UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM 10-Q
(Mark One)
(X) Quarterly Report Under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2001
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 Identification Number)
incorporation or organization)
50 California Street
Suite 2020
San Francisco, California 94111
- --------------------------------------- ------------------------
(Address of principal executive office) (zip code)
(415) 288-9575
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X_ No __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of October 26, 2001, the registrant's common shares closed at $12.55 per
share and the aggregate market value of the registrant's common shares held by
non-affiliates of the registrant was approximately $4,346,479. At that date
approximately 346,333 shares of $.01 par value common stock were held by
non-affiliates of the registrant. The shares are listed on the American Stock
Exchange.
PART I
ITEM 1.
FINANCIAL STATEMENTS
2
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
(Unaudited) (Audited)
September 30, 2001 December 31, 2000
------------------ -----------------
Cash and cash equivalents $ 174,039 $ 368,241
Restricted cash 232,037 654,084
Accounts receivable 298,958 293,592
Notes receivable:
Warehouse lines of credit to related parties 6,183,122 4,744,674
Mortgage notes recievable 15,427,476 11,906,589
Allowance for loan losses (150,056) (80,000)
------------ ------------
Net Receivable 21,460,542 16,571,263
Real estate owned 424,188 530,000
Investments in affiliates 964,925 603,459
Origination costs (net) 197,131 197,131
Prepaid items (net) 37,171 81,562
------------ ------------
Total assets $ 23,788,991 $ 19,299,332
============ ============
Liabilities
Mortgage note holdbacks $ 232,037 $ 654,084
Loans payable 9,351,851 3,737,511
Due to (from) affiliate 44,781 42,190
Other liabilities 218,276 155,383
------------ ------------
Total liabilities 9,846,945 4,589,168
------------ ------------
Stockholders' Equity
Preferred stock, $.01 par value; 675,000 shares authorized; 2,138 6,413
641,283 shares issued and outstanding at December 31, 2000;
213,761 shares issued and outstanding at September 30, 2001
Additional paid in capital - preferred stock 5,669,123 5,664,848
Less: 9,526 preferred shares held in treasury at cost (2000) -- (86,944)
Less: 3,176 preferred shares held in treasury at cost (2001) (86,944) --
Common stock, $.01 par value; 5,000,000 shares authorized; 4,949 14,847
1,484,740 shares issued and outstanding at December 31, 2000;
494,913 shares issued and outstanding at September 30, 2001
Additional paid in capital - common stock 9,448,588 9,361,000
Less: 81,479 common shares held in treasury at cost (2000) -- (250,000)
Less: 91,066 common shares held in treasury at cost (2001) (1,095,808) --
------------ ------------
Total stockholders' equity 13,942,046 14,710,164
------------ ------------
Total liabilities and stockholders' equity $ 23,788,991 $ 19,299,332
============ ============
3
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Three Months Ended Nine Months Ended
September 30, September 30,
2001 2000 2001 2000
---- ---- ---- ----
REVENUES
Interest income $ 501,539 $ 457,893 $ 1,333,186 $ 1,265,733
Interest income from affiliates 176,504 111,978 428,354 324,170
Investment income from affiliates 135,872 (213,995) 331,248 (462,502)
Other income 15,727 1,230 34,140 5,526
----------- ----------- ----------- -----------
Total revenues 829,642 357,106 2,126,928 1,132,927
----------- ----------- ----------- -----------
EXPENSES
Loan servicing fees to related parties 110,960 78,500 311,107 230,924
Management fees to related parties 73,001 39,000 187,951 114,656
Interest expense 177,698 93,680 412,620 213,834
Provision for loan losses 67,816 41,000 143,387 76,500
Operating expenses of REO 3,139 7,274 13,021 18,010
Taxes 10,100 5,734 21,765 18,434
General and administrative 61,266 25,978 194,946 98,831
----------- ----------- ----------- -----------
Total expenses 503,980 291,166 1,284,797 771,189
----------- ----------- ----------- -----------
Income Before Gain (Loss) on REO $ 325,662 $ 65,940 $ 842,131 $ 361,738
Gain (Loss) on Real Estate Owned -- -- -- (2,524)
----------- ----------- ----------- -----------
NET INCOME $ 325,662 $ 65,940 $ 842,131 $ 359,214
=========== =========== =========== ===========
PREFERRED DIVIDENDS $ 116,364 $ 156,793 $ 393,898 $ 460,627
BASIC EARNINGS PER
COMMON SHARE $ 0.47 $ (0.06) $ 0.97 $ (0.07)
DILUTED EARNINGS PER
COMMON SHARE $ 0.43 $ (0.06) $ 0.88 $ (0.07)
DIVIDENDS PAID PER
COMMON SHARE $ 0.255 $ 0.085 $ 0.765 $ 0.255
WEIGHTED AVERAGE COMMON
SHARES - BASIC EARNINGS 438,936 1,458,940 460,913 1,476,140
WEIGHTED AVERAGE COMMON
SHARES - DILUTED EARNINGS 489,304 1,482,940 511,281 1,484,140
* The 2001 presentation fully reflects the May 11, 2001 reverse stock split
See accompanying notes to financial statements.
4
Nine Months Ended
September 30,
2001 2000
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 842,131 $ 359,214
Adjustments to reconcile net income to net cash:
Amortization - prepaid expenses 44,391 (76,250)
Gain (loss) on real estate owned -- --
(Increase) decrease in accounts receivable (5,366) (9,495)
Provision for loan loss 70,056 (8,500)
Increase (decrease) in due to / due from affiliates 2,591 637,491
Increase (decrease) in other liabilities 62,893 (28,144)
------------ ------------
Net cash provided by (used in) operating activities 1,016,696 874,316
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in restricted cash 422,047 86,942
Increase (decrease) in mortgage note holdbacks (422,047) (86,942)
Increase (decrease) in origination costs -- --
(Increase) decrease in warehouse lines of credit (1,438,448) (784,444)
(Increase) in investments (361,466) 71,502
Investments in mortgage notes receivable (12,901,385) (6,793,241)
Repayments of mortgage notes receivable 9,380,496 6,574,083
Net proceeds from sale of real estate owned 108,250 --
Capital costs of foreclosed property (2,438) (1,051,621)
------------ ------------
Net cash provided by (used in) investing (5,214,991) (1,983,721)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Increase (decrease) in loans payable 5,614,340 2,246,055
Redemption of shares (845,808) (149,481)
Preferred dividends paid (393,898) (460,627)
Common dividends paid (370,541) (378,609)
------------ ------------
Net cash provided by (used in) financing activities 4,004,093 1,257,338
------------ ------------
NET INCREASE (DECREASE) IN CASH (194,202) 147,933
CASH AT BEGINNING OF PERIOD 368,241 41,939
------------ ------------
CASH AT END OF PERIOD $ 174,039 $ 189,872
============ ============
SUPPLEMENTAL CASHFLOW INFORMATION:
Interest expense paid $ 354,682 $ 198,834
Taxes paid $ 15,865 $ 18,434
Contribution to affiliate (note 11) $ 30,219 $ 100,000
5
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the nine months ended September 30, 2001 and 2000
(Unaudited)
1. Organization
------------
Capital Alliance Income Trust Ltd., A Real Estate Investment Trust (the
"Trust"), a Delaware corporation, primarily invests 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 Manager, Capital Alliance Advisors, Inc. (the
"Manager"), originates, services, and sells the Trust's loans.
2. Basis of presentation
---------------------
The accompanying financial statements include the accounts of the Trust.
The financial information presented has been prepared from the books and
records without audit. The accompanying financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and the footnotes required by generally
accepted accounting principles for complete statements. In the opinion of
management, all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such financial
statements, have been included.
These financial statements should be read in conjunction with the
financial statements and notes thereto for the year ended December 31,
2000 filed pursuant to 15d-2 on Form 10-K with the Securities and
Exchange Commission.
The unaudited interim financial statements for the nine months ended
September 30, 2001 and September 30, 2000 represent the financial
statements of the Trust.
3. Summary of significant accounting policies
------------------------------------------
Use of estimates. The preparation of financial statements in conformity
with generally accepted accounting principals requires management to make
estimates and assumptions that effect the accounts reported in financial
statements and the 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.
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 reviews 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.
6
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the nine months ended September 30, 2001 and 2000
(Unaudited)
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 portfolio may be affected
by changes in the economy or other conditions of the geographic 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 sufficient to
protect against losses in the loan portfolio. Accounts receivable
deemed uncollectible are written off or reserved. The Trust does not
accrue interest income on impaired loans (Note 5). As of September 30,
2001 and September 30, 2000, the loan loss reserves were $150,056 and
$76,500, respectively.
Investments. The Trust has an investment in Capital Alliance Funding
Corporation which is accounted for under the equity method of accounting
and further described in Note 11.
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 will not be
subject to federal corporate income taxes, if the Trust distributes at
least 90% (95% in 2000) of its taxable income to its shareholders. 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 Trusts
organization, sources of income, nature of assets, and distribution of
assets to shareholders. The Trust must maintain certain records and
request certain information from its stockholders designed to disclose
actual ownership of its stock. In addition the Trust must satisfy certain
gross income requirements 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 elect to be taxed as a REIT since inception, no provision for
federal income taxes has been made in the financial statements.
Fair value of financial instruments. For cash and cash equivalents, the
carrying amount is a reasonable estimate of fair value. For mortgage note
receivables, fair value is estimated by discounting the future cash flows
using the 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.
7
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the nine months ended September 30, 2001 and 2000
(Unaudited)
Origination costs. Origination costs relating to mortgage notes
receivable are deferred and recognized as an adjustment to yield over the
term of the notes.
Real estate owned. Real estate owned results from foreclosure of loans
and at time of foreclosure is recorded at the lower of carrying amount or
fair value of the property minus estimated costs to sell. At this time
senior debt to which the asset is subject is reported as mortgage
payable. Subsequent to foreclosure, the foreclosed asset value is
periodically reviewed and is adjusted to fair value. No depreciation is
taken on the real estate held for sale. Income and expenses related to
real estate owned are recorded as other income, interest expense and
general and administrative expenses on the Statements of Operations.
Reclassifications. Certain 2000 amounts have been reclassified to
conform with 2001 classifications. Such reclassifications had no
effect on reported net income.
4. Restricted cash and mortgage note holdbacks
-------------------------------------------
Pursuant to mortgage loan agreements between the Trust and certain of its
borrowers, a portion of the loan proceeds are held by the Trust in
segregated accounts to be disbursed only to such borrowers upon
completion of certain improvements on the secured property. As of
September 30, 2001 and December 31, 2000 mortgage note holdbacks amounted
to $232,037 and $654,084, respectively.
5. Mortgage notes receivable
-------------------------
Mortgage notes receivable represent home equity loans secured by
residential real estate. At the time of origination, all loans have a
combined loan-to-value of not more 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 due as a
balloon payment at loan maturity.
6. Accounts receivable
-------------------
Accounts receivable consists of accrued interest on mortgage notes
receivable and other amounts due from borrowers.
7. Notes payable
-------------
As of September 30, 2001 and December 31, 2000, the Trust had borrowed
$7,101,851 and $2,231,873 under a two-year warehouse line of credit. The
Trust receives advances under the agreement up to a maximum of
$7,000,000, with the mortgage loans pledged as collateral against the
advances received. The loan balance was reduced to $7,000,000 in early
October 2001. Annual interest is the preceding 30 day average of 1 month
LIBOR (London Interbank
8
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the nine months ended September 30, 2001 and 2000
(Unaudited)
Offered Rate for U.S. dollar deposits) plus 2.00% (3.17% for
September, 2001) and is payable monthly. Maturity date for this line
of credit is September 26, 2002.
As of September 30, 2001 and December 31, 2000, the Trust had borrowed
$2,250,000 and $1,505,638, respectively under another warehouse line of
credit. The Trust receives advances under the agreement up to a maximum
of $2,250,000, with the mortgage loans pledged as collateral against the
advances received. Annual interest is the applicable prime rate plus .50%
(6.00% as of September 30, 2001) and is payable monthly. Maturity date
for this line of credit is April 15, 2002.
As of September 30, 2001, the Trust had borrowed at 12% per annum an
unsecured $97,500 demand note payable to CAlliance Realty Fund, LLC, a
related party, with interest payable monthly.
8. Related party transactions
--------------------------
The Manager, which is owned by several of the Trustees and their
affiliate, contracted with the Trust to provide administration services
and receives a fee for these services from the Trust. The Manager is also
entitled to reimbursement for clerical and administrative services at
cost based on relative utilization of facilities and personnel. The
Manager bears all expenses of services for which it is separately
compensated.
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 Asset") 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
disposition of real estate owned by the Trust and includes any applicable
incentive compensation. The total management fees paid by the Trust to
the Manager were $187,951 and $114,456 for the nine months ended
September 30, 2001 and September 30, 2000, 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
equity for such quarter equal to the ten year U.S. Treasury Rate plus 2%
provided that the payment of such incentive compensation does not reduce
the Trust's annualized return on equity for such quarter to less than the
ten year U.S. Treasury Rate plus 2% after the preferred dividend has been
paid. As of September 30, 2001, incentive compensation of $12,000 was
paid while as of September 30, 2000, no incentive compensation was paid.
Incentive compensation awards are reported as part of management fees.
The Manager also 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. The Trust paid the manager a
loan origination and servicing fee of $311,107 and $230,924 for the nine
months ended September 30, 2001 and September 30, 2000, respectively.
9
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the nine months ended September 30, 2001 and 2000
(Unaudited)
The Manager also receives incentive compensation for each fiscal quarter,
equal to 25% of the net income of the Trust in excess of an annualized
return on equity for such quarter equal to the ten year U.S. Treasury
Rate plus 2% provided that the payment of such incentive compensation
does not reduce the Trust's annualized return on equity for such quarter
to less than the ten year U.S. Treasury Rate plus 2% after the preferred
dividend has been paid. As of September 30, 2001, incentive compensation
of $12,000 was paid while as of September 30, 2000, no incentive
compensation was paid.
The Trust holds an investment in Capital Alliance Funding Corporation
("CAFC") that originates and sells residential mortgage loans. The Trust
owns 100% of the outstanding non- voting preferred shares of CAFC with a
99% equity interest. For the nine months ended September 30, 2001 and
September 30, 2000, the Trust was allocated a gain of $331,248 and a loss
of $462,502, respectively.
The Trust entered into a loan purchase agreement on December 12, 1997
with 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 price. As of
September 30, 2001 and December 31, 2000, the Trust advanced to CAFC
$6,183,122 and $3,501,940, respectively. During 2001, the annual interest
rate on this line of credit has averaged 10%. During 2000, the annual
interest on this line of credit is equaled the interest rate of the
mortgage loans pledged. Interest is payable monthly.
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 September 30,
2001 and December 31, 2000, the Trust advanced to CRF $0 and $1,242,734,
respectively. Annual interest on this line of credit is 12% and is
payable monthly. However, as of As of September 30, 2001, the Trust had
borrowed at 12% per annum an unsecured $97,500 demand note payable to
CAlliance Realty Fund, LLC, a related party, with interest payable
monthly.
The Trust held an investment in Sierra Capital Acceptance ("SCA"), a
division of Sierra Capital Funding, LLC ("SCF"), a Delaware Limited
Liability Company which originated and sold residential mortgages. SCA
operated as a separate operating division of SCF. The Trust's investment
received a 15% preferential interest distribution per annum. Sierra
Capital Services, Inc., a related party, owned 99% of the common shares
of the Sierra Division of SCF and maintained voting control. SCA ceased
operations during 2000.
9. Preferred stock and common stock
--------------------------------
10
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the nine months ended September 30, 2001 and 2000
(Unaudited)
The Preferred Shares are entitled to a distribution preference in an
amount equal to an annualized return on the Aggregate 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) equal to the lesser of 10.25% or 150 basis
points over the Prime Rate (determined on a not less than quarterly
basis).
After declaration of dividends for a given quarter to the Preferred
Shares in the amount of the distribution preference, no further
distributions may be declared on the Preferred Shares for the quarter
until the current Distributions declared on each Common Share for that
quarter equals the distribution preference for each Preferred Share for
such quarter. Any additional distributions generally will be allocated
such that the amount of distributions per share to the holders of the
Preferred Shares and Common Shares for the quarter are equal. The
distribution preference of the Preferred Shares is not cumulative.
Preferred Shares 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 the holders
of the Common Shares and Preferred Shares pro rata.
The Preferred Shares, at the option of the Board of Directors, are
redeemable by a Shareholder annually on June 30 for redemption requests
received by May 15 of such year. The Board of Directors may in their 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 Share is the Aggregate Adjusted Net Capital Contribution plus
unpaid accrued dividends, divided by all Preferred Shares outstanding. A
liquidation charge may be charged by the Trust in connection with a
redemption.
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 to prohibit the transfer of shares to persons that would
result in violation of the Trust's share holding requirements. In
addition, the Bylaws provide that no shareholder may own more than 9.8%
of the total outstanding shares after the conclusion of the initial
public offering of Common Shares.
One Shareholder Warrant was originally issued for every ten Common Shares
purchased. Each shareholder Warrant entitled the holder to purchase one
Common Share. The exercise price for each Shareholder Warrant was $5.60
On April 28, 2001 all issued Warrants expired unexercised.
During 2000 the Trust adopted a Stock Repurchase Plan and authorized the
purchase of $250,000 of Common Stock. In December 2000 and September 2001
an additional $150,000 and an additional $180,000 was authorized as part
of the Stock Repurchase Plan.
11
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the nine months ended September 30, 2001 and 2000
(Unaudited)
During 2000 the Trust purchased 81,479 Common Shares as treasury stock.
During the first quarter and second quarter of 2001, the Trust purchased
11,000 Common Shares as Treasury Stock and 5,600 post-reverse stock split
Common Shares as Treasury Stock respectively. The purchases were
recorded at cost. During the third quarter of 2001, 7,141 post-reverse
stock split Common Shares were purchased at cost. Additionally, the Board
authorized the purchase of 47,500 Common Shares from a third party at
$13.50 per share. This action was taken separately from the Stock
Repurchase Plan, where purchases are publicly conducted.
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 or consolidation of its Common and Preferred
Shares which became effective at the close of business on May 11, 2001.
Upon the effectiveness of the reverse split on May 11, 2001, 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, to
provide approximately 494,913 issued and outstanding Common Shares. The
Aggregate Adjusted Net Capital Contribution attributable to each Series
"A" Preferred Share increased to $26.51 per share, three (3) times the
prior Aggregate Adjusted Net Capital Contribution of each such Preferred
Share ($8.83) as of March 31, 2001. The authorized capital of the Trust
remains unchanged with 5,000,000 Common Shares and 675,000 Series "A"
Preferred Shares being authorized. The Trust's Board approved the reverse
split to enable shareholders to take advantage of margin purchases and
more favorable bid-ask spreads to lower transaction costs and to
facilitate a market price above $5.00 per share, which may enable the
Common Shares to obtain institutional interest which is otherwise
generally unavailable for shares trading below $5.00 per share. The
Board's approval of the reverse stock split was ratified by the
shareholders at the Trust's August 8, 2001 Annual Meeting
The 1998 Incentive Stock Option Plan, adopted by the board of directors
and approved by stockholders, provides options for the purchase of a
total of 247,500 Common Shares of the Trust. Officers and employees of
the Manager, and directors of the board are eligible recipients of the
options. The options have a term of ten years with a first exercise date
generally two (2) to six (6) months after the date of the grant. Options
for the purchase of 68,875 of Common Shares were granted April 1, 1999
with an adjusted exercise price of $13.50 per new Common Share. On
February 2, 2000, options for the purchase of 109,750 shares were granted
with an adjusted exercise price of $9.00 per new Common Share. On
February 8, 2001, options to purchase 68,875 shares were granted with an
adjusted exercise price of $9.06 per new Common Share. No options have
been exercised as of the date of this report.
12
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the nine months ended September 30, 2001 and 2000
(Unaudited)
10. Earnings per share
The following table is a reconciliation of the numerator and denominators
of the basic and diluted earnings per common share.
Three months ended Nine months ended
September 30, 2001 September 30, 2001
------------------ ------------------
Numerator:
Net income $325,622 $842,131
Less: Preferred Dividend $116,364 $393,898
-------- --------
Numerator for basic and diluted
earnings per share $209,298 $448,233
Denominator:
Basic weighted average shares 438,936 460,913
Effect of dilutive options 50,368 50,368
------ -------
Diluted weighted average shares 489,304 511,281
Basic earnings per common share $0.47 $0.97
Diluted earnings per common share $0.43 $0.88
11. Investment in affiliates.
------------------------
The Trust has a non-qualified REIT subsidiary, Capital Alliance Funding
Corporation ("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 the Common Shares (1,000) 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.
CAPITAL ALLIANCE FUNDING CORPORATION
Three months ended Nine months ended
September 30, 2001 September 30, 2001
------------------ ------------------
Revenue $655,907 $1,456,719
Expenses 528,972 1,142,332
-------- ----------
Net operating income 126,935 314,387
Gain/(loss) sale of assets 10,306 20,207
-------- ----------
Net Income (loss) $137,241 $334,594
-------- ----------
13
CAPITAL ALLIANCE INCOME TRUST LTD.,
A REAL ESTATE INVESTMENT TRUST
Notes to Financial Statements
For the nine months ended September 30, 2001 and 2000
(Unaudited)
During the third quarter of 2001, the Trust contributed a $30,219 mortgage note
receivable to Capital Alliance Funding Corporation. The transfer of the mortgage
note receivable is a non- cash transaction that is not shown on the Trust's
statements of cash flow.
September 30, 2001 December 31, 2000
------------------ -----------------
Total assets $10,486,301 $6,385,152
=========== ==========
Total liabilities $9,530,368 $5,794,031
Total stockholder equity $955,933 $591,121
-------- --------
Total liabilities and equity $10,486,301 $6,385,152
=========== ==========
During 2000 the Trust held a $200,000 preferred share investment in Sierra
Capital Acceptance ("SCA"), a division of Sierra Capital Funding, LLC. The
investment accrued distributions at 15% per annum. SCA ceased operations in
2000. The Trust received cash and applied the over collateralized portion of a
reverse repurchase agreement as settlement of the investment.
14
PART I
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The financial statements of Capital Alliance Income Trust Ltd., A Real Estate
Investment Trust (the "Trust") dated herein were prepared from the unaudited
books and ledgers of the Trust.
General
Recent Trends. The Trust invests in non-conforming mortgage loans on one-to-four
unit residential properties because management believes that there is a large
demand for non-conforming mortgage loans on these kinds of properties which
produce higher yields without comparably higher credit risks when compared with
conforming mortgage loans. Management invests primarily in A-, B, and C
credit-rated home equity loans secured by deeds of trust. In general, B and C
credit-rated home equity loans are made to borrowers with lower credit ratings
than borrowers of higher credit quality, such as A credit-rated home equity
loans. Home equity loans rated A-, B, and C tend to have higher rates of loss
and delinquency, but higher rates of interest than borrowers of higher credit
quality.
Management believes there is strong demand for non-conforming mortgage loans by
borrowers and strong demand by investors for high yielding, non-conforming
mortgages for securitization
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 subject of 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 escrow funds until
fulfillment of mortgage loan requirements, contacting delinquent borrowers,
foreclosing in the event of unremedied defaults and performing other
administrative duties. Mortgage loan origination and loan servicing were
provided to the Trust by CAAI, its Manager.
Commitments and Contingencies. As of September 30, 2001, the Trust's loan
portfolio included 92 loans totaling $15,427,476 of which seven loans totaling
$921,545 of the loan portfolio were over two months delinquent. In assessing the
collectibility of these delinquent mortgage loans, management has established a
loan loss reserve of $150,056, if it is necessary to foreclose upon the Mortgage
loans. The Trust generally issues loan commitments only on a conditional basis
and generally funds such loans promptly upon removal of any conditions.
Accordingly, the Trust did not have any commitments to fund loans as of
September 30, 2001 and September 30, 2000.
Results of Operations
The historical information presented herein is not necessarily indicative of
future operations.
Three months and nine months ended September 30, 2001 and 2000. Revenues for the
third quarter of 2001 increased to $829,642 as compared to $357,106 for the same
period in the previous year. Revenues for nine months of 2001 increased to
$2,126,937 as compared to $1,132,297 for the same period of the previous year.
15
The 2001 interest income and interest income from affiliates approximated the
results for the quarter and nine months, compared to the same period in the
previous year. The increased revenue is primarily due to the improved operating
results of Capital Alliance Funding Corporation.
Expenses for the third quarter 2001 increased to $503,980 as compared to
$291,166 for the same period in the previous year. Expenses for the nine-month
period of 2001 increased to $1,284,797 as compared to $771,189 for the same
period of the previous year.
The increase in the third quarter of 2001 compared to 2000 is due to a higher
reserve for loan losses, increased interest expenses from greater borrowings,
greater administration expenses, and CAAI fees primarily due to a larger loan
portfolio. The increase in the nine months of 2001 compared to 2000 is similarly
explained.
Inflation
The financial statements of the Trust, prepared in accordance with generally
accepted accounting principles, 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 operations primarily through
its effect on interest rates, since interest rates normally increase during
period of high inflation and decrease during periods of low inflation. When
interest rates increase, the demand for mortgage loans and a borrower's ability
to qualify for mortgage financing may be adversely affected.
Liquidity and Capital Resources
The liquidity of the Trust will be based upon the need to fund investments in
mortgage loans, the repayment of existing mortgage loans, the sale of foreclosed
properties, and the continued availability of external credit facilities.
Net cash provided by operating activities during the nine months ended September
30, 2001 and 2000 was $1,016,696 and $874,316, respectively. The 2001 net cash
provided by operations is primarily generated by net income and increased
borrowing from an affiliate. The 2000 results are primarily generated by net
income and the assumption of a real estate owned liability.
Net cash (used in) investing activities for the nine months ended September 30,
2001 and 2000 was ($5,214,991) and ($1,983,721), respectively. The 2001 net cash
used in investing activities is primarily the result of an increase in the
warehouse line of credit to Capital Alliance Funding Corporation and a
significant net increase in the mortgage notes receivable. The 2000 results are
primarily generated by an increase in real estate owned and a net increase in
mortgage notes receivable.
Net cash provided by financing activities during the nine months ended September
30, 2001 and 2000 was $4,004,093 and $1,257,338, respectively. Both the 2001 and
2000 results are generated by significant increases in loans payable and reduced
by dividends paid and the purchase of CAIT common stock as treasury stock.
The Trust has two warehouse lines of credit for $7,000,000 and $2,250,000 with
two different lenders. CAFC has a $5,000,000 warehouse line of credit. The Trust
has also extended a warehouse line of credit to CAFC and the Mortgage Division
of CAlliance Realty Fund, LLC ("CRF"). Management believes that cash flow from
operations, the proceeds of loan repayments plus the renewal of warehouse lines
of credit for the Mortgage Conduit Business will be sufficient to meet the
liquidity needs of the Trust's businesses for the next twelve months.
16
Year 2000
The Trust has not incurred any significant costs or suffered any operational
problems from Year 2000 compliance.
PART I
ITEM 3.
QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
Forwarding-Looking Statements
Certain statements contained herein are not, 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.
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 September 30, 2001 balance sheet of 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. As
the level of LIBOR 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 (26 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.
17
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 assumed losses in the Trust's portfolio would
reduce the third quarter 2001 GAAP income applicable to common shareholders by
$67,816 or 32%.
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 (26 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 a variable rate line of credit that resets
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 (as prevailed during the first three quarters
of 2001) 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.
18
PART II
OTHER INFORMATION
ITEM 1 LEGAL PROCEEDINGS
The Trust is not involved in any legal proceedings at this time.
ITEM 2 CHANGES IN SECURITIES
During the third quarterly period ending September 30, 2001, the
Trust purchased 54,641 (post reverse split) Common Shares.
ITEM 3 DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Trust held its 2001 Annual Meeting on August 8, 2001. At
the Annual Meeting, Directors Stanley C. Brooks and Dennis
R. Konczal were reelected as Class II Directors for a
three-year term. Directors Thomas B. Swartz, Harvey
Blomberg, Richard J. Wrensen, and Donald R. Looper, whose
terms continued for two, two, one, and one years,
respectively, continue as Directors.
The Shareholders ratified the selection of Novogradac & Company
LLP as independent public accountants and auditors for the Trust
with 1,011,484 shares voting in favor of such approval, 18,304
shares against and 119,727 abstaining.
The Shareholders also ratified and approved the actions of
the Board of Directors since the last Annual Meeting of
Shareholders as set forth in the Annual Report, including
the revision of the Trust's capital structure to authorize
the use of increased leverage equal to four times the
capital base of the Trust; the change in the Trust's
business strategy to re-emphasize the Trust's portfolio
lending business; the implementation of a stock repurchase
plan; and the one-for three combination or reverse stock
split of the Trust's Common and Preferred Shares with
1,024,303 shares voting in favor of such approvals, 58,269
shares disapproving, and 108,073 shares abstaining.
ITEM 5 OTHER INFORMATION
Press Release, Exhibit "A" attached hereto and incorporated
herein, regarding Capital Alliance Income Trust Ltd.'s
announcement of postponement of annual meeting of shareholders.
Press Release, Exhibit "B"attached hereto and incorporated
herein, regarding Capital Alliance Income Trust Ltd.'s
announcement of improved earnings and operating results for the
second quarter and first half of 2001.
Press Release, Exhibit "C"attached hereto and incorporated
herein, regarding Capital Alliance Income Trust's announcement
of accretive purchase of common shares and continued improvement
in operating results.
19
Press Release, Exhibit "D"attached hereto and incorporated
herein, regarding Capital Alliance Income Trust Ltd.'s
announcement of increased fourth quarterly dividend and reports
continued improvement in operating results.
ITEM 6 REPORTS ON FORM 8-K
Not applicable.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CAPITAL ALLIANCE INCOME TRUST LTD.,
A Real Estate Investment Trust
Dated: November 9, 2001 By: /s/ Thomas B. Swartz
------------------------------------
Thomas B. Swartz,
Chairman and Chief Executive Officer
Dated: November 9, 2001 By: /s/ Richard J. Wrensen
-------------------------------------
Richard J. Wrensen,
Executive Vice President
and Chief Financial Officer
21
EXHIBIT "A"
CAPITAL ALLIANCE INCOME TRUST LTD.
ANNOUNCES POSTPONEMENT OF
ANNUAL MEETING OF SHAREHOLDERS
SAN FRANCISCO - (BUSINESS WIRE) - July 2, 2001 - Capital Alliance Income Trust
Ltd. ("CAIT") (AMEX: CAA - news), a non-conforming specialty residential finance
company, announced that its Annual Meeting of Shareholders, originally scheduled
for July 6, 2001, has been postponed and rescheduled to 10:00 a.m. PST,
Wednesday, August 8, 2001. The meeting will be held at CAIT's corporate offices
at 50 California Street, Ste. 2020, San Francisco, CA.
The postponement was necessitated by an administrative error of one of CAIT's
service providers which resulted in a majority of CAIT's shareholders not
receiving their proxy materials and Annual Reports.
CAIT is a specialty residential mortgage lender which invests in high-yielding,
non-conforming residential mortgage loans on one-to-four unit residential
properties located in California and other western states. It also originates
non-conforming and conforming loans for sale to investors and Freddie Mac on a
whole loan basis for cash through its subsidiary, Capital Alliance Funding
Corporation.
- ----------------------
Contact:
Capital Alliance Income Trust Ltd.
Thomas B. Swartz, 415/288-9575
22
EXHIBIT "B"
CAPITAL ALLIANCE INCOME TRUST LTD.
ANNOUNCES IMPROVED EARNINGS AND OPERATING RESULTS
FOR SECOND QUARTER AND FIRST HALF OF 2001
SAN FRANCISCO - (BUSINESS WIRE) - August 9, 2001- Capital Alliance Income Trust,
Ltd. ("CAIT") (AMEX: CAA - news), a specialty residential mortgage finance
company, announced earnings of $251,977 ($.26 basic and $.23 diluted per share)
for the three months ended June 30, 2001 and $516,469 ($.52 basic and $.48
diluted per share) for the six months ended June 30, 2001 as compared to
earnings of $70,562 (-$.18 basic and diluted per share) and $291,554 (-$.03
basic and diluted per share), respectively, for the like periods in the year
2000.
Thomas B. Swartz, Chairman and CEO of CAIT, noted that "management is pleased to
see the continuing dramatic improvement in earnings for the last two quarters
since they exceed CAIT's earnings for all of the year 2000 and reflect the
benefit of CAIT's re-emphasis of its portfolio lending operations, reduced
interest costs, and improved profitability in both its portfolio operations and
its mortgage banking subsidiary." Richard J. Wrensen, CAIT's CFO also observed
that the improvement in CAIT's earnings over the last four quarters appears to
be continuing into the second half of the year 2001 and reflects management's
continuing efforts to improve shareholder value.
CAIT is a specialty residential mortgage lender which invests in
higher-yielding, non-conforming residential mortgage loans on one-to-four unit
residential properties located in California and other western states. It also
originates non-conforming and conforming loans for sale to investors and Freddie
Mac on a whole loan basis for cash through its subsidiary, Capital Alliance
Funding Corporation.
Certain oral and written statements of management of CAIT included in the press
release may contain forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934. The accuracy of such statements cannot be guaranteed, as they may be
subject to a variety of risks and contingencies.
- ----------------------
Contact:
Capital Alliance Income Trust Ltd., San Francisco
Richard J. Wrensen, 415/288-9575
23
EXHIBIT "C"
CAPITAL ALLIANCE INCOME TRUST ANNOUNCES
ACCRETIVE PURCHASE OF COMMON SHARES AND
CONTINUED IMPROVEMENT IN OPERATING RESULTS
SAN FRANCISCO - (BUSINESS WIRE) - September 13, 2001 - Capital Alliance Income
Trust Ltd. ("CAIT") (AMEX: CAA - news), a non-conforming specialty residential
finance company, announced that it has purchased 47,500 Shares of its Common
Stock from Sutter Opportunity Fund 2, LLC, which had acquired the shares in the
open market and in a lightly received tender offer this last April. The purchase
was accretive in value and resulted in a $.74 per share increase in the book
value of CAIT's Common Shares. The purchase was coupled with a three-year
"standstill" agreement.
Richard J. Wrensen, Chief Financial Officer of CAIT, stated that "the purchase
not only increased the book value per CAIT Common Share to $20.49 per share, but
the transaction, when coupled with CAIT's improved operating results, should
produce improved earnings per share for the third quarter (ending September 30,
2001) as compared to its basic earnings per share of $.26 per share in each of
the prior two quarters."
CAIT is a specialty residential mortgage lender which invests in high-yielding,
non-conforming and conforming residential mortgage loans on one-to-four unit
residential properties located primarily in California and other western states.
It also originates non-conforming and conforming loans for sale to investors,
including Freddie Mac, on a whole loan basis for cash through its mortgage
banking subsidiary, Capital Alliance Funding Corporation.
Certain oral and written statements of the management of CAIT included in this
press release may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. The accuracy of such statements cannot be guaranteed, as
they are subject to a variety of risks and contingencies.
- -------------------
Contact:
Capital Alliance Income Trust Ltd.
Richard J. Wrensen, 415/288-9575
24
EXHIBIT "D"
CAPITAL ALLIANCE INCOME TRUST ANNOUNCES
INCREASED FOURTH QUARTERLY DIVIDEND AND REPORTS
CONTINUED IMPROVEMENT IN OPERATING RESULTS
SAN FRANCISCO - (BUSINESS WIRE) - September 19, 2001 - Capital Alliance Income
Trust Ltd. ("CAIT") (AMEX: CAA-news), a non-conforming specialty residential
finance company, announced that its Board has declared CAIT's fourth quarterly
Common Share dividend for 2001 at the increased rate of $.28 per Common share,
which is a 9.8 % increase over the previous dividend rate of $.255 per Common
Share.
The dividend will be payable on October 16, 2001 to shareholders of record on
October 1, 2001.
Thomas B. Swartz, Chairman and Chief Executive Officer of CAIT stated that "the
increased dividend reflects the increased earnings of CAIT which, as a real
estate investment, must distribute 90% of its income". Mr. Swartz noted also
that CAIT's improvement in earnings was continuing in the third quarter of 2001
and reflects CAIT's re-emphasis of its portfolio lending operations, reduced
interest costs, increased operating efficiencies and profitable operations in
its mortgage banking subsidiary.
CAIT is a specialty residential mortgage lender which invests in high-yielding,
non-conforming and conforming residential mortgage loans on one-to-four unit
residential properties located primarily in California and other western states.
It also originates non-conforming and conforming loans for sale to investors,
including Freddie Mac, on a whole loan basis for cash through its mortgage
banking subsidiary, Capital Alliance Funding Corporation.
Certain oral and written statements of the management of CAIT included in this
press release may contain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, and Section 21E of the Securities
Exchange Act of 1934. The accuracy of such statements cannot be guaranteed, as
they are subject to a variety of risks and contingencies.
- --------------------
Contact:
Capital Alliance Income Trust Ltd., San Francisco
Richard J. Wrensen, 415/288-9575
25