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

                                November 20, 2000



SECURITIES & EXCHANGE COMMISSION
450 Fifth Street, N.W.
Washington, D.C.  20549

Re:      Capital Alliance Income Trust Ltd., A Real Estate Investment Trust
         SEC File No. 333-11625

         Our File No. 76021.0002

Dear Sir/Madam:

Pursuant  to  Sections  13 and  15(d) of the  Securities  Exchange  Act of 1934,
enclosed  for filing via EDGAR  please  find a Form 10-Q for the  quarter  ended
September 30, 2000. If you have any questions, please do not hesitate to call.

                                                     Very truly yours,

                                                     /s/ Richard J. Wrensen

                                                     Richard J. Wrensen
                                                     Executive Vice President,
                                                     Chief Financial Officer

Enclosures


<PAGE>
                                  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, 2000

                        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)

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 November 15, 2000, the aggregate market value of the  registrant"s  shares
of Common Stock,  $.01 par value,  held by non  affiliates of the registrant was
approximately  $4,241,220.  At that date  1,413,740  shares of common stock were
outstanding.  The shares are listed and publicly  traded on the  American  Stock
Exchange.

                                       1
<PAGE>
                                     PART I
                                     ITEM 1.

                              FINANCIAL STATEMENTS


                                       2
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
<TABLE>
<CAPTION>
                                 Balance Sheets

                                                                               (unaudited)           (audited)
                                                                            September 30, 2000   December 31, 1999
                                                                            ------------------   -----------------
<S>                                                                           <C>                <C>
ASSETS
      Cash and cash equivalents                                               $    189,872       $     41,939
      Restricted cash                                                              400,232            487,174
      Accounts receivable                                                          242,512            233,017
      Due from affiliates                                                             --              637,491
      Notes receivable:
           Warehouse lines of credit to related parties                          3,973,761          3,189,317
           Mortgage notes receivable                                            11,254,115         10,807,664
           Allowance for loan losses                                               (76,500)           (85,000)
                                                                              ------------       ------------
                Net receivable                                                  15,151,376         13,911,981
      Real estate owned                                                          1,695,947            644,326
      Investments in affiliates                                                    798,964            870,466
      Origination costs                                                            163,635            163,635
      Loan Fee                                                                      92,917             16,667
                                                                              ------------       ------------
      Total assets                                                            $ 18,642,538       $ 17,006,696
                                                                              ============       ============

LIABILITIES AND STOCKHOLDERS' EQUITY
      Liabilities
           Mortgage note holdbacks                                            $    400,232       $    487,174
           Mortgages payable                                                       900,805               --
           Notes payable                                                         2,250,000            904,750
           Other liabilities                                                       159,794            187,938
                                                                              ------------       ------------
      Total liabilities                                                          3,710,831          1,579,862
                                                                              ------------       ------------

      Stockholders' Equity
            Preferred stock, $.01 par value (liquidation value $9.50                 6,413              6,413
                  per share); 675,000 shares authorized; 641,283 shares
                  issued and 631,757 outstanding at September 30, 2000
                  and December 31, 1999
            Additional paid in capital - preferred stock                         5,752,907          5,752,907
            Less: 9,526 preferred shares held in treasury                          (86,944)           (86,944)

            Common stock, $.01 par value; 5,000,000 shares                          14,874             14,847
                  authorized ; 1,484,740 shares issued and 1,434,940
                  outstanding at September 30, 2000 and 1,484,740 issued
                  and outstanding December 31,1999
            Additional paid in capital - common stock                            9,393,938          9,739,611
      Less: 49,800 common shares in treasury                                      (149,481)                 0
                                                                              ------------       ------------
      Total stockholders' equity                                                14,931,707         15,426,834
                                                                              ------------       ------------
      Total liabilities and stockholders' equity                              $ 18,642,538       $ 17,006,696
                                                                              ============       ============
</TABLE>

                See accompanying notes to financial statements.

                                       3
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

<TABLE>
<CAPTION>
                            Statements of Operations
                                  (Unaudited)

                                                     Three Months Ended            Nine Months Ended
                                                       September 30,                 September 30,
                                                     2000          1999           2000           1999
                                                     ----          ----           ----           ----
<S>                                             <C>            <C>            <C>            <C>
REVENUES
      Interest income                           $   457,893    $   383,943    $ 1,265,733    $ 1,216,954
      Interest income from affiliates               111,978         40,387        324,170        252,777
      Investment income from affiliates            (213,995)      (183,501)      (462,502)      (599,735)
      Other income                                    1,230          1,884          5,526          7,320
                                                -----------    -----------    -----------    -----------
          Total revenues                            357,106        242,713      1,132,927        877,316
                                                -----------    -----------    -----------    -----------
EXPENSES
      Loan servicing fees to related party           78,500         69,676        230,924        220,029
      Management fees to related party               39,000         35,638        114,656        111,646
      Interest expense                               93,680          3,304        213,834         87,424
      Provision for loan losses                      41,000         15,000         76,500         92,500
      Operating expenses of real estate owned         7,274          2,743         18,010         13,577
      Taxes                                           5,734          6,000         18,434         16,300
      General and administrative                     25,978         11,526         98,831         88,582
                                                -----------    -----------    -----------    -----------
            Total expenses                          291,166        143,887        771,189        630,058
                                                -----------    -----------    -----------    -----------

Income Before Loss on Real Estate Owned              65,940         98,826        361,738        247,258
      Loss on Real Estate Owned                        --             --           (2,524)        (1,779)

NET INCOME                                      $    65,940    $    98,826    $   359,214    $   245,479
                                                ===========    ===========    ===========    ===========

PREFERRED DIVIDENDS                             $   156,793    $   141,290    $   460,627    $   418,866

BASIC EARNINGS PER
        COMMON SHARE                            $     (0.06)   $     (0.03)   $     (0.07)   $     (0.12)

DILUTED EARNINGS PER
        COMMON SHARE                            $     (0.06)   $     (0.03)   $     (0.07)   $     (0.12)

WEIGHTED AVERAGE COMMON
  SHARES - BASIC EARNINGS                         1,458,940      1,484,740      1,476,140      1,484,740

WEIGHTED AVERAGE COMMON
  SHARES - DILUTED EARNINGS                       1,482,940      1,484,740      1,484,140      1,484,740
</TABLE>

                See accompanying notes to financial statements.

                                        4
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST
<TABLE>
<CAPTION>
                            Statements of Cash Flows
                                  (Unaudited)

                                                                Nine Months Ended
                                                                  September 30,
                                                              2000           1999
                                                              ----           ----
<S>                                                       <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income                                                $   359,214    $   245,479
Adjustments to reconcile net income to net cash
   provided by operating activities:
Amortization / Loan fees                                      (76,250)         3,303
(Increase) decrease in  accounts receivable                    (9,495)       (67,312)
Increase (decrease) in  loan loss reserve                      (8,500)      (155,000)
(Increase) decrease in security deposits                         --           (5,726)
Increase (decrease) in  due to / due from affiliates          637,491       (245,509)
  Increase (decrease) in other liabilities                    (28,144)         3,247
                                                          -----------    -----------
    Net cash provided by (used in) operating activities       874,316       (221,518)
                                                          -----------    -----------

(Increase) decrease in restricted cash                         86,942        188,926
Increase (decrease) in mortgage note holdbacks                (86,942)      (188,926)
(Increase) decrease in warehouse lines of credit             (784,444)     2,709,172
(Increase) in investments                                      71,502        198,021
Increase in related party note receivable                        --          225,000
Net investments in mortgage notes receivable                 (219,098)    (2,055,349)
Capital costs of foreclosed property                       (1,051,621)      (155,964)
                                                          -----------    -----------
    Net cash provided by (used in) investing               (1,983,661)       920,880
                                                          -----------    -----------

Redemption of shares                                         (149,481)          --
Payment of mortgages & notes payable                        2,246,055        (39,339)
Preferred dividends paid                                     (460,627)      (418,867)
Common dividends paid                                        (378,609)      (378,609)
                                                          -----------    -----------
  Net cash provided by (used in) financing activities       1,257,338       (836,815)
                                                          -----------    -----------
                                                              147,993       (137,453)
                                                               41,939        570,710
                                                          -----------    -----------
                                                          $   189,932    $   433,257
                                                          ===========    ===========

Interest expense paid                                     $   198,834    $    94,992
Taxes paid                                                $    18,434    $    16,300
</TABLE>

                See accompanying notes to financial statements.

                                       5
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
              For the nine months ended September 30, 2000 and 1999
                                   (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,  formed  December  12,  1995,  invests
      primarily  in  loans  secured  by  deeds  of  trust  on  one-to-four  unit
      residential properties.  The Manager, Capital Alliance Advisors, Inc. (the
      "Manager") originates, services and sells the Trust's loans.

      Effective  February 12, 1997, the Trust  registered its common shares with
      the Securities and Exchange  Commission  pursuant to the Securities Act of
      1933, as amended in  connection  with a"best  efforts"  offering of common
      shares. On September 30, 1998 the offering closed and a total of 1,484,740
      common  shares were issued at $8.00 per share with warrants to purchase an
      additional 148,474 common shares at $5.60 per share.

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.

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

      These  financial  statements  should  be  read  in  conjunction  with  the
      financial  statements  and notes  thereto for the year ended  December 31,
      1999 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, 2000 and  September  30, 1999  represent  the 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  principles 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.

                                       6
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
              For the nine months ended September 30, 2000 and 1999
                                   (Unaudited)

      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. Restricted cash represents segregated cash that
      can be disbursed to mortgage  loan  borrowers  upon  completion of certain
      improvements to the secured property (see Note 4).

      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.

      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. A
      portion of the portfolio is secured by second trust deeds on real estate.

      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, 2000 and
      September  30,  1999 the loan loss  reserves  were  $76,500  and  $15,000,
      respectively.

      Investments.  The Trust holds an investment in  Sierra Capital  Acceptance
      ("SCA"),  a Delaware limited  liability company which originates and sells
      residential  mortgages.  The  Trust  owns 100%  of the  non-voting  Sierra
      preferred  shares of SCF. Sierra Capital Services,  Inc., a related party,
      owns 99% of the Sierra common shares of SCF and maintains voting  control.
      As of September 30, 2000, SCA is in the process of dissolution.

      During 1997 the Trust formed its  non-qualified  REIT  subsidiary  Capital
      Alliance  Funding  Corporation  ("CAFC") to conduct its  mortgage  conduit
      business.  The Trust owns 100% of the  outstanding  Series  "A"  Preferred
      stock (2,000 shares of non-voting  stock) in CAFC,  which constitute a 99%
      economic  interest in CAFC.  The Trust"s  Manager  owns 100% of the Common
      Shares (1,000 shares) of CAFC, which constitute a 1% economic interest and
      has 100%  voting  control.  The  Trust"s  Manager  also  manages  CAFC and
      provides  mortgage  origination  and sale and services for CAFC. The Trust
      accounts for its investment in CAFC under the equity method.

                                       7
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
              For the nine months ended September 30, 2000 and 1999
                                   (Unaudited)

      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 95%
      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.

      For the nine-month  period ended September 30, 2000, the distributions per
      preferred share are allocated 100% as ordinary income and the common share
      distribution  is  allocated  93%  ordinary  income  and 7% as a return  of
      capital for tax purposes.  For the period ended  September  30, 1999,  the
      distributions  per preferred  share are allocated 100% ordinary income and
      the common share  distribution  is allocated 22% ordinary income and 78% a
      return of capital for tax purposes.

      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.

      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 1999 amounts have been reclassified to conform
      with  2000  classifications.   Such  reclassifications  had  no  effect on
      reported net income.

                                       8
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
              For the nine months ended September 30, 2000 and 1999
                                   (Unaudited)

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 to such borrowers upon  completion of
      certain improvements on the secured property.

5.    Mortgage notes receivable.
      -------------------------

      Mortgage  notes   receivable   represent  home  equity  loans  secured  by
      residential real estate. At their original  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,  changes  in  value  of  the  underlying
      collateral 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.    Mortgage notes payable.
      ----------------------

      As of  September  30,  2000,  the Trust held a mortgage  notes  payable of
      $900,805. As of September 30, 1999, the Trust, through a warehouse line of
      credit issued to CAFC, had borrowed $1,392,771 to finance a portion of its
      mortgage notes receivable.

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  ("%) of the book  value of the  non-mortgage
      assets of the Trust computed at the end of each month.  The Trust paid the
      Manager a  management  fee of $114,656  and  $111,646  for the nine months
      ended September 30, 2000 and September 30, 1999, respectively.

      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 $230,924 and $220,029 for the nine months
      ended September 30, 2000 and September 30, 1999, respectively.

                                       9
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
              For the nine months ended September 30, 2000 and 1999
                                   (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,  2000  and  September  30,  1999 no
      incentive compensation was paid.

      As described in Note 3, the Trust holds an  investment  in Sierra  Capital
      Acceptance, a division of Sierra Capital Funding LLC. For each of the nine
      month periods ended  September 30, 2000 and September 30, 1999,  the Trust
      earned interest of $15,000 and $22,500, respectively, from the investment.

      As described  in Note 3, the Trust has a  non-qualified  REIT  subsidiary,
      Capital Alliance Funding Corporation.  For the nine months ended September
      30,  2000 and  September  30,  1999 the Trust  under the equity  method of
      accounting  was  allocated  investment  losses of `$462,502  and $599,735,
      respectively.  Both the 2000 and 1999 loss are  attributable  to  expenses
      incurred in the  Trust"s  expansion  of the  subsidiary"s  wholesale  loan
      origination capacity.

      During 1998 the Trust  advanced  $225,000 to Equity  1-2-3,  a division of
      Sierra Capital Funding, LLC, a related party, and recorded it as a related
      party  note  receivable.  On  February  10,  1999 the  Trust  advanced  an
      additional  $22,500 to Equity 1-2-3.  The note accrued interest at 15% per
      annum.  For the nine  months  ending  June 30,  1999,  the  Trust  did not
      recognize any interest from this note. The note was written off during the
      third quarter of 1999.

9.    Preferred stock and common stock.
      --------------------------------

      The  Preferred  Shares are  entitled to a  distribution  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)  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.

                                       10
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
              For the nine months ended September 30, 2000 and 1999
                                   (Unaudited)

      The  Preferred  Shares,  at the  option  of the  Board of  Directors,  are
      redeemable  by a Shareholder  annually on or about 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. There is no liquidation charge.

      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 issued in the Trust"s initial public offering
      of Common Shares for every 10 Common Shares  purchased.  Each  shareholder
      Warrant  entitles  the holder to purchase one Common  Share.  The exercise
      price for each Shareholder warrant is $5.60. The Warrants may be exercised
      through  April 28, 2001. In order to protect the Warrant  holders  against
      dilution,  the exercise  price of the Warrants and the number of which may
      be purchased upon exercise of the Warrants will be adjusted should certain
      events  occur  (i.e.,  stock  dividends,   split-ups,   combinations,  and
      reclassifications).  Provision is also made to protect against dilution in
      the  event  of  a  merger,   consolidation,   or  disposition  of  all  or
      substantially  all of the Trust"s assets.  Warrant holders do not have the
      rights of a  shareholder  and they are not  entitled to  participate  in a
      distribution  of the  Trust"s  assets in a  liquidation,  dissolution,  or
      winding up of the trust,  unless the  Warrants  have been  exercised.  The
      Trust may refuse to allow the  exercise of a warrant if the effect of such
      exercise would  disqualify the Trust as a REIT under the Internal  Revenue
      Code.

      Under the 1998 Incentive  Stock Option Plan ("1998 Plan"),  adopted by the
      board of  directors  and  approved  by the  shareholders,  options for the
      purchase  of a total of 75,000  common  shares of the Trust  were  granted
      effective  September 30, 1998. Since the Trust has no employees,  officers
      and employees of the Manager, Directors of the board and other contractors
      are the eligible recipients of the options.  The options have a term of 10
      years  with a first  exercise  date six (6)  months  after the date of the
      grant.  The initial  options for the purchase of 75,000 common shares were
      exercisable  at $8.00 per share.  Such  options were  cancelled  August 3,
      2000.  Options for the purchase of 75,000 common shares were awarded April
      1, 1999 and are exercisable at $4.50 per common share. Options to purchase
      68,875 common shares of the April 1, 1999 award are outstanding.  An award
      of 109,750 options,  exerciseable at $3.00 per share, was made on February
      2, 2000.  There are 68,875 options  remaining to be awarded under the 1998
      Plan.

      During the nine months ended  September 30, 2000, the Trust"s net purchase
      of treasury  common  stock was 49,800  shares.  No  preferred  shares were
      purchased. The common purchases were recorded as Treasury Stock. No common
      or preferred shares were purchased for the treasury during 1999.

                                       11
<PAGE>
                       CAPITAL ALLIANCE INCOME TRUST LTD.,
                         A REAL ESTATE INVESTMENT TRUST

                          Notes to Financial Statements
              For the nine months ended September 30, 2000 and 1999
                                   (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.
<TABLE>
<CAPTION>

Numerator:                                    September 30, 2000     September 30, 1999
                                              ------------------     ------------------
<S>                                              <C>                    <C>
    Net income                                   $   359,214            $   245,479
    Less: Preferred Dividend                        (460,627)              (418,866)
                                                 -----------            -----------
Numerator for basic and diluted
earnings per share                               $  (101,413)           $  (173,387)
                                                 -----------            -----------
Denominator:
    Basic weighted average shares                  1,476,140              1,484,740
    Effect of  warrants, options & repurchases         8,000                      0
                                                 -----------            -----------
    Diluted weighted average shares                1,484,140              1,484,740
                                                 -----------            -----------

Basic earnings per common share                  $      (.06)           $     (0.12)
                                                 -----------            -----------
Diluted earnings per common share                $      (.06)           $     (0.12)
                                                 -----------            -----------
</TABLE>

                                       12
<PAGE>
                                     PART I
                                     ITEM 2.

                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION


                                       13
<PAGE>
                     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 and reflect 99% of earnings and losses
of its wholesale mortgage banking  subsidiary,  CAFC, under the equity method of
accounting.

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,  unsatisfied 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/C (or less) 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/C (or less) tend to have higher
rates of loss and  delinquency,  but higher rates of interest than  borrowers of
higher credit quality.

      Management,  also,  believes  there  is a  strong  investment  demand  for
high-yielding  non-conforming  mortgage  loans on account of low interest  rates
over the past few  years  and  securitization  of  high-yielding  non-conforming
mortgage loans by the investment banking industry.

      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.   .  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, 2000 and September 30, 1999.

      As of September  30, 2000,  the Trust"s loan  portfolio  included 75 loans
totaling $11,254,115 of which 10 loans totaling $1,630,192, were delinquent over
sixty  days,  and of  these 10  delinquent  loans 5  delinquencies  representing
$912,500 of the portfolio which were in the process of foreclosure. In assessing
the collectibility of these delinquent  mortgage loans,  management  estimates a
net loss will not occur if it is  necessary  to  foreclose  upon these  mortgage
loans.  Management"s  estimate  is  based  on a  discounted  sales  price of the
property less the sum of pre-existing  liens,  costs of sale, the face amount of
the mortgage  loan,  the accrued  interest  receivable and the accrued loan loss
reserve balance

Results of Operations

      The historical  information presented herein is not necessarily indicative
of future operations.

      Three months and nine months ended  September 30, 2000 and 1999.  Revenues
for the third quarter of 2000  increased to $357,106 as compared to $242,713 for
the same period in the previous year. Revenues for nine months of 2000 increased
to $1,132,927 as compared to $877,316 for the same period of the previous year.

                                       14
<PAGE>
      The 2000 mortgage  interest income and interest income from affiliates for
the quarter and for the nine months were  increased,  when  compared to the same
periods in the previous year.  The increases  were due to larger  mortgage notes
receivable  and  warehouse  lines of credit  balances than in the same period of
previous  year. The interest  income gains,  however,  were partially  offset by
investment  income  losses  incurred  during the quarter and nine months for the
origination expansion costs of Capital Alliance Funding Corporation.

      The weighted  average yield of the Trust"s mortgage  investment  portfolio
was 12.42%. The portfolio consisted of 37% first deeds of trust with the balance
being second deeds of trust and had a combined loan-to-value ratio of 69%.

      Expenses of the Trust for the third quarter 2000  increased to $291,166 as
compared to $143,887 for the same period in the  previous  year and for the nine
months period of 2000 increased  to$771,189 as compared to $630,058 for the same
period of the previous year.

      Management and loan services expenses for the prior quarter and nine month
periods were comparable.  The third quarter's expenses increased on account of a
$26,000  increase  in loan loss  expense  and a  $90,376  increase  in  interest
expense.  The higher  three month and nine month  interest  expenses  are due to
increased  borrowings  and the  payments  of mortgage  interest on a  foreclosed
property.

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 Trust"s liquidity requirements will also be funded by two
separate bank provided lines of credit for $7,000,000 and $2,000,000, periodical
payoffs  of  existing  loans  and by the  sale  of  foreclosed  properties.  The
$7,000,000  line of credit matures in September  2002.  The  $2,000,000  line of
credit  matures in November  1999,  and is  expected to renew for another  year.
Restrictions  on cash  attributed to holdbacks do not  significantly  impact the
Trust"s liquidity.

      Net cash  provided by  operating  activities  during the nine months ended
September 30, 1999 and 2000 was $(221,518) and $874,316  respectively.  The 1999
results are due to increased affiliates  borrowing.  The 2000 results are due to
higher net income and the payment of affiliates borrowings to the Trust.

      Net  cash  (used  in)  investing  activities  for the  nine  months  ended
September  30, 1999 and 2000 was $920,880 and  ($1,983,661),  respectively.  The
1999 are explained by increased  warehouse lending to affiliates and a reduction
in the net investment in mortgage notes receivable.  The 2000 results are due to
an  increase in real estate  owned and an  increase  in the  warehouse  lines of
credit to affiliates.

      Net cash  provided by  financing  activities  during the nine months ended
September 30, 1999 and 2000 was ($836,815)  and  $1,257,338,  respectively.  The
1999 results are primarily due to the payment of preferred and common dividends.
The 2000 results are primarily from additional line of credit borrowings.

       CAFC  maintains a $5,000,000 and a $2,000,000  secured  warehouse line of
credit from two lenders.  Both  warehouse  lines of credit are guaranteed by the
Trust. The $5,000,000  facility matures during September 2001 and the $2,000,000
facility during June 2001.  Management  believes that cash flow from operations,
the proceeds of loan  repayments,  the  establishment  of the warehouse lines of
credit for the Mortgage  Conduit  Business,  and the Trust"s bank line of credit
will be sufficient to meet the liquidity needs of the Trust"s businesses for the
next twelve months.

                                       15
<PAGE>
Year 2000

      The Trust  has not  incurred  significant  costs or  suffered  operational
problems from Year 2000 compliance.

                                       16
<PAGE>
                                     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, 2000,
                  the Trust purchased 48,100 common shares.

ITEM 3            DEFAULTS UPON SENIOR SECURITIES

                  Not applicable.

ITEM 4            SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

                  The Trust's 2000 Annual  Meeting was held on July 6, 2000.  At
                  the  Annual  Meeting,  Directors  Thomas B. Swartz  and Harvey
                  Blomberg were reelected  as Class I directors for a three year
                  term.   Directors  Dennis  R. Konczal,  Stanley C. Brooks  and
                  Richard J. Wrensen,  whose terms  continue  for one,  one  and
                  two years, respectively, continue as Directors.

                  The  shareholders  also ratified the selection of Novogradac &
                  Co. LLP as independent  public  accountants for the Trust with
                  1,470,897  shares  voting  in favor of such  approval,  55,544
                  against and 20,805 abstaining.

ITEM 5            OTHER INFORMATION

                  Press Release,  Exhibit "A" attached here to and  incorporated
                  herein,  regarding  continued  improvement in earnings for the
                  first quarter 2000, was issued on May 22, 2000.

                  Press Release,  Exhibit "B" attached here to and  incorporated
                  herein,  regarding  receipt of approval  from Freddie Mac, was
                  issued on June 13, 2000.

                  Press Release,  Exhibit "C" attached here to and  incorporated
                  herein,  regarding  declaration  of common share  dividend for
                  second quarter 2000, was issued on June 22, 2000.

                  Press Release,  Exhibit "D" attached here to and  incorporated
                  herein, regarding earnings for second quarter 2000, was issued
                  on August 29, 2000.

ITEM 6            REPORTS ON FORM 8-K

                   Not applicable.

                                       17
<PAGE>
                                   EXHIBIT "A"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                   ANNOUNCES CONTINUED IMPROVEMENT IN EARNINGS
                              FOR THE FIRST QUARTER

      SAN  FRANCISCO--(Business  Wire)--May 22,  2000--Capital  Alliance  Income
Trust Ltd.,  ("CAIT") (AMEX:  CAA), a specialty  residential  mortgage  company,
announced  that basic  earnings for the first  quarter of 2000 were  $220,992 or
$.047 per common  share  ($.047  diluted)  as  compared to $143,391 or $.003 per
common  share  ($.003  diluted)  in the first  quarter  of 1999.  The  increased
earnings represent the third consecutive  quarter of increased earnings for CAIT
over  its  prior  quarter  and a  substantially  reduced  operating  loss in its
mortgage banking subsidiary.

      Thomas B. Swartz, CAIT"s Chairman and CEO, noted that "CAIT, commencing in
the second  quarter of 2000,  should  start  seeing a positive  contribution  to
CAIT"s  earnings from Capital  Alliance  Funding  Corporation  ("CAFC"),  CAIT"s
mortgage  banking  subsidiary,  as opposed to losses incurred in CAFC during its
last five quarters.  CAFC"s losses have resulted from the costs of expanding its
mortgage  origination  capacity,  which costs have been  expensed  currently and
reflected in CAIT"s financial statements under the equity method of accounting."

      CAIT is a specialty residential mortgage lender which invests primarily in
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  non-conforming  loans for sale to investors on a whole-loan
basis for cash through CAFC.

      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:     Richard J. Wrensen
             Senior Vice- President and
             Chief Financial Officer

             (415) 288-9575

                                       18
<PAGE>
                                   EXHIBIT "B"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                       RECEIVES APPROVAL FROM FREDDIE MAC

             SAN  FRANCISCO--(Business  Wire)--June 13,  2000--Capital  Alliance
Income Trust Ltd.,  ("CAIT")  (AMEX:  CAA),  announced today that its subsidiary
Capital Alliance Funding  Corporation has been approved by Freddie Mac ("FHLMC")
as a seller and servicer of "A" paper mortgage loans.

             Thomas  B.  Swartz,   Chairman  and  CEO,  commented  that,  "After
extensive due diligence performed by Freddie Mac, we are very pleased to receive
their approval. With their endorsement, Capital Alliance will be able to offer a
broader range of products to our customers."

             Capital  Alliance  Income  Trust Ltd.  is a  specialty  residential
mortgage  lender  which  invests  primarily  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  loans for sale to investors on a whole-loan  basis  through  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:     Thomas B. Swartz
             Chief Executive Officer
             (415) 288-9575

                                       19
<PAGE>
                                   EXHIBIT "C"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                      ANNOUNCES DECLARATION OF COMMON SHARE
                        DIVIDEND FOR SECOND QUARTER 2000

             SAN  FRANCISCO--(Business  Wire)--June 22,  2000--Capital  Alliance
Income Trust Ltd., ("CAIT") (AMEX: CAA), a specialty residential finance company
announced  that its Board had  declared  CAIT"s  common  share  dividend for the
second quarter of 2000 at $.085 per share.  The dividend will be payable on July
17, 2000 to shareholders of record on July 1, 2000.

             CAIT is a specialty  residential  mortgage  finance  company  which
invests for its portfolio in high-yielding, non-conforming, residential mortgage
loans on one-to-four unit residential properties located primarily in California
and  the  western  United  States.   Also,   through  Capital  Alliance  Funding
Corporation  ("CAFC") it originates  conforming and  non-conforming  residential
mortgage  loans for sale to  investors  on a  whole-loan  basis  for cash.  CAFC
recently, after a rigorous due diligence process, qualified for and was approved
as a  Seller-Servicer  for Freddie Mac  ("FHLMC")  for  conforming A and A-rated
residential mortgages.

             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.

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

Contact:  Capital Alliance Income Trust Ltd.
          Thomas B. Swartz, Chairman
          (415) 288-9575

                                       20
<PAGE>
                                   EXHIBIT "D"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                   ANNOUNCES EARNINGS FOR SECOND QUARTER 2000

         SAN  FRANCISCO--(Business   Wire)--August  29,  2000--Capital  Alliance
Income Trust Ltd. ("CAIT"),  (AMEX:CAA-news),  a specialty  residential mortgage
finance company,  announced that its earnings for the second quarter and for the
first six months of 2000,  while improved over its earnings for the same periods
of 1999, were nevertheless  disappointing - given the continuing  improvement in
earnings in each of the prior three  quarters.  Earnings (basic and diluted) for
the second quarter of 2000 were $70,562 ($.06) per share and $291,554 ($.01) per
share for the  second  quarter  and first six months of 2000,  respectively,  as
compared to $3,263 and $146,654 for the like periods of 1999.

         Thomas B. Swartz,  CAIT"s Chairman and CEO, noted that CAIT"s portfolio
mortgage  investment business remained strong throughout the first half of 2000,
but losses from its mortgage banking  subsidiary were sustained as a result of a
further  compression  in  profit  margins  on the  sale of  mortgages  into  the
secondary  market.  He noted  also,  that a one-time  accounting  adjustment  of
$74,459  for  its  mortgage   banking   subsidiary,   Capital  Alliance  Funding
Corporation  ("CAFC"),  from  the  prior  quarter  contributed  to  the  reduced
earnings.

         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 primarily 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 CAFC.

         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, Executive VP and CFO
         (415) 288-9575

                                       21
<PAGE>
                                   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 20, 2000               By:   /s/ Thomas B. Swartz
                                               --------------------
                                               Thomas B. Swartz, Chairman and
                                               Chief Executive Officer

Dated:   November 20, 2000               By:   /s/ Richard J. Wrensen
                                               ----------------------
                                               Richard J. Wrensen,
                                               Executive Vice President and
                                               Chief Financial Officer