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. Since October 1, 1998, its common shares have been listed on the American Stock Exchange.

During the first quarter of 2006, the Trust announced its intent to suspend mortgage banking loan originations and to monetize its mortgage banking loan portfolio. By year end 2006, mortgage banking loans (mortgages originally originated for sale into the secondary market) were transferred to the Trust. Prior to December 29, 2006, the Company was externally advised by Capital Alliance Advisors, Inc. (the "Former Manager", "CAAI"). On December 29, 2006, the Former Manager was terminated and the Company became self-administered and self-advised.

The current real estate market is characterized by both credit uncertainty and expected declines in residential property valuations. Due to these conditions the Company has focused on debt reduction in lieu of new investments in residential mortgages. The current conditions are expected to extend through calendar year 2009. The Company is reviewing its current investment policies to include other REIT permissible assets.

The recent financial crisis has affected the Company's business by diminishing the credit quality of existing borrowers and lowering existing property values. The Company has actively managed the risk inherent from these conditions by modifying existing notes so as to avoid foreclosing on properties in a declining market. The Company expects that these efforts will help maintain the performance of the portfolio as borrowers will be more capable and motivated to satisfy their obligations.

On April 20, 2007, the Company's 100% owned taxable subsidiary changed its name from Capital Alliance Funding Corporation ("CAFC") to WrenCap Funding Corporation ("WCFC"). The transition agreement with the Former Manager required the Company to remove the name "Capital Alliance" from the Trust's name by June 30, 2008 and from CAFC's name by April 30, 2007. Since May 1, 2007, WCFC has traded exchange listed marketable securities.

Mortgage investment loans are reported as mortgage notes receivable and held until prepayment, maturity or foreclosure. As of December 31, 2008, the Mortgage Investment Business portfolio totaled $5,460,948, consisting of 19 loans, of which 8 loans totaling $3,353,673 or 61% of the portfolio loan value were delinquent over 60 days. As of February 27, 2009, two of the delinquent loans were brought current, one loan was modified, one loan was foreclosed upon by the senior lien holder, one loan became real owned and three loans totaling $1,624,933 or 30% of the December 31, 2008 portfolio balance remained delinquent. As of December 31, 2008, the Trust held five properties as real estate for sale or investment.

As of December 31, 2007, the Mortgage Investment Business portfolio totaled $11,144,365, consisting of 31 loans, of which 10 loans totaling $4,182,117 or 37% of the portfolio loan value were delinquent over 60 days. As of February 28, 2008, one of the delinquent loans was brought current or paid off and seven loans totaling $3,882,188 or 35% of the December 31, 2007 portfolio balance remained delinquent. As of December 31, 2007, the Trust held two properties as real estate for sale.

RECENT ACCOUNTING PRONOUNCEMENTS

Please refer to Financial Statement Footnote 2 for more information.

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 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 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 financial statements and are not presented in their relative order of importance.

Revenue recognition. Interest income accrues as it is earned. Loans are placed on a nonaccrual status when any portion of the principal or interest is past due by four scheduled payments 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.

Allowance for Loan Losses. A provision for loan losses is 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 reasonably 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, trends in loan delinquency and other factors that warrant recognition in providing for an adequate loan loss allowance.

Allowance for Doubtful Accounts. An allowance for accounts receivable claims is based on management's evaluation of the likelihood of collection. The evaluation is based on the payee's ability and willingness to pay the claim in full as well as the costs associated with possible legal action.

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.

Stock option. Stock options granted prior to December 15, 2005 were issued with exercise prices equal to the market price of the Trust's common stock on the dates of grant. Because the exercise price is fixed at or above market price and other key terms are fixed, use of the intrinsic-value method was utilized and the Trust did not recognize an 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. Options granted after December 15, 2005 were issued with exercise prices of 110% of the market price of the Trust's common stock on the dates of grant. These options are subject to a mandatory expense calculation.

The Audit Committee of the Trust's Board of Directors has discussed and approved the critical accounting policies and the development, selection and disclosure of the estimates and alternatives prior to filing this report with the Securities and Exchange Commission.

Operating Strategy

Mortgage investment loans are reported as mortgage notes receivable and are held until prepayment, maturity or foreclosure. The Company owns non-conforming mortgage loans on one-to-four unit residential properties secured by first and second deeds of trust. These loans are primarily secured by California real estate. Historically, the Trust limited its mortgage investments to a cumulative loan to value ratio ("CLTV") that did not exceed 75% of the underlying collateral at the time of investment. The Company seeks to maximize the value of its loan portfolio through active asset management.

During 2007, the repayment of mortgage notes receivable and the monetization of non-performing assets reduced institutional borrowings by $3,125,993 to $3,641,828. During 2008, the Company reduced its institutional borrowings by $1,620,000 to $2,000,000. The $7,000,000 credit facility had a scheduled maturity of November 14, 2008. Negotiations to extend the credit facility are continuing.

The Company is reviewing its current investment policies to include other REIT permissible assets in addition to residential mortgage loans. Since May 1, 2007, WCFC has traded exchange listed marketable securities. The Company may consider de-REITing to enhance shareholder value.

Loan Origination

Until March 31, 2006, the Company's mortgage banking subsidiary originated loans in excess of the Trust's 75% CLTV investment standard for subsequent sale into the secondary mortgage market. During 2006, the Former Manager was unable to sell $6,108,330 of these mortgage banking loans at an acceptable price. Although these loans did not satisfy the Trust's investment standards, during 2006 these loans were transferred to the Trust and are reported as mortgage notes receivable.

On December 29, 2006, the Board of Directors terminated the Former Manager. The Former Manager and the Company's mortgage banking operations accounted for 100% of the loans acquired by the Trust in 2006. During 2007 and 2008, the Company did not acquire any loans from unaffiliated third parties or the Former Manager. Prospectively, portfolio loans may be acquired from unaffiliated third parties or the Former Manager.

Asset Management

Asset management is mortgage loan servicing and real estate owned ("REO") dispositions. Loan servicing consists of collecting payments from borrowers making required advances, accounting for principal and interest payments, holding borrowed proceeds in escrow until fulfillment of mortgage loan requirements, contacting delinquent borrowers, and in the event of unremedied defaults performing other administrative duties including supervising foreclosures. On June 30, 2007 the Loan Servicing Agreement with the Former Manager was cancelled. On July 1, 2007 the Company engaged a subservicer to provide loan servicing and actively works with the subservicer to maximize the loan portfolio's value.

Only mortgage loans owned by the Company are serviced. The Company does not acquire loan servicing rights or maintain a loan's servicing rights at disposition. REO dispositions include all of the supervisory and administrative processes of preparing a foreclosed asset for sale.

Contingencies and Commitments

Loan loss reserves are estimates based on the anticipated sales price of the foreclosed property that includes a discount from the latest appraised value of the property, less the sum of priority liens, costs of disposition, the face amount of the Company's mortgage loan and accrued interest receivable. As of December 31, 2008 and 2007, the Company reserved an allowance for loan losses of $720,000 and $2,155,000, respectively.

Allowances for doubtful accounts are estimated reserves for the collectability of other receivables. As of December 31, 2008 and 2007, the Company reserved an allowance for doubtful accounts of $550,808 and $910,000, respectively.

As of December 31, 2008, the following table summarizes the Trust's outstanding repayment obligations.

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                                                          Amount of Commitment Expiration Per Period
       Maximum Other                               ----------------------------------------------------------
 Commercial Commitments (a)      Total Amounts      Less than                                      After 5
  as of December 31, 2008          Committed          1 year       1 - 3 years     3 - 5 years      years
------------------------------------------------------------------------------------------------------------
Bank loans payable (b)            $2,005,184        $2,005,184          0               0             0
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Warehousing facilities                     0                 0          0               0             0
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Total Commercial Commitments      $2,005,184        $2,005,184          0               0             0
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(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) The Mortgage Investment Business' outstanding obligations as of December 31, 2008 due in less than one year were $2,005,184.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED DECEMBER 31, 2007

Revenues for the year ended December 31, 2008 decreased to $656,578 as compared to $1,114,958 for 2007. During 2008, interest income declined $473,307 due to the Trust's smaller loan portfolio as well as lower interest yields. Due to the suspension of mortgage banking operations in 2006, there was no loan origination income and service release premiums in 2008 and 2007.

Expenses for the year ended December 31, 2008 decreased to $1,153,882 as compared to $3,946,152 for the previous year. The decrease in 2008 compared to 2007 is due to operational efficiencies and the Company's anticipation of the deteriorating conditions in the mortgage market in 2007. The provision for loan losses decreased $1,447,964 while the provision for doubtful accounts decreased $742,599. Total interest expenses decreased $192,228 and the transition to self-management resulted in a total decrease in general and administrative expenses of $226,615.

During 2008, there was a gain from real estate owned $168,240 and real estate expenses of $272,237. During 2007, there was a loss from real estate owned of $63,229 and real estate expenses of $15,598. The gain on sales reflects management's improved ability to accurately foreclose on and sell non-performing assets.

Net Loss for the year ended December 31, 2008 was $619,718. Net Loss for the year ended December 31, 2007 was $2,939,689.

At year ended December 31, 2008, the Company's mortgage notes receivable balance was $5,683,417 less than the mortgage notes receivable balance for the year ended December 31, 2007. At year ended December 31, 2008, the real estate owned balance was $791,668 greater than the year ended December 31, 2007 balance.

LIQUIDITY AND CAPITAL RESOURCES

During 2005, the Trust secured a $7,000,000 term facility, with a two year maturity and a one year extension option. The option to extend was exercised and the facilities scheduled maturity was November 14, 2008. Management believes that existing cash balances, cash flow from operations, the mortgage loans that are paid off, the net proceeds of REO sales, additional credit facilities that may be obtained during 2009 and, if necessary, the limited sale of investment mortgages will be sufficient to meet the liquidity needs of the company's businesses for the next twelve months.

LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2008

As of January 1, 2008, the Trust had $962,190 of cash and cash equivalents. After taking into effect the various transactions discussed below, cash and cash equivalents at December 31, 2008 were $1,974,687. 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 investing activities. The primary use of cash was operating and financing activities. The increase in cash reflects the Company's continued focus on converting non-performing assets into cash or performing assets. This is reflected by cash provided from investing activities.

Net cash used by the operating activities during the year ended December 31, 2008 was $773,872. The change in accounts receivable of $123,133 and the change in allowance for loan losses of $404,230 were the primary sources of cash. Net loss of $619,718, the gain on sale of real estate owned of $168,240 and the change in other liabilities of $453,566 were the primary uses of cash.

Net cash of $3,485,154 was provided by investing activities. Decreased mortgage notes receivable provided $1,352,345 and a change in real estate owned provided $2,378,334. The investment in marketable securities used $116,598.

Net cash used in financing activities during the year ended December 31, 2008 was $1,698,785. Paying down bank lines of credit of $1,636,644 and treasury stock purchases of $62,141 were the largest uses of cash from financing activities.

LIQUIDITY AND CAPITAL RESOURCES FOR THE YEAR ENDED DECEMBER 31, 2007

As of January 1, 2007, the Trust had $599,943 of cash and cash equivalents. After taking into effect the various transactions discussed below, cash and cash equivalents at December 31, 2007 were $962,190. 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 investing activities. The primary use of cash was operating and financing activities. One of the Company's major goals for 2007 was to convert non-performing assets into either cash or a performing asset. The increase in cash from investing activities reflects this.

Net cash used by the operating activities during the year ended December 31, 2007 was $553,508. The increased non-cash provision for loan losses of $1,852,194, the increased non-cash allowance for doubtful accounts of $680,000 and the increase in other liabilities of $154,320 were the primary sources of cash. A net loss of $2,939,689 and the increase in accounts receivable of $467,594 were the primary uses of cash.

Net cash of $4,021,748 was provided by investing activities. Decreased mortgage notes receivable provided $3,912,389 and the sale of real estate owned provided $241,819.

Net cash used in financing activities during the year ended December 31, 2007 was $3,125,993. Reducing outstanding bank lines of credit by $3,125,993 was the only use of cash from financing activities.