltd., A Real Estate Investment Trust, as of December 31, 2002 and 2001, and the
related statements of operations, changes in stockholders' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Trust's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Capital Alliance Income Trust
Ltd., A Real Estate Investment Trust as of December 31, 2002 and 2001, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.


                                                    /s/ Novogradac & Company LLP

San Francisco, California
March 31, 2003




FIRST STREET 5TH FLOOR SAN FRANCISCO CALIFORNIA 94105 TELEPHONE (415) 356-8000
FACSIMILE (415) 356-8001
HTTP://WWW.NOVOCO.COM

<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                                 Balance Sheets
                           December 31, 2002 and 2001

<TABLE>
<CAPTION>
<S>                                                                              <C>             <C>
ASSETS                                                                                 2002            2001
------                                                                                 ----            ----

    Cash and cash equivalents                                                    $    494,443    $    441,909
    Restricted cash                                                                   519,321       1,285,382
    Marketable securities                                                               8,215            --
    Accounts receivable                                                               489,946         292,588
    Other assets, net                                                                   7,453          23,062
    Due from affiliates                                                               129,758             890
    Notes receivable:
       Warehousing facilities to related parties                                    3,382,940       4,217,408
       Mortgage notes receivable                                                   19,906,391      17,738,923
       Allowance for loan losses                                                     (310,000)       (180,000)
                                                                                 ------------    ------------
          Net notes receivable                                                     22,979,331      21,776,331
    Real estate owned                                                                    --           234,527
    Investments in affiliate                                                        1,080,930       1,062,210
    Origination costs, net                                                            264,060         227,392
                                                                                 ------------    ------------

    Total assets                                                                 $ 25,973,457    $ 25,344,291
                                                                                 ============    ============

LIABILITIES AND STOCKHOLDERS EQUITY

    Liabilities
         Mortgage note holdbacks                                                 $    519,321    $  1,285,382
         Loans payable                                                             10,972,350       9,613,292
         Due to affiliate                                                               2,719         127,874
         Other liabilities                                                            219,011         223,202
                                                                                 ------------    ------------
    Total liabilities                                                              11,713,401      11,249,750

    Stockholders' equity
       Preferred stock, $.01 par value; 430,000 shares authorized;                      2,138           2,138
           213,820 shares issued and outstanding at December 31, 2002 and 2001
       Additional paid in capital - preferred stock                                 5,669,123       5,669,123
         Less treasury stock: 3,176 preferred shares
              at December 31, 2002 and 2001 at cost                                   (86,944)        (86,944)

       Common stock, $.01 par value; 1,700,000 shares authorized;                       4,952           4,952
           495,161 shares issued and outstanding at December 31, 2002 and 2001
       Additional paid in capital - common stock                                    9,370,895       9,370,895
    Less treasury stock: 71,017 and 85,066 common shares at
    December 31, 2002 and 2001, respectively                                         (962,662)     (1,041,812)
       Accumulated other comprehensive income                                          (1,723)           --
       Retained earnings                                                              264,277         176,189
                                                                                 ------------    ------------

    Total stockholders' equity                                                     14,260,056      14,094,541
                                                                                 ------------    ------------

    Total liabilities and stockholders' equity                                   $ 25,973,457    $ 25,344,291
                                                                                 ============    ============
</TABLE>

                See accompanying notes to financial statements.

                                      F-2
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                            Statements of Operations
                 For the years ended December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                             2002           2001
                                                             ----           ----
<S>                                                     <C>            <C>
REVENUES
       Interest income                                  $ 2,658,051    $ 1,893,211
       Interest income from affiliates                      216,167        510,235
       Equity in gain (loss) of affiliate                   (25,642)       381,156
       Other income                                          17,677         73,577
                                                        -----------    -----------
           Total revenues                                 2,866,253      2,858,179

EXPENSES
       Loan servicing fees to related parties               451,638        397,923
       Management fees to related parties                   288,119        268,230
       Interest expense on loans                            433,566        463,984
       Interest expense on loans from related parties        28,325         22,657
       Provision for loan losses                            195,000        203,549
       Taxes                                                 19,987         32,567
       Amortization                                          37,363         66,625
       General and administrative                           270,755        239,612
                                                        -----------    -----------
             Total expenses                               1,724,753      1,695,147
                                                        -----------    -----------

INCOME BEFORE GAIN (LOSS) ON REAL
    ESTATE OWNED                                          1,141,500      1,163,032
       Operating expenses of real estate owned               (3,709)       (20,134)
       (Loss) on real estate owned                          (29,527)          --
                                                        -----------    -----------

NET INCOME                                              $ 1,108,264    $ 1,142,898
                                                        ===========    ===========

PREFERRED DIVIDENDS                                         350,205        498,607
                                                        -----------    -----------

NET INCOME AVAILABLE TO COMMON                          $   758,059    $   644,291
                                                        ===========    ===========

BASIC EARNINGS PER
       COMMON SHARE                                     $      1.81    $      1.46

DILUTED EARNINGS PER
       COMMON SHARE                                     $      1.50    $      1.05

DIVIDENDS PAID PER
       PREFERRED SHARE                                  $      1.66    $      2.37

DIVIDENDS PAID PER
       COMMON SHARE                                     $      1.60    $      1.05

WEIGHTED AVERAGE COMMON
       SHARES - BASIC                                       418,923        442,371

WEIGHTED AVERAGE COMMON
       SHARES - DILUTED                                     505,550        614,996
</TABLE>

                See accompanying notes to financial statements.

                                      F-3
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                  Statements of Changes in Stockholder's Equity
                 For the years ended December 31, 2002 and 2001

<TABLE>
<CAPTION>
                                                                    Preferred                                Common
                                                                    Additional                             Additional
                                          Preferred    Preferred      Paid in     Common       Common       Paid in
                                            Shares      Stock        Capital      Shares       Stock        Capital
                                            ------      -----        -------      ------       -----        -------

<S>                                        <C>        <C>         <C>           <C>          <C>          <C>
BALANCE, JANUARY 1, 2001                   631,757    $  6,413    $ 5,664,848   1,403,261    $  14,847    $ 9,361,000
Three-to-one reverse stock split           421,113)     (4,275)         4,275    (935,260)      (9,895)         9,895
Purchase of Treasury Stock                    --          --             --       (63,906)        --             --
Exercise of options for common stock          --          --             --         6,000         --             --
Net income and comprehensive income           --          --             --          --           --             --
Dividends                                     --          --             --          --           --             --
                                                      --------    -----------   ---------    ---------    -----------

BALANCE, DECEMBER 31, 2001                 210,644       2,138      5,669,123     410,095        4,952      9,370,895
Purchase of Treasury Stock                    --          --             --        (6,900)        --             --
Exercise of options for common stock          --          --             --        20,949         --             --
Comprehensive income:
Unrecognized loss from available-for-sale
marketable securities                         --          --             --          --           --             --
Net income                                    --          --             --          --           --             --

Total comprehensive income                    --          --             --          --           --             --
Dividends                                     --          --             --          --           --             --
                                                      --------    -----------   ---------    ---------    -----------

BALANCE, DECEMBER 31, 2002                 210,644    $  2,138    $ 5,669,123     424,144    $   4,952    $ 9,370,895
                                           =======    ========    ===========   =========    =========    ===========
</TABLE>
(Table continued)
<TABLE>
<CAPTION>
                                                           Accumulated
                                              Treasury       Other        Retained
                                               Stock         Income       Earnings         Total
                                               -----         ------       --------         -----

<S>                                        <C>             <C>         <C>             <C>
BALANCE, JANUARY 1, 2001                   $   (336,944)   $   --      $       --      $ 14,710,164
Three-to-one reverse stock split                   --          --              --              --
Purchase of Treasury Stock                     (845,812)       --              --          (845,812)
Exercise of options for common stock             54,000        --              --            54,000
Net income and comprehensive income                --          --         1,142,898       1,142,898
Dividends                                          --          --          (966,709)       (966,709)
                                           ------------    --------    ------------    ------------

BALANCE, DECEMBER 31, 2001                   (1,128,756)       --           176,189      14,094,541
Purchase of Treasury Stock                     (174,949)       --              --          (174,949)
Exercise of options for common stock            254,099        --              --           254,099
Comprehensive income:
Unrecognized loss from available-for-sale
marketable securities                              --        (1,723)           --            (1,723)
Net income                                         --          --         1,108,264       1,108,264
                                                                                       ------------
Total comprehensive income                         --          --              --         1,106,541
Dividends                                          --          --        (1,020,176)     (1,020,176)
                                           ------------    --------    ------------    ------------

BALANCE, DECEMBER 31, 2002                 $ (1,049,606)   $ (1,723)   $    264,277    $ 14,260,056
                                           ============    ========    ============    ============
</TABLE>

                See accompanying notes to financial statements.

                                      F-4
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                            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                                                       $  1,108,264    $  1,142,898
     Adjustments to reconcile net income to net cash provided by
     operating activities:
       Amortization                                                         37,363          66,625
       Provision for loan losses                                           195,000         203,549
       Loss on real estate owned                                            29,527            --
       Equity in (gain) loss of affiliate                                   25,642        (381,156)
       (Increase) decrease in accounts receivable                         (197,358)          1,004
       Increase in other assets
             (adjusted for: amortization and capitalized loan fees)         (2,254)           --
       Increase (decrease) in due to / due from affiliates                (254,023)         84,794
       Increase (decrease) in other liabilities                             (4,191)         67,819
                                                                      ------------    ------------
         Net cash provided by operating activities                         937,970       1,185,533

CASH FLOWS FROM INVESTING ACTIVITIES
     Investment in marketable securities                                    (9,938)           --
     Increase in origination costs                                         (36,668)        (30,261)
     Decrease in warehousing facilities                                    834,468         527,266
     Investments in mortgage notes receivable                          (14,195,708)    (15,500,173)
     Repayments of mortgage notes receivable                            11,378,857       9,486,695
     Net proceeds from sale of real estate owned                           745,021         295,473
                                                                      ------------    ------------
       Net cash used in investing                                       (1,283,968)     (5,221,000)

CASH FLOWS FROM FINANCING ACTIVITIES
     Proceeds from loans payable                                         1,359,058       5,875,781
     Loan fees paid                                                        (19,500)         (8,125)
     Purchase of treasury stock                                           (174,949)       (845,812)
     Sale of treasury stock                                                254,099          54,000
     Preferred dividends paid                                             (350,205)       (498,607)
     Common dividends paid                                                (669,971)       (468,102)
                                                                      ------------    ------------
       Net cash provided by financing activities                           398,532       4,109,135

NET INCREASE IN CASH AND CASH EQUIVALENTS                                   52,534          73,668
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                             441,909         368,241
                                                                      ------------    ------------

CASH AND CASH EQUIVALENTS AT END OF YEAR                              $    494,443    $    441,909
                                                                      ============    ============

SUPPLEMENTAL CASH FLOW INFORMATION:
     Cash paid for interest                                           $    466,210    $    454,456
     Cash paid for taxes                                              $     19,987    $     32,567

NON-CASH INVESTING AND FINANCING ACTIVITIES:
     Transfer/sale of mortgage notes receivable to CAFC               $     44,362    $     77,595
</TABLE>

                See accompanying notes to financial statements.

                                      F-5
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

1.   Organization
     ------------

     Capital Alliance Income Trust Ltd., A Real Estate Investment Trust (the
     "Trust"), a Delaware corporation, invests primarily in mortgage loans
     secured by real estate. The Trust was formed December 12, 1995 as a
     mortgage investment trust, which invests primarily in loans secured by
     deeds of trust on one-to-four unit residential properties as the loan's
     primary collateral.

     The Trust acquired an investment in Capital Alliance Funding Corporation
     ("CAFC"), a taxable subsidiary, during the second quarter of 1997. The
     investment in CAFC is accounted for by the equity method and its financial
     statements are not consolidated with those of the Trust. The Trust holds
     100% of the non-voting preferred stock of CAFC with a 99% economic interest
     in CAFC. CAFC acquires loans for sale, secured by deeds of trust on
     one-to-four unit residential property as the loans primary collateral. The
     investment in CAFC is reported in "Investment in affiliate" on the Trust's
     balance sheets and in "Equity in gain (loss) of affiliates" in the Trust's
     statement of operations. CAFC's audited balance sheets and statements of
     operations are summarized in Note 10.

     Capital Alliance Advisors, Inc. (the "Manager") originates, services and
     sells the Trust's and CAFC's loans.

     Basis of accounting. The Trust prepares its financial statements on the
     accrual basis of accounting consistent with accounting principles generally
     accepted in the United States of America. The Trust's year-end for tax and
     financial reporting purposes is December 31.

     Use of estimates. The preparation of financial statements in conformity
     with accounting principles generally accepted in the United States of
     America requires management to make estimates and assumptions that affect
     the amounts reported in the financial statements and accompanying notes.
     Actual results could differ from those estimates.

     Cash and cash equivalents. Cash and cash equivalents include cash and
     liquid investments with an original maturity of three months or less. The
     Trust deposits cash in financial institutions insured by the Federal
     Deposit Insurance Corporation. At times, the Trust's account balances may
     exceed the insured limits.

     Marketable securities. Marketable securities are classified as either
     trading, or available-for-sale. Management has not acquired any securities
     positions classified as trading securities. Trading securities, if
     acquired, would be reported at fair value, and changes in their fair value
     would be reported in the statement of operations. Available-for-sale
     securities are reported at fair value with unrealized gains and losses
     excluded from earnings and reported in accumulated other comprehensive
     income. Realized gains and losses on sales of both trading and
     available-for-sale securities are determined on an average cost basis and
     are reported in the statement of operations.

     Concentration of credit risk. The Trust holds numerous mortgage notes
     receivable. These notes are secured by deeds of trust on residential
     properties located primarily in California, which results in a
     concentration of credit risk. The value of the loan portfolio may be
     affected by changes in the economy or other conditions of the geographical
     area.

     Loan loss reserve. Management reviews its loan loss provision periodically
     and the Trust maintains an allowance for losses on mortgage notes
     receivable at an amount that management believes is

                                      F-6
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

2. Summary of significant accounting policies and nature of operations
     -------------------------------------------------------------------

     sufficient to protect against potential losses inherent in the loan
     portfolio. The Trust's actual losses may differ from the estimate. Accounts
     receivable deemed uncollectible are written off. The Trust does not accrue
     interest income on impaired loans.

     Real estate owned. Real estate owned results from foreclosure of mortgage
     notes receivable and at time of foreclosure is recorded at the lower of
     carrying amount or fair value of the property minus estimated costs to
     sell. Subsequent to foreclosure, the foreclosed asset value is periodically
     reviewed and is adjusted to fair value. No depreciation is taken on the
     real estate owned. Income and expenses related to real estate owned are
     recorded as rental income, interest expense and operating expenses of real
     estate owned in the statements of operations.

     Investments. The Trust owns 100% of the non-voting preferred shares and has
     a 99% economic interest in CAFC. As the Trust does not own the voting
     common shares of CAFC or control CAFC, its investment in CAFC is presented
     by the equity method of accounting. Under this method, original equity
     investments are recorded at cost and adjusted by the Trust's share of
     earnings or losses and decreased by dividends received (Note 10).

     Origination costs. Origination costs relating to mortgage notes receivable
     are capitalized and amortized over the term of the mortgage notes
     receivable.

     Impairment policy. Statement of Financial Accounting Standards No. 144,
     "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS No.
     144), was adopted by the Company effective January 1, 2002. SFAS No. 144,
     which replaces SFAS No. 121, "Accounting for the Impairment of Long-Lived
     Assets and for Long-Lived Assets to be disposed of", institutes one
     accounting model for long-lived assets to be disposed of based on the
     framework established by SFAS No. 144, which requires that long-lived
     assets to be disposed of be measured at the lower of carrying amount or
     fair market value less cost to sell. The adoption of the statement did not
     have a significant impact on the Company's financial condition or results
     of operation.

     Fair value of financial instruments. For cash and cash equivalents, the
     carrying amount is a reasonable estimate of fair value. For mortgage notes
     receivable, fair value is estimated by discounting the future cash flows
     using current interest rates at which similar loans would be made to
     borrowers with similar credit ratings and for the same remaining
     maturities. It was determined that the difference between the carrying
     amount and the fair value of the mortgage notes receivable is immaterial.
     For loans payable, fair value is estimated by discounting the future cash
     flows using current interest rates as determined by the Trust's current
     borrowing rates. It was determined that the difference between the carrying
     amount and the fair value of loans payable is immaterial.

     Income taxes. The Trust intends at all times to qualify as a real estate
     investment trust ("REIT") for federal income tax purposes, under Sections
     856 through 860 of the Internal Revenue Code of 1986, as amended and
     applicable Treasury Regulations. Therefore, the Trust generally will not be
     subject to federal corporate income taxes if the Trust distributes at least
     90% of its taxable income to its stockholders. To qualify as a REIT, the
     Trust must elect to be so treated and must meet on a continuing basis
     certain requirements relating to the Trust's organization, sources of
     income, nature of assets, and distribution of income to stockholders. The
     Trust must maintain certain records and request certain information from
     its stockholders designed to disclose actual ownership of its stock.

                                      F-7
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

2. Summary of significant accounting policies & nature of operations
     -----------------------------------------------------------------
     (continued)
     -----------

     In addition the Trust must satisfy certain gross income requirements
     annually and certain asset tests at the close of each quarter of its
     taxable year.

     If the Trust fails to qualify for taxation as a REIT in any taxable year,
     and the relief provisions do not apply, the Trust will be subject to tax on
     its taxable income at regular corporate rates. Distributions to
     stockholders in any year in which the Trust fails to qualify will not be
     deductible by the Trust nor will they be required to be made. Unless
     entitled to relief under specific statutory provisions, the Trust will also
     be disqualified from taxation as a REIT for the four taxable years
     following the year during which qualification was lost.

     Based on the Trust's belief that it has operated in a manner so as to allow
     it to be taxed as a REIT since inception, no provision for federal income
     taxes has been made in the financial statements. For the years ended
     December 31, 2002 and 2001, the dividends paid per Preferred Share and
     Common are allocated 100% as ordinary income.

     State taxes. The state of Delaware imposed a tax on the capitalization of
     the Trust. The Trust expensed $19,187 and $31,767 for these taxes in 2002
     and 2001. The Trust paid $800 in franchise tax to the state of California
     in 2002 and 2001.

     Stock options. Statement of Financial Accounting Standards No. 148 (SFAS
     No. 148) "Accounting for Stock-Based Compensation - - Transition and
     Disclosure" was issued in December of 2002. This Statement amends Statement
     of Financial Accounting Standards No.123 (SFAS No. 123), "Stock-Based
     Compensation," to provide alternative methods of transition for a voluntary
     change to the fair value based method of accounting for stock-based
     compensation. In addition, the Statement amends the disclosure requirements
     of SFAS No. 123 to require prominent disclosures in both annual and interim
     financial statements about the method used on reported results. The
     alternative methods of transition of SFAS 148 follows Accounting Principles
     Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to
     Employees", in accounting for stock options to employees. The disclosure
     provision of SFAS 148 is effective for years ending after December 15,
     2002. The Company follows APB 25 in accounting for stock options. The
     disclosure provision of SFAS 148 is effective for years ending after
     December 15, 2002 and has been incorporated into these financial statements
     and accompanying footnotes (Note 14).

     Revenue recognition. Interest income is recorded on the accrual basis of
     accounting in accordance with the terms of the loans. When the payment of
     principal or interest is 90 or more days past due, management review the
     likelihood that the loan will be repaid. For these delinquent loans,
     management continues to record interest income and establishes a loan loss
     reserve as necessary to protect against losses in the loan portfolio
     including accrued interest. However, if the mortgage's collateral is
     considered insufficient to satisfy the outstanding balance, after estimated
     foreclosure and selling costs, interest is not accrued.

     Earnings per share. Earnings per share and shares outstanding have been
     adjusted on the statement of operations for the May 11, 2001 three-to-one
     reverse stock split.

     Reclassifications. Certain 2001 amounts may have been reclassified to
     conform to the 2002 presentation. Such reclassifications had no effect on
     reported net income or earnings per share.

                                       F-8

<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

2. Summary of significant accounting policies & nature of operations
     -----------------------------------------------------------------
     (continued)
     -----------

     Recent accounting pronouncements. In January 2003, the Financial Accounting
     Standards Board ("FASB") issued Interpretation No. 46 ("FIN 46"),
     "Consolidation of Variable Interest Entities." The objective of this
     interpretation is to provide guidance on how to identify a variable
     interest entity and determine when the assets, liabilities, noncontrolling
     interests and results of operation of a variable interest entity need to be
     included in a company's consolidated financial statements. A company that
     holds variable interests in an entity, will need to consolidate the entity
     if the company's interest in the variable interest entity is such that the
     company will absorb a majority of the variable interest entity's expected
     losses and/or receive a majority of the entity's expected residual returns.
     The provisions of this interpretation became effective upon issuance. FIN
     46 may require consolidation of CAFC into the Trust's financial statements
     commencing with the Trust's June 30, 2003 reporting period.


3. Restricted cash and mortgage note holdbacks
     -------------------------------------------

     Pursuant to mortgage loan agreements between the Trust and its borrowers, a
     portion of the proceeds are held by the Trust in segregated accounts to be
     disbursed to borrowers upon completion of improvements on the secured
     property. As of December 31, 2002 and 2001, mortgage note holdbacks from
     the consummation of mortgage loans made amounted to $519,321 and
     $1,285,382, respectively.


4. Marketable securities
     ---------------------

     As of December 31, 2002 the fair value of the Trusts marketable securities
     totaled $8,215 which includes an unrealized loss of $1,723. These
     marketable securities consist of equity securities and are accounted for as
     available-for-sale securities. Unrealized gains and losses are excluded
     from earnings and reported in accumulated other comprehensive income.
     During the year ended December 31, 2002, the Trust realized a net gain of
     $1,762 from the sale of equity securities, classified as
     available-for-sale. For the year ended December 31, 2001, the Trust held no
     marketable securities.


5. Accounts receivable
     -------------------

     Accounts receivable consists primarily of accrued interest on mortgage
     notes receivable and other amounts due from borrowers. As of December 31,
     2002 and 2001, accrued interest and other amounts due from borrowers were
     $489,946 and $292,588 respectively.


6. Warehousing facilities to related parties
     -----------------------------------------

     The Trust entered into a loan purchase agreement on December 12, 1997 with
     Capital Alliance Funding Corporation ("CAFC"). Under the terms of the
     agreement, the Trust advances funds to CAFC to acquire mortgage loans
     secured by real estate. The Trust then acquires all of CAFC's right, title
     and interest in such loans. CAFC is obligated to reacquire the loans from
     the Trust at a preset

                                      F-9
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

6. Warehousing facilities to related parties (continued)
     -----------------------------------------------------

     price. As of December 31, 2002 and 2001, the Trust advanced to CAFC
     $3,382,940 and $4,217,408, respectively. The interest rate on this line of
     credit varies with market conditions and is payable monthly. As of December
     31, 2002 and 2001 the applicable interest rate was 6.0% and 7.0%,
     respectively. The Trust earned interest in the amount of $216,167 and
     $447,246 during 2002 and 2001, respectively, of which $5,449 and $740 was
     outstanding as of December 31, 2002 and 2001, respectively.

     The Trust entered into a loan purchase agreement on January 1, 1998 with
     Calliance Mortgage Trust, which subsequently merged into the Mortgage
     Division of Calliance Realty Fund, LLC ("CRF") on May 30, 2000. Under the
     terms of the agreement, the Trust advances funds to CRF to acquire mortgage
     loans secured by real estate. The Trust then acquires all of CRF's right,
     title and interest in such loans. CRF is obligated to reacquire the loans
     from the Trust at a preset price. As of December 31, 2002 and December 31,
     2001, CRF owed the Trust $0. Annual interest on this line of credit is
     between 7.0% and 12.0% and is payable monthly. The Trust earned interest in
     the amount of $0 and $62,989 during 2002 and 2001, respectively, none of
     which was outstanding as of December 31, 2002 or December 31, 2001. The
     Trust also borrows on an unsecured basis from CRF with interest payable
     monthly at an annual rate of between 5.0% and 12.0%. As of December 31,
     2002 and 2001 the Trust had repaid all borrowings from CRF. During 2002 the
     Trust paid interest in the amount of $28,325 of which $2,719 remained
     outstanding as of December 31, 2002. During 2001, the Trust paid interest
     in the amount of $22,657, of which $2,250 remained outstanding as of
     December 31, 2001.

7. Mortgage notes receivable
     -------------------------

     Mortgage notes receivable represent home equity loans primarily secured by
     deeds of trust on one-to-four unit residential real estate. At the time of
     origination, all but one loan have a combined loan-to-value equal to or
     less than 75% of the underlying collateral. The Trust is subject to the
     risks inherent in finance lending including the risk of borrower default
     and bankruptcy.

     Mortgage notes receivable are stated at the principal outstanding. Interest
     on the mortgages is due monthly and principal is usually due as a balloon
     payment at loan maturity.

     A reconciliation of mortgage notes receivable for the years ended December
     31, 2002 and 2001 follows:

                                                     2002               2001
                                                     ----               ----
     Balance, beginning of year               $   17,738,923       $ 11,906,589
     Additions during period:
        New mortgage loans                        14,195,708         15,500,173
     Deductions during period:
        Collections of principal                (11,378,857)        (9,486,695)
        Foreclosures, net of reserve               (540,021)                ---
        Write off of uncollectible loans            (65,000)          (103,549)
        Transfer to CAFC                            (44,362)           (77,595)
                                              --------------       ------------
     Balance, end of year                     $   19,906,391       $ 17,738,923

                                      F-10
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001


7. Mortgage notes receivable (continued)
     -------------------------------------

     The Trust's mortgage notes receivable all relate to loans secured by deeds
     of trust on one-to-four unit residential properties. The following is a
     summary of the Trust's mortgage notes receivable at December 31, 2002:

<TABLE>
<CAPTION>
                                                                                                                          Principal
                                                                                                                          amount of
                                                                                                                         loans with
                                                                                                                         delinquent
                                                                                             Face                         principal
                                                       Final        Monthly    Lien       amount of    Carrying amount   or interest
 Principal outstanding           Interest rate     maturity date    payment  Priority    mortgage(s)    of mortgage(s)    (Note A)
 ---------------------           -------------     -------------    -------  --------    -----------    --------------    --------
<S>                            <C>                <C>              <C>        <C>      <C>             <C>             <C>
Individual loans greater            14.00%           02/01/06       6,542      First   $    560,700       $560,700             ---
than $499,999:
                                    13.50%           06/01/07       6,469      First        575,000        575,000             ---
                                    12.50%           07/01/07       5,427      First        521,000        521,000             ---
                                    14.00%           02/01/03      12,781     Second      1,100,000      1,095,500             ---
                                    13.50%           02/01/03       9,169     Second        815,000        815,000             ---
                                    13.50%           03/01/04       6,750     Second        600,000        600,000             ---
                                    13.95%           05/01/05       6,198     Second        533,200        533,200             ---
                                    13.00%           09/01/06       5,417     Second        500,000        500,000             ---
                                    12.50%           04/01/08      11,198     Second      1,075,000      1,075,000             ---
Loans from $400,000-$499,999    5.75% to 13.50%   4 to 60 months                                         1,731,033             ---
Loans from $300,000-$399,999   13.00% to 14.99%   4 to 52 months                                         2,116,408         316,504
Loans from $200,000-$299,999   11.50% to 14.00%   5 to 316 months                                        3,050,284         277,670
Loans from $100,000- 199,999   11.99% to 14.50%   1 to 58 months                                         4,478,322         485,755
Loans up to $99,000             9.70% to 14.00%   1 to 319 months                        13,560,175      2,254,344         101,715
                                                                                         ----------      ---------         -------

 Total Mortgage Notes Receivable at December 31, 2002                                  $ 19,840,075    $19,906,391     $ 1,181,644
                                                                                       ============    ===========     ===========
</TABLE>

(A) Delinquent loans are loans where the monthly interest payments in arrears
are 90 or more days overdue. As of December 31, 2002, there were three (3) loans
totaling $481,407 of principal and $29,235 of interest that were 90 to 180 days
delinquent on interest payments. Four (4) loans with the principal amount of
$700,237 and $78,782 of interest have been delinquent for over 180 days.
Management has reviewed all of the delinquent loans and believes that the fair
value (estimated selling price less cost to dispose) of the collateral is equal
to or greater than the carrying value of the loan including any accrued
interest.

                                      F-11
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

7. Mortgage notes receivable (continued)
     -------------------------------------

     The Trust's mortgage notes receivable all relate to loans secured by deeds
     of trust on one-to-four unit residential properties. The following is a
     summary of the Trust's mortgage notes receivable at December 31, 2001:

<TABLE>
<CAPTION>

                                                                                                                          Principal
                                                                                                                          amount of
                                   loans with
                                                                                                                         delinquent
                                                                                             Face                         principal
                                                       Final        Monthly    Prior       amount of    Carrying amount  or interest
 Principal outstanding           Interest rate     maturity date    payment    Liens      mortgage(s)    of mortgage(s)    (Note A)
 ---------------------           -------------     -------------    -------    -----      -----------    --------------    --------
<S>                             <C>                <C>              <C>       <C>       <C>               <C>            <C>
Individual loans greater
than $500,000:                       13.50%           07/01/02      $9,169     First    $    815,000      $  815,000     $     ---

                                     13.50%           08/01/06      $7,875     First         700,000         700,000           ---
                                     13.00%           09/01/06      $6,500    Second         600,000         600,000           ---
                                     13.00%           02/01/02      $6,496    Second         600,000         599,610           ---
                                     13.95%           05/01/05      $6,198     First         533,200         533,200           ---
                                     14.00%           02/01/06      $6,054     None          518,900         518,900           ---

Loans from $400,000-$500,000    11.75% to 13.50%   1 to 56 months                                          1,900,000           ---
Loans from $300,000-$399,999    11.75% to 13.99%   1 to 60 months                                          3,399,411           ---
Loans from $200,000-$299,999    10.62% to 13.50%   4 to 336 months                                         2,167,410           ---
Loans from $100,000- 199,999     8.87% to 14.50%   1 to 130 months                                         4,332,834       493,161
Loans up to $99,000              9.70% to 17.75%   1 to 327 months                        15,065,909       2,172,558       125,905
                                                                                          ----------       ---------       -------

 Total Mortgage Notes Receivable at December 31, 2001                                     18,833,009      $17,738,923    $ 619,066
                                                                                          ==========      ===========    =========
</TABLE>

(A) Delinquent loans are loans where the monthly interest payments in arrears
are 90 or more days overdue. As of December 31, 2001, there were three (3) loans
totaling $344,874 of principal and $25,392 of interest that were 90 to 180 days
delinquent on interest payments. Two (2) loans with the principal amount of
$274,192 and $26,144 of interest have been delinquent for over 180 days.
Management has reviewed all of the delinquent loans and believes that the fair
value (estimated selling price less cost to dispose) of the collateral is equal
to or greater than the carrying value of the loan including any accrued
interest.

                                      F-12
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

8. Loan loss reserve
     -----------------

     The Trust measures loan impairment based on the fair value of the related
     collateral since all loans subject to this measurement are collateral
     dependent. Management believes a $310,000 and $180,000 loan loss reserve is
     adequate to protect against potential losses inherent in all receivables as
     of December 31, 2002 and 2001, respectively. The Trust's actual losses may
     differ from the estimate.

     A reconciliation of the loan loss reserve for the years ended December 31,
     2002 and 2001 follows:

                                                  2002           2001
                                                  ----           ----

       Balance, beginning of year              $ 180,000      $  80,000
       Provision for loan loss                   195,000        203,549
       Write off of uncollectible loans         (65,000)       (103,549)
                                                -------        --------
       Balance, end of year                    $ 310,000      $ 180,000
                                               =========      =========


9. Real estate owned
     -----------------

     On January 1, 2001 the Trust owned three properties. During 2001 the Trust
     obtained a parcel split on one property, thereby creating an additional
     property and sold two properties at their carrying costs. As of December
     31, 2001 the Trust owned two properties. During 2002 the Trust foreclosed
     on one property and sold three properties to CAFC for their estimated fair
     market value which resulted in a net loss of $29,527. As of December 31,
     2002 the Trust did not own any properties.

     A reconciliation of the real estate owned account shows its cash and
     non-cash activities for the years ended December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                                         2002         2001
                                                                         ----         ----
    <S>                                                              <C>          <C>
     Balance, beginning of year                                      $ 234,527    $  530,000
     Foreclosed mortgage notes, net of reserve (non-cash)              506,567           ---
     Accrued interest capitalized (non-cash)                            33,454           ---
     Gain (loss) on sale (non-cash)                                    (29,527)          ---
                                                                     ---------    ----------
                                                                       745,021       530,000
     Less: Proceeds from sale of real estate owned (net of closing
     costs of $0 and $35,116 in 2002 and 2001, respectively)
                                                                       745,021       295,473
                                                                       -------       -------

     Balance, end of year                                            $    ---     $  234,527
                                                                     =========    ==========
</TABLE>

                                      F-13
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

10. Investment in affiliates
     ------------------------

     Capital Alliance Funding Corporation
     ------------------------------------

     On April 11, 1997 the Trust formed a non-qualified REIT subsidiary, CAFC,
     to conduct a mortgage banking business. The Trust owns all of the
     outstanding Series "A" Preferred Stock (2,000 shares of non-voting stock),
     which constitutes a 99% economic interest in CAFC. The Trust's Manager owns
     all of the Common Shares (1,000 shares) of CAFC, which constitutes a 1%
     economic interest, and has 100% voting control. The Trust's Manager also
     manages CAFC and provides mortgage origination and sale services for CAFC.
     The Trust accounts for its investment in CAFC under the equity method of
     accounting.

     In 2002, the Trust contributed one mortgage loan totaling $44,362, and in
     2001 contributed one mortgage loan totaling $77,595 to CAFC. The transfer
     of mortgage notes receivable is a non-cash transaction that is not shown on
     statements of cash flows.



                [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]



                                      F-14
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

                      CAPITAL ALLIANCE FUNDING CORPORATION
                                 BALANCE SHEETS
                        As of December 31, 2002 and 2001

<TABLE>
<CAPTION>
ASSETS                                                                      2002            2001
------                                                                      ----            ----

<S>                                                                    <C>             <C>
       Cash and cash equivalents                                       $    248,008    $    338,146
       Restricted cash                                                      412,624         517,655
       Accounts receivable                                                   81,229         164,261
       Notes receivable:
              Mortgage notes receivable                                   6,092,094       8,631,751
              Allowance for loan losses                                    (225,000)       (118,000)
                                                                       ------------    ------------

                   Net notes receivable                                   5,867,094       8,513,751
       Real estate owned                                                  1,676,261         567,000
       Investment in affiliate                                                5,000           5,000
       Other assets                                                          33,285          45,934
                                                                       ------------    ------------
       Total assets                                                    $  8,323,501    $ 10,151,747
                                                                       ============    ============

LIABILITIES AND STOCKHOLDERS' EQUITY

       Liabilities
              Mortgage note holdbacks                                  $    412,624    $    517,655
              Warehousing facilities                                      2,460,643       4,205,695
              Warehousing facilities from related parties                 3,382,940       4,217,408
              Due to affiliates                                              12,093          12,283
              Mortgage notes payable                                        950,410            --
              Other liabilities                                              32,608         144,984
                                                                       ------------    ------------

       Total liabilities                                                  7,251,318       9,098,025

       Stockholders' equity
              Preferred shares, no par value, 2,000 shares                     --              --
                     authorized, 2,000 shares issued and outstanding
              Common shares, no par value, 1,000 shares
                     authorized, 1,000 shares issued and outstanding           --              --
              Additional paid in capital                                  1,990,056       1,945,694
              Accumulated deficit                                          (917,873)       (891,972)
                                                                       ------------    ------------
        Total stockholders' equity                                        1,072,183       1,053,722
                                                                       ------------    ------------
        Total liabilities and stockholders' equity                     $  8,323,501    $ 10,151,747
                                                                       ============    ============
</TABLE>
                                   See Note 10

                                      F-15
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

                      CAPITAL ALLIANCE FUNDING CORPORATION
                            STATEMENTS OF OPERATIONS
                 For the years ended December 31, 2002 and 2001


<TABLE>
<CAPTION>
REVENUES                                                              2002           2001
                                                                      ----           ----
<S>                                                               <C>            <C>
           Interest income                                        $   743,026    $   907,434
           Loan origination income                                    582,255        993,376
           Service release premium                                     42,534         86,426
           Other income                                                 7,775         23,886
                                                                  -----------    -----------
                      Total revenues                                1,375,590      2,011,122

EXPENSES

           Management fees to related party                            44,474         66,822
           Interest expense on warehousing facilities                 139,097        109,000
           Interest expense on related party warehouse facility       216,167        447,246
           Loan origination costs                                     132,889        137,755
           Provision for loan losses                                  192,576        252,331
           Wages and salaries                                         487,024        459,040
           Taxes                                                       12,534         11,818
           General and administrative                                 186,664        122,803
                                                                  -----------    -----------
                      Total expenses                                1,411,425      1,606,815
                                                                  -----------    -----------

INCOME BEFORE GAIN (LOSS) ON
     REAL ESTATE OWNED                                                (35,835)       404,307
           Operating expenses of real estate owned                    (11,383)       (39,508)
           Gain on sale of real estate owned                           21,317         20,207
                                                                  -----------    -----------

NET INCOME (LOSS)                                                 $   (25,901)   $   385,006
                                                                  ===========    ===========
</TABLE>

                                   See Note 10

                                      F-16
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

                      CAPITAL ALLIANCE FUNDING 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 (loss)                                                    $    (25,901)   $    385,006
         Adjustments to reconcile net income (loss) to cash
             provided by operating activities
               Gain on real estate owned                                           (21,317)        (20,207)
               Provision for loan losses                                           192,576         252,331
               Decrease (increase) in accounts receivable                           83,032        (121,518)
               Decrease (increase) in other assets                                  12,649         (22,597)
               (Decrease) increase in other liabilities                           (112,376)          9,694
                Decrease) increase in due to affiliates                               (190)          9,757
                                                                               -----------     -----------
                   Net cash provided by operating activities                       128,473         492,466

CASH FLOWS FROM INVESTING ACTIVITIES
               Investment in mortgage notes receivable                         (16,436,099)    (25,720,690)
               Repayment of mortgage notes receivable                            2,572,728       2,400,395
               Sale of mortgage notes to third parties                           1,902,612       4,003,556
               Sale of mortgage notes to related parties                        14,195,708      15,500,173
               Purchase of real estate owned from Trust                           (698,350)           --
               Investment in affiliate                                                --            (5,000)
               Proceeds from sale of real estate owned                             824,310         308,403
                                                                               -----------     -----------
                   Net cash provided by (used in) investing activities           2,360,909      (3,513,163)

CASH FLOWS FROM FINANCING ACTIVITIES
               Net proceeds from (payments to) warehouse lines of credit        (1,745,052)      2,457,391
               Net proceeds from (payments to) related party line of credit       (834,468)        715,469
               Repayment of mortgage note
                                                                                      --          (394,434)
                                                                               -----------     -----------
                   Net cash provided by (used in) financing activities          (2,579,520)      2,778,426

NET DECREASE IN CASH AND CASH EQUIVALENTS                                          (90,138)       (242,271)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                     338,146         580,417
                                                                               -----------     -----------

CASH AND CASH EQUIVALENTS AT END OF YEAR                                      $    248,008    $    338,146
                                                                              ============    ============
</TABLE>

                                   See Note 10

                                      F-17
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

10. Investment in affiliates (continued)
     ------------------------------------

     The following are selected footnote disclosures from CAFC's financial
     statements:

     Basis of presentation
     ---------------------

                  The accounting and financial reporting policies of CAFC
     conform to accounting principles generally accepted in the United States of
     America and with the policies adopted by the Trust. CAFC's selected
     financial information has been prepared on the accrual basis of accounting
     and consistent with the periods reported by the Trust.

     Accounts receivable
     -------------------

     Accounts receivable consists primarily of accrued interest on mortgage
     notes receivable and amounts due from borrowers for items such as property
     taxes, insurance, and interest on a first deed mortgage that were paid by
     CAFC on behalf of the property securing the mortgage notes. As of December
     31, 2002 and December 31, 2001, amounts due from borrowers were $81,229 and
     $164,261, respectively.

     Mortgage notes receivable
     -------------------------

     Mortgage notes receivable are stated at the principal outstanding. Interest
     on the loans is due monthly. The loans are secured by first and junior
     deeds of trust on commercial and residential properties. CAFC is subject to
     the risks inherent in finance lending including the risk of borrower
     default and bankruptcy.

     A reconciliation of the mortgage notes receivable for the years ended
     December 31, 2002 and 2001 follows:

                                     2002           2001
                                     ----           ----

  Balance, beginning of year   $  8,631,751    $  4,845,117
  Additions during period:
     Originations                16,436,099      25,720,690
     Transfers from Trust            44,362          77,595
  Deductions during period:
     Repayments                  (2,572,728)     (2,400,395)
     Sales                      (16,098,320)    (19,503,729)
     Foreclosures                  (271,499)            ---
     Write-offs                     (77,571)       (107,527)
                                    -------        --------

Balance, end of year           $  6,092,094    $  8,631,751
                               ============    ============

     Some of the mortgage loans originated and purchased by CAFC are held for
     sale to the Trust. The remaining originations and purchases are designated
     for sale to independent third parties. The Trust's purchase price is the
     mortgage loans outstanding balance (par value) plus any accrued interest.
     Loans designated for sale to a third party are pre-approved for purchase by
     the third party,

                                      F-18
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

10.  Investment in affiliates (continued)
     ------------------------------------

     before the loan is acquired by CAFC. Sales to third parties are usually
     greater than CAFC's total purchase price.

     Loan loss reserve
     -----------------

     CAFC measures loan impairment based on the fair value of the related
     collateral since all loans subject to this measurement are collateral
     dependent. Management believes a $225,000 and $118,000 loan loss reserve is
     adequate to protect against potential losses inherent in all receivables as
     of December 31, 2002 and 2001, respectively. CAFC's actual losses may
     differ from the estimate.

     Activity in the loan loss reserve for the years ended December 31, 2002 and
     2001 follows:

                                                     2002            2001
                                                     ----            ----

       Balance, beginning of year                $  118,000       $   78,000
       Provision for loan loss                      192,576          252,331
       Write-off of uncollectible loans
        and write-down of real estate owned         (85,576)        (212,331)
                                                    -------         --------

       Balance, end of year                      $  225,000       $  118,000
                                                 ==========       ==========


     Real estate owned
     -----------------

     As of January 1, 2001, CAFC held five properties with a value of $960,000.
     In 2001, two properties were sold for a gain of $20,207, two properties
     were written off and one property was written down for a total of $155,458.
     Net proceeds from the sales were $308,403. Costs incurred by holding the
     properties were $39,508. As of December 31, 2001 CAFC held one property
     with a value of $567,000. During 2002, CAFC sold two properties for a gain
     of $21,317, two properties were acquired by foreclosure and three
     properties were purchased from the Trust for $1,648,760. Net proceeds from
     the sales were $824,310. As of December 31, 2002, CAFC held four properties
     with a value of $1,676,261.

     A reconciliation of real estate owned for the years ended December 31, 2002
     and 2001 follows:

                                                          2002           2001
                                                          ----           ----

     Balance, beginning of year                      $   567,000     $  960,000
     Properties purchased                              1,648,760            ---
     Foreclosures                                        271,499            ---
     Capital costs of real estate owned                      ---         50,654
     Real estate sold                                   (802,993)      (288,196)
     Property written down                                (8,005)      (155,458)
                                                          ------       --------

     Balance, end of year                            $ 1,676,261     $  567,000
                                                     ===========     ==========

                                      F-19
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

10. Investment in affiliates (continued)
     ------------------------------------

     Warehousing facilities
     ----------------------

     As of December 31, 2002 and 2001, CAFC had borrowed $3,382,940 and
     $4,217,408, respectively, under a warehouse line of credit with the Trust.
     The borrowings are secured by pledged mortgage loans as collateral.
     Interest on this warehouse line of credit is adjusted monthly depending on
     market rates. As of December 31, 2002 and 2001 the interest rate was 6.0%
     and 7.0%, respectively. CAFC's 2002 and 2001 interest expense totaled
     $216,167 and $447,246, respectively, of which 5,449 and $740 was
     outstanding as of December 31 2002 and 2001, respectively. The facility is
     cancelable by either party upon 30 days written notice.

     As of December 31, 2002, CAFC had borrowed $2,054,560 under a $5,000,000
     funding agreement. The agreement provides a 100% advance rate on the notes
     outstanding balance at an interest rate of Prime plus 1.00% with a floor of
     6.00%. As of December 31, 2002 and 2001, the Prime rate was 4.25% and
     4.75%, respectively. Interest is payable monthly with $5,952 accrued and
     payable as of December 31, 2002. The facility is cancelable by either party
     upon 30 days written notice.

     As of December 31, 2002, CAFC had borrowed $406,083 from a mortgage secured
     credit facility. The facility provides a 100% advance rate on the notes
     outstanding balance at an interest rate of 10.75%. Interest is payable
     monthly with accrued interest of $3,762 as of December 31, 2002. As the
     mortgage notes outstanding balance is reduced, CAFC's borrowings are
     repaid. The Trust has guaranteed the repayment of both principal and
     interest. The facility matures October 2003.

     As of December 31, 2001, the Company had borrowed $4,205,695 of funds under
     a warehouse line of credit. The Company receives advances under the
     agreement, up to a maximum of $5,000,000, with the mortgage loans pledged
     as collateral against the advances received and with a permissible
     warehouse period of ninety (90) days. Interest is at LIBOR (London
     Interbank Offered Rate for U.S. dollar deposits) plus 1.50% (3.46% at
     December 31, 2001) during the permissible warehouse period and is payable
     monthly. Interest on loans that are held for more than 90 days is LIBOR
     plus 3.00% (4.96% at December 31, 2001). The facility matured on March 31,
     2002 and was repaid.

     The above warehouse facilities revolve monthly and are paid off as the
     mortgage loans held are sold or repaid by the loan's borrower.


     Related party transactions
     --------------------------

     The Manager earns an administration fee equal to 25 basis points on home
     loans funded for the benefit of CAFC as defined in the First Amended
     Residential Mortgage Loan Services Agreement. CAFC expensed $44,474 and
     $66,822 for these costs in 2002 and 2001, respectively.

     CAFC received an advance of $3,382,940 and $4,217,408 under a warehouse
     line of credit from the Trust, as of December 31, 2002 and 2001,
     respectively. The Trust charges a variable interest rate on this warehouse
     line of credit determined by current market rates. The rate charged to CAFC
     on the line of credit as of December 31, 2002 and 2001 was 6.0% and 7.0%,
     respectively. CAFC expensed interest of $216,167 and $447,246 in 2002 and
     2001, respectively. The facility is cancelable by either party upon 30 days
     written notice.

                                      F-20
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

10. Investment in affiliates (continued)
     ------------------------------------

     On occasion, CAFC and its affiliates had related party receivables and
     payables arising from ordinary business transactions. As of December 31,
     2002 and 2001, CAFC had a payable of $12,093 and $12,283, respectively, to
     the Manager. This account is shown on the balance sheet as Due to
     affiliates. No interest is charged on these accounts.

     CAFC sold $14,195,708 and $15,500,173 in loans to the Trust in 2002 and
     2001, respectively, at par value.

     CAFC paid $5,000 in 2001 for an option to purchase Sierra Capital Corporate
     Advisors (SCCA), a related entity.


11.  Notes payable
     -------------

     As of December 31, 2002 and 2001, the Trust had borrowed $6,999,102 and
     $6,964,300, respectively, under a line of credit term facility. The Trust
     receives advances under the agreement up to a maximum of $7,000,000, with
     specific mortgage notes receivable pledged as collateral against the
     advances. During 2002, the Trust secured a 21-month extension of the
     maturity date of this existing $7,000,000 term credit facility through June
     30, 2004. As part of the borrowing, the lender also agreed to provide the
     Trust with up to an additional $3,000,000 credit facility to allow the
     Trust to "bulge" its aggregate borrowings to $10,000,000 during the
     facility's term. The annual interest rate is the preceding 30-day average
     of 1-month LIBOR (London Interbank Offered Rate for U.S. dollar deposits
     30-day average at December 31, 2002 and 2001 was 1.31% and 1.96%,
     respectively) plus 2.00% and is payable monthly.

     As of December 31, 2002 and 2001, the Trust had borrowed $3,840,000 and
     $2,250,000, respectively, under a second warehouse line of credit. The
     Trust receives advances under the agreement up to a maximum of $4,000,000
     during 2002 and $2,250,000 during 2001, with specific mortgage notes
     receivable pledged as collateral against the advances. Annual interest is
     the applicable prime rate (4.25% and 4.75% as of December 31, 2002 and
     2001, respectively) plus 0.50% and is payable monthly. During the first
     quarter of 2002 the maximum advance was increased to $4,000,000 and the
     maturity date was extended to April 30, 2003.

     The above warehouse lines of credit revolve monthly and are paid off as the
     mortgage notes receivable held are sold.

     The Trust financed a portion of its treasury stock repurchases in 2002 and
     2001 by borrowing on margin from an investment bank. The amount borrowed on
     margin accrues fees at the broker call rate (3.25% and 3.50% as of December
     31, 2002 and 2001, respectively) plus 1.50%. Margin debt is callable at the
     discretion of the investment bank. As of December 31, 2002 and 2001, the
     Trust owed $133,248 and $398,991, respectively, in margin debt.


                                      F-21
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

12.  Related party transactions
     --------------------------

     The Manager, which is owned by several of the directors and their
     affiliates, contracted with the Trust to provide management and advisory
     services and receives fees for these services from the Trust. The Manager
     is also entitled to reimbursement from the Trust for clerical and
     administrative services at cost based on relative utilization of facilities
     and personnel. The Manager is also reimbursed by CAFC for direct expenses
     and administrative services.

     The Manager receives a management fee equal to one-twelfth (1/12) of 1%
     annually of the book value of mortgages, mortgage-related investments and
     real property ("Gross Mortgage Assets") of the Trust plus one-twelfth
     (1/12) of one-half percent (1/2%) of the book value of the non-mortgage
     assets of the Trust computed at the end of each month. The management fee
     also includes reimbursement for the direct costs of overseeing the
     administration and disposition of real estate owned by the Trust and CAFC.
     The management fee paid by the Trust to the Manager was $247,017 and
     $219,046, for the years ended December 31, 2002 and 2001, respectively.

     The Manager also earns a REO management fee for managing and servicing the
     properties that the Trust and CAFC have obtained through foreclosure of
     mortgage notes held. The fee for these services is $500 per month for each
     property held by the Trust and CAFC. The Trust paid the Manager $17,500 and
     $22,500 in REO management fees in 2002 and 2001, respectively.

     The Manager's incentive compensation for each fiscal quarter, equals 25% of
     the net income of the Trust in excess of an annualized return on common
     equity for such quarter equal to the ten year U.S. Treasury Rate plus
     2.00%, provided that the payment of such incentive compensation does not
     reduce the Trust's annualized return on common equity for such quarter to
     less than the ten year U.S.
     Treasury Rate after the preferred dividend has been paid. The incentive
     compensation for 2002 and 2001 was $23,602 and $26,684, respectively.
     Incentive compensation awards are reported as part of the management fees.

     The Manager receives a loan origination and servicing fee equal to
     one-twelfth (1/12) of 2% annually of the Gross Mortgage Assets of the Trust
     computed at the end of each month. During 2002 the Trust capitalized 47.5%
     of this fee as loan origination costs and amortized them over the average
     life of the portfolio. The remaining 52.5% of the fee is expensed as the
     portion attributed for servicing. During 2001 the Trust capitalized 55% of
     this fee as origination costs and amortized them over the average life of
     the portfolio. The remaining 45% of the fee was expensed as the portion
     attributed for servicing.

     For the years ended December 31, 2002 and 2001, the Trust paid loan
     origination and servicing fees of $488,307 and $428,185, respectively. In
     2002 and 2001, the Trust expensed $256,361 and $192,683, respectively, as
     servicing fees and $195,277 and $205,240, respectively, as amortization of
     loan origination costs. As of December 31, 2002 and 2001, the Trust
     capitalized $231,946 and $235,502 of loan origination fees, respectively.

     On occasion, the Trust and its affiliates had related receivables and
     payables arising from ordinary business transactions. As of December 31,
     2002, the Trust had a receivable of $12,093 from CAFC, a receivable of
     $117,665 from the Manager and a payable to CRF of $2,719. As of December
     31, 2001, the Trust had a receivable of $740 from CAFC, a receivable of
     $150 from Sierra Capital

                                      F-22
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

12. Related party transactions (continued)
    --------------------------------------

     Corporate Advisors and a payable of $127,874 to the Manager. No interest is
     charged on these inter-company accounts.

     As described in Note 6, as of December 31, 2002, the Trust advanced
     $3,382,940 under lines of credit to affiliates and during the year earned
     interest of $216,167 on such financing. As of December 31, 2001, the Trust
     advanced $4,217,408 under lines of credit to affiliates and during the year
     earned interest of $510,235 on such financing.


13. Preferred, common and treasury stock
     ------------------------------------

     The Preferred Shareholders are entitled to a dividend preference in an
     amount equal to an annualized return on the adjusted net capital
     contribution of Preferred Shares at each dividend record date during such
     year (or, if the Directors do not set a record date, as of the first day of
     the month). The annualized return is the lesser of: (a) 10.25%, (b) 1.50 %
     over the Prime Rate (determined on a not less than quarterly basis) or (c)
     the rate set by the Board of Directors. The preferred dividend preference
     is non-cumulative.

     After declaring dividends for a given year to the Preferred Shareholders in
     the amount of the dividend preference, no further dividends may be declared
     on the Preferred Shares for the subject year, until the dividends declared
     on each Common Share for that year equals the dividend preference for each
     Preferred Share for such year. Any additional dividends generally will be
     allocated such that the amounts of dividends per share to the Preferred
     Shareholders and Common Shareholders for the subject year are equal. The
     Preferred Shareholder's additional dividends, if any, are non-cumulative.

     Preferred Shareholders are entitled to receive all liquidating
     distributions until they have received an amount equal to their aggregate
     adjusted net capital contribution. Thereafter, Common Shareholders are
     entitled to all liquidation distributions until the aggregate adjusted net
     capital contributions of all Common Shares has been reduced to zero. Any
     subsequent liquidating distributions will be allocated among Common
     Shareholders and Preferred Shareholders pro rata.

     The Preferred Shares are redeemable by a shareholder, subject to the
     consent of the Board of Directors, annually on June 30 for redemption
     requests received by May 15 of such year. The Board of Directors may in its
     sole discretion deny, delay, postpone or consent to any or all requests for
     redemption. The redemption amount to be paid for redemption of such
     Preferred Shares is the adjusted net capital contribution plus unpaid
     accrued dividends, divided by the aggregate net capital contributions plus
     accrued but unpaid dividends attributable to all Preferred Shares
     outstanding, multiplied by the net asset value of the Trust attributable to
     the Preferred Shares which shall be that percentage of the Trust's net
     asset value that the aggregate adjusted net capital contributions of all
     Preferred Shares bears to the adjusted net capital contributions of all
     Shares outstanding.

     The Trust has the power to redeem or prohibit the transfer of a sufficient
     number of Common and/or Preferred Shares or the exercise of warrants and/or
     options and to prohibit the transfer of shares to persons that would result
     in a violation of the Trust's shareholding requirements. The Bylaws

                                      F-23
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

13. Preferred, common and treasury stock (continued)
     ------------------------------------------------

     provide that only with the explicit approval of the Trust's Board of
     Directors may a shareholder own more than 9.8% of the total outstanding
     shares.

     On March 7, 2000, the Board of Directors authorized the Trust to purchase
     up to $250,000 of the Trust's Common Stock as Treasury Stock. On December
     21, 2000, the authorized repurchase ceiling was increased to $400,000. On
     June 19, 2001 the repurchase authorization was increased to $550,000 and on
     March 13, 2002 the repurchase authorization was increased to $695,000.
     Separately, in a private transaction the Board of Directors authorized the
     purchase of 47,500 Common Shares at $13.50. This transaction closed on
     September 3, 2001.

     During 2002 the Trust's cumulative Common Stock purchases reached 97,966.
     Exercised Common Stock options reduced the treasury's Common Stock balance
     to 71,017 shares.

     On November 17, 2000, the Trust duly approved (subject to satisfaction of
     miscellaneous filing requirements) a one share for each three shares (1 for
     3) reverse stock split of its Common and Preferred Shares which became
     effective at the close of business on May 11, 2001. Upon effectiveness of
     the reverse split, one (1) new Common Share and one (1) new Series "A"
     Preferred Share was exchanged for each three (3) outstanding Common and
     Preferred Share, respectively, and there were approximately 495,161 issued
     and outstanding Common Shares and approximately 213,819 issued and
     outstanding Preferred Shares. As a result, the December 31, 2000 Common
     Share treasury balance became 27,160 post-split shares and the December 31,
     2000 Preferred Share treasury balance became 3,176 post-split shares, each
     with $.01 par value. On May 14, 2001, the commencement of post-split
     trading, the price of a Common Share on the American Stock Exchange was
     increased to three (3) times the closing price of such shares on May 11,
     2001 and the Adjusted Net Capital Contribution attributable to each Series
     "A" Preferred Share was increased to approximately $26.51 per share, three
     (3) times the existing Adjusted Net Capital Contribution of each such
     Preferred Share (approximately $8.83) as of March 31, 2001. The authorized
     capital of the Trust remained unchanged with 5,000,000 Common Shares and
     675,000 Series "A" Preferred Shares authorized. In 2002, the Trust reduced
     the number of Preferred shares authorized to 430,000.

14.  Common stock options
     --------------------

     The 1998 Incentive Stock Option Plan ("Plan") adopted by the Board of
     Directors and approved by stockholders, provided non-qualified Common Stock
     options for the purchase of 247,500 Common Shares of the Trust. Officers
     and employees of the Manager, and Directors of the board are the eligible
     recipients of the options. The options have a term of 10 years with a first
     exercise date generally two (2) to six (6) months after the date of the
     grant. Under the terms of the Plan, the exercise price of each option will
     not be less than 100% of the Common Shares closing stock price on the date
     of grant.

                                      F-24
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

14.  Common stock options (continued)
     --------------------------------

     The activity in the Plan for the years ended December 31, 2002 and December
     31, 2001 are as follows:


                                                                Weighted average
                                                 Options         exercise price
                                                 -------         --------------
      Outstanding at January 1, 2001             178,625             $10.74
                     Granted                      68,875               9.06
                     Exercised                   (6,000)               9.00
                     Forfeited                       ---                ---
                                                --------           --------
      Outstanding at December 31, 2001           241,500              10.30
                     Granted                         ---                ---
                     Exercised                  (20,949)               9.55
                     Forfeited                       ---                ---
                                                --------           --------
      Outstanding at December 31, 2002           220,551             $10.37
                                                 =======             ======
      Outstanding options exercisable as of
                    January 1, 2001              178,625            $ 10.74
                    December 31, 2001            241,500              10.30
                    December 31, 2002            220,551              10.37


     All the Plan's stock options have been granted. The remaining unexercised
     stock options are 100% vested. The weighted-average fair value, calculated
     from the Black-Scholes stock option valuation model, of all options granted
     during 2001 was $0.28 per share.

     The following table summarizes information with respect to stock options
outstanding at December 31, 2002:

                                            Options outstanding
                            ----------------------------------------------------
Range of exercise prices    Number of shares  Weighted-average      Weighted-
                                                 remaining
                                              contractual life  average exercise
                                                  (years)             price
                            ----------------  ----------------  ----------------

   $9.00 - $9.06                 154,176             6.52           $  9.02
   $13.50                         68,375             5.25             13.50
                                 -------             ----            ------
                                 222,551             6.13           $ 10.37
                                 =======             ====           =======

                                      F-25
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

14.  Common stock options (continued)
     --------------------------------

     The fair value of the Trust's stock-based awards to employees was estimated
     assuming the following weighted-average assumptions:

                                                   2002               2001
                                                   ----               ----

     Expected life (in years)                      ---               10.00
     Expected volatility                           ---                0.401
     Risk free interest rate                       ---                4.38%
     Expected dividends                            ---               13.7%

     The Trust accounts for stock options under APB No. 25. Since the exercise
     price of each option granted has been equal to or higher than the closing
     market price of the Company's Common Shares at the date of grant, no
     expense is recognized. The pro forma results of reporting the Company's
     stock option grants using the fair value method consistent with SFAS No.
     123, is presented below for the years ended December 31, 2002 and 2001:

                                                        2002            2001
                                                        ----            ----

  Net income available to common stock                $ 758,059      $ 644,291
  Less: Stock based expense using the fair
      value method                                          ---        (19,285)
                                                      ---------      ---------
  Pro forma net income available to common stock      $ 758,059      $ 625,006
                                                      =========      =========

  Net income per common share:
  Basic:
      As reported                                         $1.81          $1.46
      Pro forma                                           $1.81          $1.41

  Diluted:
      As reported                                         $1.50          $1.05
      Pro forma                                           $1.50          $1.02

     Since no options were issued or vested during 2002, the reported operating
     results are identical to the pro forma amounts.

                                      F-26
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

15. Earnings per share
     ------------------

     The following table represents a reconciliation of the numerators and
     denominators of the basic and diluted earnings per common share for the
     years ended December 31, 2002 and 2001:


    Numerator:                                         2002             2001
                                                       ----             ----
    Net income                                     $ 1,108,264     $ 1,142,898
    Preferred dividends attributable
         to income                                    (350,205)       (498,607)
                                                      --------        --------
    Numerator for basic and diluted
         Earnings per share-income
    available to common stockholders               $   758,059     $   644,291
                                                   ===========     ===========
    Denominator:
         Basic weighted average shares                 418,923         442,371
         (adjusted for 2001's 1-for-3
         reverse stock split)
         Dilutive effect of options                     86,627         172,625
                                                        ------         -------
         Diluted weighted average shares               505,550         614,996
                                                   ===========     ===========
    Basic earnings    per common share             $      1.81     $      1.46
                                                   ===========     ===========
    Diluted earnings  per common share             $      1.50     $      1.05
                                                   ===========     ===========




                [REMAINDER OF THE PAGE INTENTIONALLY LEFT BLANK]




                                      F-27
<PAGE>
                        CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
                         Notes to Financial Statements
                 For the years ended December 31, 2002 and 2001

16.  Selected quarterly financial data (unaudited)
     ---------------------------------------------

     Selected quarterly financial data are present below by quarter for the
     years ended December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                                             For the year ended December 31, 2002
                                                             ------------------------------------

                                               Total             4th Qtr      3rd Qtr       2nd Qtr        1st Qtr
                                               -----             -------      -------       -------        -------
<S>                                         <C>                 <C>           <C>          <C>            <C>
Revenue before gain (loss) from
    affiliate                               $2,891,895          $718,115      $709,106     $724,248       $740,426
Equity in gain (loss) of affiliate            (25,642)             9,278      (69,998)       34,026          1,052
                                              -------              -----      -------        ------          -----
Total revenue                                2,866,253           727,393       639,108      758,274        741,478
Net income                                   1,108,264           283,014       208,685      309,586        306,979
Preferred dividends                            350,205            87,257        87,257       87,269         88,422
                                               -------            ------        ------       ------         ------
Net income applicable
    to common stock                           $758,059          $195,757      $121,428     $222,317       $218,557
                                              ========          ========      ========     ========       ========
Basic earnings per share                         $1.81             $0.47         $0.29        $0.53          $0.53
Diluted earnings per share                       $1.50             $0.39         $0.23        $0.43          $0.42
</TABLE>

<TABLE>
<CAPTION>
                                                           For the year ended December 31, 2001
                                                           ------------------------------------

                                                 Total            4th Qtr       3rd Qtr       2nd Qtr       1st Qtr
                                                 -----            -------       -------       -------       -------
<S>                                           <C>                <C>           <C>           <C>           <C>
Revenue before gain (loss) from
    affiliate                                 $2,477,024         $681,343      $693,770      $545,312      $556,599
Equity in gain (loss) of affiliate               381,155           49,908       135,872       126,872        68,503
                                                 -------           ------       -------       -------        ------
Total revenue                                  2,858,179          731,251       829,642       672,184       625,102
Net income                                     1,142,898          300,765       325,662       251,980       264,491
Preferred dividends                              498,607          104,709       116,364       133,362       144,172
                                                 -------          -------       -------       -------       -------
Net income applicable
    to common stock                             $644,291         $196,056      $209,298      $118,618      $120,319
                                                ========         ========      ========      ========      ========
Basic earnings per share                           $1.46            $0.48         $0.43         $0.26         $0.26
Diluted earnings per share                         $1.05            $0.33         $0.26         $0.23         $0.25
</TABLE>


                                      F-28
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
         ON ACCOUNTING AND FINANCIAL DISCLOSURES
     None.

--------------------------------------------------------------------------------
                                    PART III
--------------------------------------------------------------------------------

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

         DIRECTORS

Thomas B. Swartz, 71; Chairman and Chief Executive Officer (1)

         Class I Director since 1995; current term expires in 2003; Chairman and
Chief Executive Officer, Capital Alliance Advisors, Inc. (1989 to date);
Chairman, Capital Alliance Income Trust I (1991 to 1996) and Capital Alliance
Income Trust II (1994 to 1996); Chairman, Sierra Capital Acceptance (1995 to
2000); Chairman and Chief Executive Officer of Sierra Capital Companies and its
Affiliates (1980 to date); Founder Chairman, Chief Executive Officer and Trustee
of seven equity real estate investment trusts (1980-1991); Attorney at Law,
Thomas Byrne Swartz, Inc. (1980 to date), and Bronson, Bronson, & McKinnon, San
Francisco, California (Partner 1960-1980); Past President (1989-1990) and
Member, Board of Governors (1983 to 1993), National Association of Real Estate
Investment Trusts; Director (representing Federal Deposit Insurance Corporation)
of two subsidiaries of American Diversified Savings Bank (in liquidation) (1990
to 1992) Member, Real Estate Advisory Committee to California Commissioner of
Corporations (1972-1973); University of California at Berkeley Boalt School of
Law, L.L.B. 1959; Lieutenant, U.S.N.R. 1954-1956 (active) and to 1967 (reserve);
Yale University, A.B. 1954.

Dennis R. Konczal, 52; President, Director and Chief Operating Officer (1)

         Class II Director since 1995; current term expires in 2004; President
(1996 to date) and Executive Vice President (1989 to 1996) and Chief Operating
Officer, Capital Alliance Advisors, Inc.; Executive Vice-President, Trustee and
Chief Operating Officer of Capital Alliance Income Trust I (1991 to 1996) and of
Capital Alliance Income Trust II (1994 to 1996); President and Director, Sierra
Capital Acceptance (1995 to 2000); President, Director and Chief Operating
Officer of Sierra Capital Companies (1984 to date) and of Capital Alliance
Investments Incorporated (a NASD broker-dealer and Registered Investment
Advisor) (1984 to 1999); Director, President and Chief Operating Officer,
Granada Management Corporation and Granada Financial Services, Inc.,
agribusiness concerns (1981-1984); Licensed Principal, NASD (1981 to date); B.S.
Agricultural Economics, Michigan State University (1972).

Richard J. Wrensen, 47; Executive Vice-President, Director and Chief Financial
Officer (1)

         .Class III Director since 2000; current term expires 2002; Executive
Vice-President and Chief Financial Officer, Capital Alliance Advisors, Inc. and
its Affiliates (including Capital Alliance Income Trust Ltd. and of Sierra
Capital Companies and its affiliates) (1997 to date); Senior Vice-President and
Chief Financial Officer, SNK Realty Group (Japanese merchant builder) (1997);
Vice-President Finance, Mattison and Shidler (national real estate investment)
(1987 to 1997); Associate, Marakon Associates (1985 to 1987); Vice-President and
Controller, Ring Brothers Corp. (real estate syndication and management (1981 to
1983); Division Controller, Great Southwest Corp. (1979 to 1981); Certified
Public Accountant (1979); Coopers & Lybrand (1978 to 1979); B.S. Accounting,
University of Florida (1978); MBA, Haas School of Business Administration,
University of California, Berkeley (1985).

Stanley C. Brooks, 54; Director (2)

         Class II Director since 1996; current term expires 2004; President and
Chairman, Brookstreet Securities Corporation (1990 to date); Executive
Vice-President, Toluca Pacific Securities Corporation (1987 to 1989); Senior


                                       23
<PAGE>
Vice-President, First Affiliated Securities (1983 to 1986); Senior
Vice-President, Private Ledger Financial Services (1976 to 1983); Member,
National Futures Association (1991 to date); Member, National Investment Bankers
Association (1990 to date); Licensed Principal, NASD (1976 to date); California
State Polytechnic Institute, B.S. Business Administration 1970.

Harvey Blomberg, 62; Director (1)(2)

         Class I Director since 1996; current term expires 2003; Founder and
principal MRHB Real Estate (real estate management company) (1988 to date);
Regional Director, Connecticut Small Business Development Center (1996 to date);
Partner and Chief Financial Officer, Bay Purveyors, Inc. (1976 to 1995); General
Manager, Deerfield Communications (1987 to 1990); Consultant to numerous
companies (financial restructuring, refinancing and marketing) (1989 to date).
Renessler Polytechnic Institute, M.S. Management, 1995; Hofstra University,
M.B.A. 1985; B.S. Engineering, 1966.

Donald R. Looper, 50; Director (2)

         Class III Director since March 2001; current term expires 2002; Senior
Partner of the Houston-based law firm of Looper, Reed, & McGraw (1985 to date);
Mr. Looper's legal practice has involved the representation of both public and
privately-owned corporations and the complex structuring of substantial
financings involving mortgage financings of real estate and international
business transactions. University of Texas, B.A. degree (1974); Master of
Professional Accounting degree (specialization in Tax Accounting) (1976),
University of Texas; J.D. degree in Law, University of Houston (1979). Licensed
to practice law in Colorado (1979) and Texas (1981).
_________________________

(1) Also is a member of the Executive Committee. (2) Also is a member of the
Audit Committee.

         EXECUTIVE OFFICERS

         The following persons currently serve as executive officers of the
Trust or, where indicated, the Trust's Manager. The Trust's Executive Officers
hold office at the discretion of the Directors.

               Name                     Age          Position
               ----                     ---          --------

         Thomas B. Swartz               71           Chairman and Chief
                                                     Executive Officer

         Dennis R. Konczal              52           President and Chief
                                                     Operating Officer

         Richard J. Wrensen             47           Executive Vice President
                                                     and Chief Financial Officer

         William W. Aubrey, II          43           Senior Vice President and
                                                     Chief Investment Officer

         Jennifer S. Austin             40           Corporate Secretary

         The principal occupations of the non-Director Executive Officers of the
Trust during the last five years or more are set forth below:

                                       24
<PAGE>
William W. Aubrey, II, 43; Senior Vice President of Manager

         Senior Vice-President, Capital Alliance Advisors, Inc. (1998 to date);
Senior Vice-President, Sierra Capital Acceptance (1995 to 2000); Vice-President,
Regional Supervisor, Citizens Thrift and Loan Association (responsible for
overall supervision of regional production and operations; specialized in
nonconforming, sub-prime residentially secured loans) (1990 to 1995); Branch
Manager, First Fidelity Thrift and Loan (negotiated and underwrote real estate
secured construction and equity loans) (1988 to 1990); Vice President, Topa
Thrift and Loan Association (established loan brokerage and mortgage banking
relationships) (1984 to 1988); B.S, Finance, La Roche College, Pittsburg, PA
(1983).

Jennifer S. Austin, 40, Corporate Secretary

         Office Manager/Executive Assistant/Secretary, (2002 to date); Capital
Alliance Advisors, Inc.; Executive Assistant, Assistant Operations Manager,
Oceanic Society Expeditions (2001-2002, 1993-1998), Retail Operations Manager,
America True, America's Cup Challenge 2000 (1998-2000); Employee Benefits
Coordinator, Westin Hotel, San Francisco Airport (1987-1993); Area Manager,
Great America Theme Park (1980-1986); BS, Travel/Tourism Management, San Jose
State University, San Jose, CA (1987).

ITEM 10. EXECUTIVE COMPENSATION

         COMPENSATION OF OFFICERS

         The Trust has no full time employees and is managed by Capital Alliance
Advisors, Inc. as Manager of the Trust under a Management Agreement which
requires CAAI to pay the employment expenses of its personnel. Accordingly, no
compensation was paid by the Trust to any of the named executives.

         COMPENSATION OF DIRECTORS

         Director Fees. The Trust pays each unaffiliated Director an annual fee
of $10,000. In 2002 Messrs, Brooks, Blomberg and Looper each received $10,000 as
a Director's fee.

         Committee and Other Meeting Fees. The Directors are also entitled to
$500 for each director's or committee meeting attended in person and $300 if
attended by telephonic means. During 2002 total committee and meeting fees for
Mr. Brooks, Mr. Blomberg and Mr. Looper were $3,300, $3,800 and $3,300,
respectively.

         Reimbursements. All Directors are reimbursed for reasonable travel and
other out of pocket expenses incurred in attending board and committee meetings.

         Such compensation and reimbursement arrangements for Directors may be
changed by the Board of Directors pursuant to authority granted by the Trust's
Bylaws.

                                       25
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS

(a) Equity Compensation Plan Information.

<TABLE>
<CAPTION>
                                Number of securities    Weighted-average     Number of securities
                                  to be issued upon     exercise price of     remaining available
                                     exercise of           outstanding        for future issuance
                                outstanding options,    options, warrants        under equity
                                warrants and right *       and rights         compensation plans
                                                                             (excluding securities
                                                                              reflected in column
                                                                                    (a)) *
                                ---------------------- -------------------- ------------------------
                                       Column                Column                 Column
                                         (a)                   (b)                    (c)
<S>                                    <C>                   <C>                       <C>
  Equity compensation plans            220,551               $10.37                    0
 approved by security holders

Equity compensation plans not             0                    N/A                     0
 approved by security holders

            Total                      220,551               $10.37                    0
</TABLE>

         * Reflects status of Plan as of December 31, 2002.


(b) Security Ownership of Certain Non-Management or Non-Affiliate
         -------------------------------------------------------------
         Beneficial Owners
         -----------------

         The following table sets forth certain information known to the Trust
         with respect to beneficial ownership of the Trust's Common Shares and
         Preferred Shares as of March 15, 2003 by each Non-Management or
         Non-Affiliated Beneficial Owner:

                              Number of Shares         Percentage of Shares
                                    of  Stock                of Stock
                              Beneficially Owned        Beneficially Owned
                              ------------------        ------------------

Name of Beneficial Owner     Common       Preferred    Common       Preferred
------------------------     ------       ---------    ------       ---------

Thomas Morford (1)......         0         16,334           0          7.7%

----------

         (1) Mr. Morford is a private investor.


(c) Security Ownership of Management.
         ---------------------------------

                  The following table sets forth certain information known to
         the Trust with respect to beneficial ownership of the Trust's Common
         Shares and Preferred Shares as of March 15, 2003 by (1) each Management
         person known to the Trust to beneficially own more than five percent of
         the Trust's Common Shares or Preferred Shares, (2) each Director, (3)
         the Trust's executive officers, (4) the Manager's executive officers,

                                       26
<PAGE>
         and (5) all Directors and executive officers as a group. Unless
         otherwise indicated in the footnotes to the table, the beneficial
         owners have, to the knowledge of the Trust, sole voting and investment
         power with respect to the shares beneficially owned, subject to
         community property laws where applicable.

<TABLE>
<CAPTION>
                                         Number of Shares              Percentage of Shares
                                               of  Stock                     of Stock
                                         Beneficially Owned             Beneficially Owned
                                         ------------------             ------------------

 Name of Beneficial Owner              Common        Preferred         Common       Preferred
 ------------------------              ------        ---------         ------       ---------

<S>                                      <C>         <C>               <C>              <C>
 Thomas B. Swartz (1)(4) . . . . . . .        0      1,335                 0             *
 Dennis R. Konczal (2)(4) . . . . . . .  18,332        984              4.3%             *
 Richard J. Wrensen (3)(4) . . . . . .   55,170      1,555             13.0%             *
 Linda St. John (5) . . . . . . . . . .   3,750          0                 *             0
 William W. Aubrey II (6) . . . . . . .   2,500          0                 *             0
 Stanley C. Brooks (7) . . . . . . . .        0          0                 0             0
 Harvey Blomberg (8) . . . . . . . . .        0          0                 0             0
 Donald R. Looper . . . . . . . . . . .       0          0                 0             0
 Jennifer S. Austin. . . . . . . . . .        0          0                 0             0
 All directors and executive officers
 as a group (9 persons) (9) . . . . . . 105,370      7,535               24.8%          3.6%
</TABLE>


         * Represents less than 1% of outstanding shares.
         ____________________

         (1) Mr. Swartz has unexercised options to purchase 55,687 shares of
         Common Stock, all of which he has the right to acquire within 60 days
         from the date hereof. Mr. Swartz's spouse owns 633 shares of Series "A"
         Preferred Shares in which Mr. Swartz claims no beneficial interest.
         Such holdings represent less than 1% of the outstanding Preferred
         Shares.

         (2) Mr. Konczal has unexercised options to purchase 38,124 shares of
         Common Stock, all of which he has the right to acquire within 60 days
         from the date hereof.

         (3) Mr. Wrensen has unexercised options to purchase 29,827 shares of
         Common Stock, all of which he has the right to acquire within 60 days
         from the date hereof. Mr. Wrensen's spouse owns 20,000 shares of Common
         Stock and 2,709 Series "A" Preferred Shares as of December 31, 2002, in
         which Mr. Wrensen claims no beneficial interest. Such holdings
         represent 4.7% of the outstanding Common Shares and 1.3% of the
         outstanding Preferred Shares.

         (4) Capital Alliance Advisors, Inc., the Trust's Manager, owns
         beneficially 25,618 Shares of Common stock and 3,661 shares of Series A
         Preferred Shares as of March 31, 2002, representing 6.0% of the
         outstanding Common Shares and 1.7% of the outstanding Series A
         Preferred Shares. Messrs. Swartz, Konczal and Wrensen are officers and
         directors of the Manager and collectively own all of the outstanding
         Common Shares of the Manager. The Manager has unexercised options to
         purchase 9,189 shares of Common Stock and has the right to acquire such
         Shares within 60 days from the date hereof.

         (5) During 2002, Ms. St. John served as the Trust's Corporate
         Secretary. Ms. St. John has unexercised options to purchase 1,250
         shares of Common Stock.

         (6) Mr. Aubrey has unexercised options to purchase 9,050 shares of
         Common Stock.

         (7) Mr. Brooks has unexercised options to purchase 12,375 shares of
         Common Stock.

                                       27
<PAGE>
         (8) Mr. Blomberg has unexercised options to purchase 12,375 shares of
         Common Stock.

         (9) The totals include the Common and Preferred Shares owned by Capital
         Alliance Advisors Inc.


(d) Changes in Control. None
         -------------------

ITEM 12. CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS

         Arrangements and Transactions with Members of the Management CAAI. CAAI
is the Manager of the Trust and provide contracts with the Trust and CAFC to (a)
management and advisory services to the Trust in accordance with the Management
Agreement and (b) mortgage origination and loan servicing services to the Trust
and CAFC in accordance with the Mortgage Origination and Servicing Agreements
with each entity. As previously described, the Trust will utilize the mortgage
banking experience, management expertise and resources of CAAI in conducting its
Mortgage Investment and its Mortgage Conduit Business. Three of the six
Directors and the officers of the Trust, Messrs. Swartz, Konczal and Wrensen,
own and serve as Directors and officers of CAAI. However, Unaffiliated Directors
constitute 100% of the Audit Committee of the Board of Directors of the Trust.
CAAI owns all of the voting common stock and a 1% economic interest in CAFC, the
Trust's Mortgage Conduit Subsidiary. The Trust owns all of the nonvoting
preferred stock of CAFC representing 99% of the economic interest in CAFC. CAAI
has the power to elect all of the directors of CAFC and the ability to control
the outcome of all matters for which the consent of the holders of the common
stock of such subsidiary is required. CAAI and/or the officers and directors of
CAFC who may be officers and directors of the Trust, will be separately
compensated for their management services to the subsidiary and will provide
origination, financing and administrative services to the subsidiary through
separate agreements and an inter-company allocation of the cost of such
services. The Trustees, the Manager and their affiliates have fiduciary duties
and obligations which will require them to resolve any conflicts of interest by
exercising the utmost good faith and integrity. Additionally, the Bylaws provide
that the Manager must upon request by the Directors disclose any investments
which are within the purview of the Trust's investment policies.

         CAAI also has interests that may conflict with those of the Trust in
fulfilling certain duties. In addition, Messrs. Swartz, Wrensen and Konczal, the
officers and directors of CAAI are also officers and directors of the Trust. The
officers and directors of CAAI are also involved in other businesses, including
Calliance Realty Fund, LLC whose Mortgage Division invests in mortgage
encumbering commercial and mixed-use properties as well as residential
properties and which may generate profits or other compensation. The Trust will
not share in such profits or compensation.

         It is the intention of the Trust and CAAI that any agreements and
transactions, taken as a whole, between the Trust, on the one hand, and CAAI or
its affiliates, on the other hand, are fair to both parties. However, there can
be no assurance that each of such agreements or transactions will be on terms at
least as favorable to the Trust as could have been obtained from unaffiliated
third parties.

         Sale and Purchase of Loans. To provide a source of mortgage loans for
the Trust's Mortgage Investment Business, CAFC, the Mortgage Conduit Subsidiary,
offers to the Trust for purchase all nonconforming mortgage loans and Home
Equity Loans meeting the Trust's investment criteria and policies. Commitments
to acquire loans will obligate the Trust to purchase such loans from the
Mortgage Conduit Subsidiary upon the closing and funding of the loans, pursuant
to the terms and conditions specified in the commitment.

         The Trust accounts for the purchase of loans from CAFC on a fair market
value basis. When the Trust computes the equity and earnings or loss of the
Mortgage Conduit Subsidiary, it will eliminate any intercompany profit.

                                       28
<PAGE>
         Other Business Activities. The Bylaws provide that the Directors and
the Trust's agents, officers and employees may engage with or for others in
business activities of the types conducted by the Trust and that they will not
have any obligation to present to the Trust any investment opportunities which
come to them other than in their capacities as Directors regardless of whether
those opportunities are within the Trust's investment policies. Each Director is
required to disclose any interest he has, and any interest known to him of any
person of which he is an Affiliate, in any investment opportunity presented to
the Trust.

--------------------------------------------------------------------------------
                                     PART IV
--------------------------------------------------------------------------------

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)      Exhibits

         Exhibit No.
         3.1    Charter Certificate of Incorporation and Amendment No. 1(1)
         3.2    Bylaws of the Registrant(1)
         3.3    Certificate of Amendment of Certificate of Incorporation(6)
         4.1    Form of Stock Certificate of Common Shares of the Registrant(2)
         10.1   Form of Management Agreement between the Registrant and Capital
                Alliance Advisors, Inc.(1)
         10.2   Form of Indemnity Agreement between the Registrant and its
                Directors and Officers(1)
         10.3   Form of Loan Origination and Loan Servicing Agreement between
                the Registrant and Capital Alliance Advisors, Inc.(1)
         23.4   Consent of Landels Ripley & Diamond, LLP(5)
         23.5   Consent of Novogradac & Company LLP(5)
         24.1   Power of Attorney of Thomas B. Swartz(1)
         24.2   Power of Attorney of Dennis R. Konczal(1)
         24.4   Power of Attorney of Stanley C. Brooks(1)
         24.5   Power of Attorney of Harvey Blomberg(1)
         24.7   Power of Attorney of Richard J. Wrensen(7)
         24.8   Power of Attorney of Donald R. Looper

(1)      These exhibits were previously contained in Registrant's Registration
         Statement filed on Form S-11 with the Commission on September 9, 1996,
         and are incorporated by reference herein.

(2)      These exhibits were previously contained in Amendment No. 1 to the
         Registrant's Registration Statement filed on Form S-11 with the
         Commission on January 15, 1997, and are incorporated by reference
         herein.

(3)      This exhibit was previously contained in Amendment No. 2 to the
         Registrant's Registration Statement filed on Form S-11 with the
         Commission on February 6, 1997 and is incorporated by reference herein.

(5)      These exhibits were previously contained in Post-Effective Amendment
         No. 3 to the Registrant's Registration Statement filed on Form S-11
         with the Commission on December 10, 1997, and are incorporated by
         reference herein.

(6)      These exhibits were previously contained in Form 10-Q for the period
         ending June 30, 1997 filed with the Commission on August 14, 1997, and
         are incorporated by reference herein.

(7)      This exhibit was previously contained in Form 10-K for the period
         ending December 31, 1998 filed with the Commission on April 10, 1999,
         and are incorporated by reference herein.

                                       29
<PAGE>
(b) Reports on Form 8-K.

         None.

(c)      Miscellaneous Exhibits

         Exhibit "A":  Press Release, dated November 14, 2002 regarding Earnings
         for Third Quarter (1.1)

         Exhibit "B":  Press Release, dated January 22, 2003 regarding Dividend
         for First Quarter (1.2)

         Exhibit "C":  Press Release regarding date and record date of Annual
         Meeting of Shareholders (1.3)

ITEM 14. CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures. The Chief Executive
Officer, the President and Chief Operating Officer, and the Executive
Vice-President and Chief Financial Officer of the Trust have, based on their
evaluation of the Trust's disclosure controls and procedures with 90 days of the
filing date of this annual report, evaluated the effectiveness of such controls
and procedures. Based on such evaluations, they have concluded that the Trust's
disclosure controls and procedures have effectively operated to ensure that all
material information relating to the Trust and its operations and financial
condition has been made known to them by other officers and employees within the
Trust and its Manager on a timely basis.

(b) Changes in Internal Controls. There were no significant changes in the
Trust's internal controls or in other factors that could significantly affect
those controls subsequently to the date of the evaluation set forth in item
14(a).


ITEM 15. NOT APPLICABLE

ITEM 16. PRINCIPAL ACCOUNTANT FEES AND SERVICES

         The Company's independent auditors also provided to the Audit Committee
the written disclosures required by Independence Standards Board Standard No. 1
(Independence Discussions with Audit Committees), and the Audit Committee
discussed with the independent auditors' their independence.

         As our independent auditors, Novogradac & Company LLP audits our
financial statements and performs audit-related services and consultation in
connection with various accounting and financial reporting matters. Novogradac &
Company LLP also performs certain non-audit services for the Company. The Audit
Committee has determined that the provision of the services provided by
Novogradac & Company LLP as set forth herein are compatible with maintaining
Novogradac & Company LLP's independence and the prohibitions on performing
non-audit services set forth in the Sarbanes-Oxley Act and relevant Securities
and Exchange Commission rules.

         Audit Fees. Fees for the fiscal year ended December 31, 2002 audit and
the quarterly review of Forms 10-Q were $36,000.

         Financial Information Systems Design and Implementation Fees.
Novogradac & Company LLP did not render any services related to financial
information system design and implementation for the fiscal year ended December
31, 2002.

         All Other Fees. Aggregate fees for all other services rendered by
Novogradac & Company LLP for the fiscal year ended December 31, 2002 were
$7,000.

                                       30
<PAGE>
         Based upon the Audit Committee's discussion with management and the
independent auditors and the Audit Committee review of the representations of
management and the report of the independent accountants to the Audit Committee,
the Audit Committee recommended that the Board of Directors include the
Company's audited financial statements in the Company's Annual Report on Form
10-KSB for the year ended December 31, 2002 filed with the Securities and
Exchange Commission.

                                   SIGNATURES

         Pursuant to the requirements of Section 13 or 15(D) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, hereunto duly authorized.

                                             Capital Alliance Income Trust, Ltd.
Dated: April 15, 2003                        A Real Estate Investment Trust

By: /s/Richard J. Wrensen                    By: /s/ Thomas B. Swartz
-------------------------                    ------------------------
     Richard J. Wrensen                          Thomas B. Swartz
     Executive Vice President                    Chairman
     Chief Financial Officer                     Chief Executive Officer

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


/s/ Thomas B. Swartz                                  Dated: April 15, 2003
--------------------
Thomas B. Swartz
Chairman and Chief Executive Officer
(Principal Executive Officer)


/s/ Richard J. Wrensen                                Dated: April 15, 2003
----------------------
Richard J. Wrensen
Chief Financial Officer and Director
(Principal Financial and Accounting Officer)


/s/ Dennis R. Konczal                                 Dated: April 15, 2003
---------------------
Dennis R. Konczal
President and Director


/s/ Stanley C. Brooks                                 Dated: April 15, 2003
---------------------
Stanley C. Brooks
Director


/s/ Harvey Blomberg                                   Dated: April 15, 2003
-------------------
Harvey Blomberg
Director


/s/ Donald R. Looper                                  Dated:  April 15, 2003
--------------------
Donald R. Looper
Director

                                       31
<PAGE>
                                  CERTIFICATION

          CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
            PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Capital Alliance Income Trust Ltd. (the
"Company") on Form 10-KSB for the period ending December 31, 2002 as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Thomas B. Swartz, Chief Executive Officer of the Company, Richard J. Wrensen,
Chief Financial Officer of the Company, and I, Dennis R, Konczal, President and
Chief Operating Officer of the Company, certify, pursuant to 18 U.S.C. ss. 1350,
as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

         (1)      The Report fully compiles with the requirements of section
                  13(a) or 15(d) of the Securities Exchange Act of 1934; and

         (2)      The information contained in the Report fairly presents, in
                  all material respects, the financial condition and result of
                  operations of the Company.


Date: April 15, 2003
                                         /s/ Thomas B. Swartz
                                         --------------------
                                         Thomas B. Swartz
                                         Chairman and Chief Executive Officer


                                         /s/ Richard J. Wrensen
                                         ----------------------
                                         Richard J. Wrensen
                                         Executive Vice President and
                                         Chief Financial Officer and


                                         /s/ Dennis R. Konczal
                                         ---------------------
                                         Dennis R. Konczal
                                         President and Chief Operating Officer



                                       32
<PAGE>
                                  CERTIFICATION
              OF FORM 10-KSB OF CAPITAL ALLIANCE INCOME TRUST LTD.,
                     A REAL ESTATE INVESTMENT TRUST FOR THE
                         PERIOD ENDING DECEMBER 31, 2002


Under Rules 13a-14 and 15d-14 of the Securities Exchange Act of 1934


The undersigned each individually certifies that:

1.       I have reviewed this Form 10-KSB, dated April 15, 2003 of Capital
         Alliance Income Trust, Ltd., A Real Estate Investment Trust:

2.       Based on my knowledge, this annual report does not contain any untrue
         statement of a 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 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 flow of the registrant as of, and for, the periods presented in
         this annual report;

4.       The registrant's other certifying officers 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
         we have:

         o        designed such disclosure controls and procedures to ensure
                  that material information relating to the registrant, is made
                  known to us by others within those entities, particularly
                  during the period in which this report in being prepared;
         o        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
         o        presented in this 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 officers have disclosed, based on our
         most recent evaluation, to the registrant's auditors and the audit
         committee of registrant's board of directors:

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

6.       The registrant's other certifying officers have indicated in this
         annual report, whether 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.

 [SIGNATURES ON NEXT PAGE]

                                       33
<PAGE>

Date: April 15, 2003

                                       /s/ Thomas B. Swartz
                                       --------------------
                                       Thomas B. Swartz
                                       Chairman and Chief Executive Officer


                                       /s/ Richard J. Wrensen
                                       ----------------------
                                       Richard J. Wrensen
                                       Executive Vice President and
                                       Chief Financial Officer and


                                       /s/ Dennis R. Konczal
                                       ---------------------
                                       Dennis R. Konczal
                                       President and Chief Operating Officer


                                       34
<PAGE>
                                   EXHIBIT "A"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                       ANNOUNCES RESULTS OF OPERATIONS AND
                           EARNINGS FOR THIRD QUARTER

SAN FRANCISCO - (BUSINESS WIRE) - November 14, 2002 - Capital Alliance Income
Trust Ltd ("CAIT") (Amex: CAA - News), a residential mortgage REIT, operating
both mortgage investment and mortgage banking businesses, announced earnings of
$208,685 ($0.29 basic and $0.23 diluted) for the three months ending September
30, 2002 and $825,250 ($1.35 basic and $1.12 diluted) for the nine months ended
September 30, 2002, as compared to $325,662 ($0.48 basic and $0.43 diluted) and
$842,131 ($0.97 basic and $0.88 diluted) for the like periods in 2001. Revenues
were $639,108 and $2,138,860 for the three and nine month periods ending
September 30, 2002, compared to $829,642 and $2,126,928 for the same periods in
2001. CAIT's Board of Directors previously declared a cash dividend of $0.45 per
share, payable November 15, 2002 for the fourth quarter of 2002. Based on the
closing stock price on November 13, 2002, CAIT's $1.80 annualized common share
dividend yield is 9.9%.

Richard J. Wrensen, Executive Vice President and Chief Financial Officer of CAIT
noted that "the primary cause of the reduction in CAIT's earnings in the third
quarter was the pre-emptive establishment of larger loss reserves by CAIT and
its mortgage banking subsidiary, Capital Alliance Funding Corporation ("CAFC").
Recent macro-economic trends in the California economy including higher
unemployment, escalating bankruptcies, increased delinquencies and heightened
foreclosure rates suggest an increased reserve for potential loan losses is
prudent." During the third quarter, CAIT and CAFC increased their reserves by
$188,000 or approximately .74% of the combined loan portfolio. As of September
30, 2002, the combined loan loss reserve at $490,000 is 1.94% or 194 bps of
CAIT's and CAFC's combined loan portfolio.

Thomas B. Swartz, Chairman and Chief Executive Officer of CAIT also noted "that
both CAIT and CAFC manage risk through their underwriting and investment
process. All loans with a combined loan-to-value ratio of greater than 75% of
the collateral's appraised value at the time of funding are pre-sold into the
secondary mortgage market. Only residential loans with a combined loan-to-value
ratio of 75% or less are retained in CAIT's portfolio of mortgage investments.
On September 30, 2002, the combined loan-to-value of CAIT's portfolio was 67.4%.
The properties owner's unencumbered equity provides a significant buffer to
mitigate potential loan loss."

CAIT is a specialty residential lender which originates and invests in
conforming and high-yielding, non-conforming residential mortgage loans on
one-to-four unit residential properties located primarily in California and
other western states. It also originates loans for sale to investors, on a
whole-loan basis for cash through its mortgage banking subsidiary, Capital
Alliance Funding Corporation.

This document contains "forward-looking statements" (within the meaning of the
Private Securities Litigation Reform Act of 1995) that inherently involve risks
and uncertainties. CAIT's actual results and liquidity can differ materially
from those anticipated in these forward-looking statements because of changes in
the level and composition of CAIT's investments and unforeseen factors. As
discussed in CAIT's filings with the Securities and Exchange Commission, these
factors may include, but are not limited to, changes in general economic
conditions, the availability of suitable investments, fluctuations in and market
expectations for fluctuations in interest rates and levels of mortgage
prepayments, deterioration in credit quality and ratings, the effectiveness of
risk management strategies, the impact of leverage, the liquidity of secondary
markets and credit markets, increases in costs and other general competitive
factors.

Contact:          Capital Alliance Income Trust Ltd., San Francisco
                  Richard J. Wrensen, Executive Vice President and CFO
                  415/288-9575
                  rwrensen@calliance.com
                  www.calliance.com

                                       35
<PAGE>
                                   EXHIBIT "B"

                  CAPITAL ALLIANCE INCOME TRUST LTD. ANNOUNCES
            THIRD CONSECUTIVE QUARTERLY DIVIDEND AT $1.80 ANNUAL RATE

SAN FRANCISCO - (BUSINESS WIRE) - January 22, 2003 - Capital Alliance Income
Trust Ltd. ("CAIT") (AMEX: CAA-news) announced that its Board has declared a
dividend of $0.45 per Common Share for the first quarter of 2003. This is CAIT's
third consecutive quarterly dividend at an annualized rate of $1.80. Based on
the current common stock price of $16.50 per share, the annualized dividend
yield is 10.91%. The dividend is payable on February 18, 2003 to shareholders of
record on February 10, 2003.

Thomas B. Swartz, Chairman and Chief Executive Officer of CAIT observed that the
President's Tax Plan, which proposes the elimination of shareholders' payment of
taxes on dividends that are taxed at the corporate level, has prompted numerous
articles. Mr. Swartz noted that not only is the President's proposal a long way
from being enacted in its current form, but also, that the consequences for CAIT
shareholders do not appear to be nearly as dire as some of the articles portray.
To the contrary, many analysts believe that the "yields offered by non-REIT
public companies would continue to be at levels well below REIT yields" and that
"investors seeking yields should probably stick with REITs." In that regard, Mr.
Swartz, concluded that even if the Tax Plan is enacted in its current form,
CAIT's current after tax dividend yield of 6.54% (at 40% marginal tax rate)
would compare favorably with a tax-free 1.71% yield for companies in the S&P 500
Index.

CAIT is a specialty residential lender which originates and invests in
conforming and high-yielding, non-conforming residential mortgage loans on
one-to-four-unit-residential properties located primarily in California and
other western states. It also originates loans for sale to investors, on a
whole-loan basis for cash through its mortgage banking subsidiary, Capital
Alliance Funding Corporation. All loans with a combined loan-to-value ratio of
greater than 75% of the collateral's appraised value at the time of funding are
pre-sold into the secondary market. Only residential loans with a combined
loan-to-value of 75% or less are retained in CAIT's portfolio of mortgage
investments.

This document contains "forward-looking statements" (within the meaning of the
Private Securities Litigation Reform Act of 1995) that inherently involve risks
and uncertainties. CAIT's actual results and liquidity can differ materially
from those anticipated in these forward-looking statements because of changes in
the level and composition of CAIT's investments and unforeseen factors. As
discussed in CAIT's filings with the Securities and Exchange Commission, these
factors may include, but are not limited to, changes in general economic
conditions, the availability of suitable investments, fluctuations in and market
expectations for fluctuations in interest rates and levels of mortgage
prepayments, deterioration in credit quality and ratings, the effectiveness of
risk management strategies, the impact of leverage, the liquidity of secondary
markets and credit markets, increases in costs and other general competitive
factors.

Contact:    Capital Alliance Income Trust Ltd., San Francisco
            Richard J. Wrensen, Executive Vice President and CFO, 415/288-9575
            rwrensen@calliance.com
            www.calliance.com

                                       36
<PAGE>
                             EXHIBIT "C"


                       CAPITAL ALLIANCE INCOME TRUST LTD.
              ANNOUNCES RECORD DATE FOR AND DATE OF ANNUAL MEETING

SAN FRANCISCO--(BUSINESS WIRE)--March 21, 2003--Capital Alliance Income Trust
Ltd. ("CAIT") (AMEX: CAA-news), a specialty residential finance company,
announced the following dates relating to its Annual Shareholders Meeting:

                  Annual Meeting Date:                        June 6, 2003
                  Annual Meeting Record Date:                 April 8, 2003

The Annual Meeting will be held at the offices of the Company, 50 California
Street, Suite 2020, San Francisco, CA 94111 at 10:00 a.m.

CAIT is a specialty residential mortgage lender which invests in high-yielding,
conforming and non-conforming residential mortgage loans on one-to-four unit
residential properties located primarily in California and other western states.
It also originates conforming and non-conforming loans for sale to investors on
a whole loan basis for cash through its mortgage banking subsidiary, Capital
Alliance Funding Corporation.

Contact:          Capital Alliance Income Trust, Ltd.
                  Jennifer S. Austin, Corporate Secretary
                  415/ 288-9575

                                       37