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







                                                     November 15, 1999



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, 1999. If you have any questions, please do not hesitate to call.

                                                     Very truly yours,

                                                     /s/ Thomas B. Swartz

                                                     Thomas B. Swartz
                                                     Chairman

Enclosures

cc:      Stephen C. Ryan, Esq.



50 California  Street,  Suite 2020 o San Francisco,  CA 94111
(415) 288-9575 o fax (415) 288-9590

<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,
               1999

                        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
--------------------------------------------------------------------------------
              (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, 1999, the aggregate market value of the  registrant's  shares
of Common Stock,  $.01 par value,  held by non  affiliates of the registrant was
approximately  $4,639,813.  At that date  1,484,740  shares of common stock were
outstanding.  The shares are listed and publicly  traded on the  American  Stock
Exchange.
<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, 1999  December 31, 1998
<S>                                                                           <C>             <C>
ASSETS
      Cash and cash equivalents ...........................................   $    433,257    $    570,710
      Restricted cash .....................................................        405,767         594,693
      Accounts receivable .................................................        260,552         193,241
      Due from affiliates .................................................        348,811         103,301
      Notes receivable:
           Note receivable to related party ...............................           --           225,000
           Warehouse lines of credit to related parties ...................      2,447,926       5,157,098
           Mortgage notes receivable ......................................     11,041,994       8,986,645
           Allowance for loan losses ......................................        (15,000)       (170,000)
                                                                                --------------------------
                Net receivable ............................................     13,474,920      14,198,743
      Real estate owned ...................................................        305,626         149,663
      Security deposits ...................................................         37,859          32,133
      Investments in affiliates ...........................................        633,915         831,936
      Origination costs ...................................................        120,217         120,217
      Organization costs (net of accumulated amortization of $15,258
              at September 30, 1999 and $11,955 at December 31, 1998) .....          7,043          10,346
                                                                                --------------------------

      Total assets ........................................................   $ 16,027,967    $ 16,804,983
                                                                                ==========================

LIABILITIES AND STOCKHOLDERS' EQUITY

      Liabilities
           Mortgage note holdbacks ........................................   $    405,767    $    594,693
           Other liabilities ..............................................        126,747         162,839
                                                                                --------------------------
      Total liabilities ...................................................        532,514         757,532
                                                                                --------------------------

      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, 1999
                      and December 31, 1999
            Additional paid in capital -preferred stock ...................      5,868,711       5,868,711
            Less: 9,526 preferred shares held in treasury .................        (86,944)        (86,944)

            Common stock, $.01 par value; 5,000,000 shares ................         14,847          14,847
                    authorized ; 1,484,740 shares issued and outstanding
                    at September 30, 1999 and December 31,1998
            Additional paid in capital - common stock .....................      9,692,426      10,244,424
                                                                                --------------------------

      Total stockholders' equity ..........................................     15,495,453      16,047,451
                                                                                --------------------------

      Total liabilities and stockholders' equity ..........................   $ 16,027,967    $ 16,804,983
                                                                                ==========================
</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,
                                                     1999            1998          1999           1998
                                                     ----            ----          ----           ----
<S>                                             <C>            <C>            <C>            <C>
REVENUES
      Interest income .......................   $   383,943    $   447,295    $ 1,216,954    $ 1,137,826
      Interest income from affiliates .......        40,387           --          252,777           --
      Investment income from affiliates .....      (183,501)        39,799       (599,735)        (5,703)
      Other income ..........................         1,884          8,025          7,320         19,947
                                                -----------    -----------    -----------    -----------
          Total revenues ....................       242,713        495,119        877,316      1,152,070
                                                -----------    -----------    -----------    -----------

EXPENSES
      Loan servicing fees to related party ..        69,676         70,406        220,029        176,250
      Management fees to related party ......        35,638         43,949        111,646        101,252
      Interest expense ......................         3,304         17,173         87,424         17,811
      Provision for loan losses .............        15,000         14,000         92,500         14,000
      Operating expenses of real estate owned         2,743         14,761         13,577         31,325
      Taxes .................................         6,000         10,571         16,300         23,942
      General and administrative ............        11,526          8,212         88,582         53,231
                                                -----------    -----------    -----------    -----------
            Total expenses ..................       143,887        179,072        630,058        417,811
                                                -----------    -----------    -----------    -----------

Income Before Loss on Real Estate Owned .....        98,826        316,047        247,258        734,259
      Loss on Real Estate Owned .............          --           (1,779)

NET INCOME ..................................   $    98,826    $   316,047    $   245,479    $   734,259
                                                ===========    ===========    ===========    ===========


PREFERRED DIVIDENDS .........................   $   141,290    $   142,898    $   418,866    $   447,508


BASIC EARNINGS PER
        COMMON SHARE ........................   $     0.03     $     0.13     $      0.12    $      0.27


DILUTED EARNINGS PER
        COMMON SHARE ........................   $     0.03     $     0.11     $      0.12    $      0.18
</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,
                                                                      1999           1998
                                                                      ----           ----
<S>                                                             <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
      Net Income ............................................   $   245,479    $   734,259
      Adjustments to reconcile net income to net cash
         provided by operating activities:
      Amortization ..........................................         3,303          3,303
      (Increase) decrease in  accounts receivable ...........       (67,312)       (92,069)
      Increase (decrease) in  loan loss reserve .............      (155,000)        14,000
      (Increase) decrease in security deposits ..............        (5,726)          --
      Increase (decrease) in  due to / due from affiliates ..      (245,509)       136,438
        Increase (decrease) in other liabilities ............         3,247         50,744
                                                                -----------    -----------
          Net cash provided by (used in) operating activities      (221,518)       846,675
                                                                -----------    -----------

CASH FLOWS FROM INVESTING ACTIVITIES
      (Increase) decrease in restricted cash ................       188,926       (287,006)
      Increase (decrease) in mortgage note holdbacks ........      (188,926)       287,006
      (Increase) decrease in warehouse lines of credit ......     2,709,172     (2,263,039)
      (Increase) in investments .............................       198,021       (196,796)
      Increase in related party note receivable .............       225,000           --
      Net investments in mortgage notes receivable ..........    (2,055,349)    (4,808,122)
      Capital costs of foreclosed property ..................      (155,964)      (426,975)
                                                                -----------    -----------
          Net cash provided by (used in) investing ..........       920,880     (7,694,932)
                                                                -----------    -----------

CASH FLOWS FROM FINANCING ACTIVITIES
      Redemption of shares ..................................          --         (238,944)
      Proceeds from issuance of shares ......................          --        6,479,545
      Payment of mortgage notes payable .....................       (39,339)       253,329
      Organizational and offering costs .....................          --          176,050
      Preferred dividends paid ..............................      (418,867)      (447,508)
      Common dividends paid .................................      (378,609)      (322,967)
                                                                -----------    -----------
        Net cash provided by (used in) financing activities .      (836,815)     5,899,505
                                                                -----------    -----------

NET INCREASE (DECREASE) IN CASH .............................      (137,453)      (948,752)
CASH AT BEGINNING OF PERIOD .................................       570,710      1,748,485
                                                                -----------    -----------

CASH AT END OF PERIOD .......................................   $   433,257    $   799,733
                                                                ===========    ===========

SUPPLEMENTAL CASHFLOW INFORMATION:
      Interest expense paid .................................   $    94,992    $    17,811
      Taxes paid ............................................   $    16,300    $    23,942
</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, 1999 and 1998
                                   (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 to
      facilitate  the  combination  of the  mortgage  investment  operations  of
      Capital  Alliance Income Trust I, a Delaware  business trust,  and Capital
      Alliance Income Trust II, a Delaware  business  trust.  CAIT I and CAIT II
      were  both  privately-held   mortgage  investment  trusts  which  invested
      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 up to
      1,500,000  common  shares at $8.00 per share and  warrants  to purchase an
      additional 150,000 common shares at $5.60 per share. On September 30, 1998
      the offering closed and a total of 1,484,740 common shares were issued.

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,
      1998 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, 1998 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, 1999 and 1998
                                   (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 and
      is to be disbursed  only 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, 1998 and
      September  30,  1999 the loan loss  reserves  were  $14,000  and  $15,000,
      respectively.  The  1998  reserve  is  an  estimate  of  outstanding  loan
      impairments. The 1999 reserve reflects the estimated remaining balance for
      loan impairments after the Trust's recognition in September 1999 of a loss
      on its loan to an affiliated retail mortgage origination company which was
      applied against the loan loss reserve.

      Investments.  Prior to December 31, 1997 the Trust held an  investment  in
      Sierra Capital  Acceptance  ("SCA").  On December 31, 1997 SCA completed a
      tax  free-merger  with Sierra  Capital  Funding,  LLC ("SCF"),  a Delaware
      Limited   Liability   Company  which  originates  and  sells   residential
      mortgages, by exchanging all the Class A and Class B shares of SCA for the
      Sierra common and preferred shares of SCF. SCA will continue operations as
      a  separate  operating  division  of  SCF.  The  Trust  owns  100%  of the
      non-voting  Sierra  preferred shares of SCF.  SCF-Sierra  Preferred shares
      receive 15% interest per annum.  Sierra Capital Services,  Inc., a related
      party,  owns 99% of the Sierra common  shares of SCF and maintains  voting
      control.

      On April 11,  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, 1999 and 1998
                                   (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, 1998, the distributions per
      preferred share are allocated 100% as ordinary income and the common share
      distribution  is  allocated  76%  ordinary  income  and 24% as a return of
      capital for tax purposes.  For the period ended  September  30, 1999,  the
      distributions  per preferred  share are allocated 22% ordinary  income and
      78% a return of capital and the common  share  distribution  is  allocated
      100% 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.

      Organizational costs.  Organization costs are capitalized and amortized on
      a straight-line basis over five years.

                                       8

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

                          Notes to Financial Statements
              For the nine months ended September 30, 1999 and 1998
                                   (Unaudited)

     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 1998 amounts have been  reclassified to conform
     with 1999 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, 1998
      and September 30, 1999,  mortgage note holdbacks from the  consummation of
      mortgage loans made amounted to $594,693 and $405,767, respectively.

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. As of September 30, 1998 and September 30, 1999,
      the Trust held mortgage notes  receivable of $8,986,645  and  $11,041,994,
      respectively.

6. Accounts receivable.

      Accounts  receivable  consists  of  accrued  interest  on  mortgage  notes
      receivable and other amounts due from borrowers.



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

                          Notes to Financial Statements
              For the nine months ended September 30, 1999 and 1998
                                   (Unaudited)


7.    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 Trust paid the
      Manager a  management  fee of $101,252  and  $111,646  for the nine months
      ended September 30, 1998 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 $176,250 and $220,029 for the nine months
      ended September 30, 1998 and September 30, 1999, respectively.

      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,  1998  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, and receives a 15%
      guaranteed  return per annum.  For each of the nine  month  periods  ended
      September 30, 1998,  and  September 30, 1999 the Trust earned  interest of
      $22,500 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,  1998 and  September  30,  1999 the Trust  under the equity  method of
      accounting  was  allocated  investment  losses  of  $5,703  and  $599,735,
      respectively.  The subsidiary's  nine month 1998 loss, which resulted from
      the  disposition  of real estate owned,  was $83,663.  The nine month 1999
      loss is primarily attributable to expenses incurred in the Trust's planned
      expansion of the subsidiary's wholesale loan origination capacity.

      The Trust, on February 1, 1998 and February 10, 1999,  advanced a total of
      $247,500 at 15% per annum, payable quarterly,  to Equity 1-2-3, a division
      of Sierra Capital Funding LLC, a related party,  and recorded the advances
      as related party notes receivable.  As of September 30, 1998,  $22,500 was
      earned on this note,  but for the nine months  ending  September 30, 1999,
      the Trust  recognized no interest  income from the note. In July 1999, the
      Trust disbanded its retail mortgage  origination  activities  conducted by
      Equity 1-2-3 and in September 1999,  wrote off this related party note and
      applied  it  against  the  Trust's  loan  loss  reserve.  Equity  1-2-3 is
      continuing the liquidation of its portfolio of home mortgages.


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

                          Notes to Financial Statements
              For the nine months ended September 30, 1999 and 1998
                                   (Unaudited)

8.       Preferred stock and common stock.

      The  Preferred  Shares are  entitled to a  distribution  preference  in an
      amount equal to an annualized  return on the 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  Shares is the  adjusted  net capital  contribution  plus unpaid
      accrued dividends, divided by the aggregate net capital contributions plus
      accrued  but  unpaid  dividends   attributable  to  all  Preferred  Shares
      outstanding,  multiplied by the net asset value of the Trust  attributable
      to the Preferred  Shares which shall be that percentage of the Trust's net
      asset value that the aggregate  adjusted net capital  contributions of all
      Preferred  Shares bears to the adjusted net capital  contributions  of all
      Shares  outstanding.  A  liquidation  charge  is  charged  by the Trust in
      connection  with each  redemption as follows:  1% of redemption  amount in
      1998, and none thereafter. No preferred shares were redeemed in 1999.

      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

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

                          Notes to Financial Statements
              For the nine months ended September 30, 1999 and 1998
                                   (Unaudited)


     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,  adopted  by the  board of
     directors and approved by the  stockholders,  options for the purchase of a
     total  of  150,000  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 are exercisable at
     $8.00 per share.  The options  for the  purchase  of the  remaining  75,000
     common shares are exercisable at $4.50 per common share.

     During 1998 the Trust's net purchase of treasury preferred stock was 9,526.
     The purchases were recorded at cost and as a reduction to preferred  shares
     and additional paid in capital from preferred  shares. No additional common
     or preferred  shares were  purchased  for the treasury as of September  30,
     1999.

9.   Earnings per share.

     The following table is a  reconciliation  of the numerator and denominators
     of the basic and diluted earnings per common share.

      Numerator:                        September 30, 1998    September 30, 1999
                                        ------------------    ------------------
          Net income                         $734,259              $245,479
          Less: Preferred Dividend            447,508              (418,866)
                                            ---------              --------

      Numerator for basic and diluted
      earnings per share                      286,751              (173,387)
                                            ---------             ---------

      Denominator:
          Basic weighted average shares     1,057,089             1,484,740
          Effect of dilutive warrants         564,581                     0
                                            ----------            ---------
          Diluted weighted average shares   1,621,670             1,484,740
                                            ---------             ---------

      Basic earnings per common share            0.27                (0.12)
                                                 ----                ------
      Diluted earnings per common share          0.18                (0.12)
                                                 ----                ------

                                       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


General

         Certain information contained in the following Management's  Discussion
and  Analysis  of  Financial  Condition  and  Results of  Operations  constitute
forward-looking  statements  within the meaning of Section 27A of the Securities
Act of 1933,  as  amended,  and  Section  21E of the  Exchange  Act of 1934,  as
amended.  The Trust's actual results may differ  materially from those contained
in the forward-looking statements. Factors which may cause a difference to occur
include the success of the Trust's  efforts to increase its  wholesale  mortgage
origination  capacity,  the  availability  of  suitable  opportunities  for  the
acquisition,  ownership and disposition of mortgage assets and yields  available
from time to time on such mortgage assets,  interest rates, changes in estimates
of book basis and tax basis earnings, the availability of suitable financing and
investments,  and  trends in the  economy  which  affect  the  availability  and
profitability  of secondary  marketing of mortgage  assets,  and  confidence and
demand on the Trust's portfolio of mortgage assets.

         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.

         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/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.  The  Trust's  wholesale  mortgage  banking  subsidiary
originates similar non-conforming  residential mortgages for sale as whole loans
in the secondary securitization market.

         However,  during the latter half of 1998 and the first quarter of 1999,
a global liquidity  crisis resulted in  deteriorization  of the  mortgage-backed
securitization  market and  particularly  that of  non-conventional  residential
mortgage banking firms. It also resulted in sharp declines in the  profitability
of whole loan sales,  a reduction in sources of  liquidity  and a decline in the
market  performance  of the shares of such  firms,  including  the Trust and its
conduit  mortgage  banking   subsidiary  which   specializes  in  non-conforming
residential mortgages.

         Management,  nevertheless,  believes there will continue to be a strong
demand for  high-yielding  non-conforming  mortgage  loans caused by a demand by
investors  for higher  yields due to low interest  rates over the past few years
and  securitization  of  high-yielding  non-conforming  mortgage  loans  by  the
investment  banking industry.  During the second and third quarters of 1999, the
mortgage-backed  securitization market stabilized and the profitability of whole
loan sales has  steadily  improved,  enabling the Trust to commence and pursue a
program to increase the wholesale mortgage  origination  capacity of its conduit
mortgage banking subsidiary.

                                       14
<PAGE>

         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 , 1999, the Trust's
loan portfolio included 80 loans totaling $11,041,994.  As of November 15, 1999,
the loan portfolio included 89 loans totaling $11,738,544, of which $1,076472 of
the loan portfolio were  delinquent over sixty days, and there were 3 delinquent
loans  representing  $570,777  of the  portfolio  which  were in the  process of
foreclosure. In assessing the collectibility of these delinquent mortgage loans,
management  estimates  a net gain will be realized  upon sale of the  properties
securing  these loans,  if it is necessary to foreclose  upon the mortgage loans
due to the Trust.  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 and accrued interest receivable. 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, 1999 and September 30, 1998.

Results of Operations

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

         Three  months  and nine  months  ended  September  30,  1999 and  1998.
Revenues  for the third  quarter of 1999  decreased  to  $242,713 as compared to
$495,119 for the same period in the previous  year.  Revenues for nine months of
1999  decreased to $877,316 as compared to $1,152,070 for the same period of the
previous year.

         The 1999 mortgage  interest  income and interest income from affiliates
for the  quarter  were  substantially  the  same and for the  nine  months  were
increased,  compared to the same period in the previous  year.  The increase was
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 more than offset by investment  income losses  incurred  during the quarter
and nine months for the origination  expansion costs of Capital Alliance Funding
Corporation.  The  reduction  of revenues  for the third  quarter and nine month
periods of 1999 resulted  from the inclusion of losses of the Trust's  wholesale
mortgage banking subsidiary which reflect the expenses incurred in expanding its
loan origination capacity during the first three quarters of 1999.

         The weighted average yield of the Trust's mortgage investment portfolio
was 12.13%. The portfolio consisted of 60% first deeds of trust with the balance
being second deeds of trust and had a combined loan-to-value ratio of 65.77%.

         Expenses of the Trust for the third quarter 1999  decreased to $143,887
as  compared to $179,072  for the same period in the  previous  year and for the
nine months period of 1999 increased to $630,058 as compared to $417,811 for the
same period of the previous year.

         Management and loan services  expenses for the quarter were comparable.
The increase for the nine months of 1999  compared to 1998 was due to $54,173 of
higher loan  servicing,  and management  fees resulting from the increase in the
Trust's asset value,  increased interest expenses of $69,613 to finance a larger
loan portfolio and an increase in loan loss reserves.  Higher loan servicing and
management  fees of $331,675  resulted  from the  increase in the Trust's  asset
value,  an  increase  in  interest  expenses of $87,424 to finance a larger loan
portfolio,  and the reduction of loan loss reserve was reduced in September 1999
to $15,000 to reflect the  inactivation  of the Trust's retail loan  origination
affiliate.

                                       15
<PAGE>
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 major portion of the proceeds from issuance
of common stock in the Trust,  which was  completed  on  September  30, 1998 was
invested in mortgage  loans.  The Trust's  liquidity  requirements  will also be
funded by a secured  line of credit from a bank,  initiated  November  10, 1999,
periodical  payoffs of existing loans which are generally short term in duration
and by the sale of foreclosed  properties.  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 1998 was $(221,518) and $846,675, respectively.

         Net cash  (used in)  investing  activities  for the nine  months  ended
September  30, 1999 and 1998 was $920,880  and  ($7,694,932)  respectively.  The
difference is explained  primarily by increased  warehouse lending to affiliates
and a reduction in the net investment in mortgage notes receivable.

         Net cash provided by financing  activities during the nine months ended
September 30, 1999 and 1998 was ($836,815)  and  $5,899,505,  respectively.  The
1999 results are primarily due to the payment of preferred and common dividends.
The 1998 results are primarily  from the proceeds of issuing  additional  common
shares.

          CAFC maintains a $4,000,000 and a $3,000,000 secured warehouse line of
credit from two lenders.  Both  warehouse  lines of credit are guaranteed by the
Trust. 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.

Year 2000

         The Trust's primary use of software  systems is for accounting and loan
documentation.  The Trust's  software  systems,  local area network,  and client
server are widely used in the financial services  industries and are represented
to be Year 2000 compliant.  Therefore, management believes that the risk of Year
2000  compliance  is not  significant  as it  relates to its  computer  software
system, network and personal computers.

         The Trust does not expect Year 2000 initiative costs to exceed $5,000.

         At this  time,  no  estimate  can be made as to any  potential  adverse
impact from the failure of borrowers,  third-party service providers and vendors
to prepare for the Year 2000.
                                       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

          There have been no changes in the outstanding  securities of the Trust
          during the quarterly period ending September 30, 1999.

ITEM 3    DEFAULTS UPON SENIOR SECURITIES

          Not applicable.

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          No matters were submitted to security holders during the third quarter
          of 1999.

ITEM 5    OTHER INFORMATION

          Press Release,  Exhibit "A" attached here to and incorporated  herein,
          regarding  earnings for the second  quarter of 1999 and the operations
          of Registrant's  mortgage  banking  conduit,  was issued on August 18,
          1999.

          Press Release,  Exhibit "B" attached here to and incorporated  herein,
          regarding the  Registrant's  declaration of common share dividends for
          the third quarter, was issued on September 23, 1999.

ITEM 6    REPORTS ON FORM 8-K

          Not applicable.



                                       17

<PAGE>
                                   EXHIBIT "A"

                       CAPITAL ALLIANCE INCOME TRUST LTD.
                    ANNOUNCES THAT, AS EXPECTED, THE COSTS OF
                   EXPANSION OF ITS WHOLESALE MORTGAGE BANKING
                  CONDUIT OFFSET STRONG RESULTS OF ITS MORTGAGE
                        PORTFOLIO IN 1999 SECOND QUARTER

SAN  FRANCISCO--(Business  Wire)--August 18, 1999--Capital Alliance Income Trust
Ltd.  ("CAIT") (AMEX: CAA - news), a home mortgage real estate investment trust,
announced  that,  as expected,  the costs of the  expansion of loan  origination
capacity in its wholesale mortgage banking subsidiary,  Capital Alliance Funding
Corporation  ("CAFC"),  offset the strong  results  in CAIT's  primary  Mortgage
Investment  Business during the 1999 second quarter,  resulting in substantially
reduced earnings for the three and six month periods ended June 30, 1999. 99% of
CAFC's earnings (losses) are reflected in CAIT's financial  statements under the
equity  method of  accounting.  As a result,  CAIT had  earnings  of $3,263  and
$146,654 for the three and six month periods ending June 30, 1999 as compared to
$239,078 and $418,212  for the same periods in 1998.  Interest  income in CAIT's
primary  Mortgage  Investment  and  Warehouse  Lending  Businesses  increased to
$528,517 and $1,146,465 for the three and six month periods ending June 30, 1999
as compared to $370,504 and $690,531 for the same periods in 1998.

Thomas B. Swartz, Chairman and CEO, noted that the expansion of loan origination
capacity for CAFC was now substantially  complete with the addition of qualified
account executives in northern and southern  California,  Arizona and Nevada and
expanded  licensing,  and that the lag time in realizing  profits on the funding
and sale of increased loan originations should be realized starting in the third
quarter.  He also noted that CAIT's  interest income growth was due, in part, to
CAIT's 1998 IPO and the resulting  increase in its  capitalization  and mortgage
notes receivable.

CAIT is a specialty residential mortgage finance company which invests primarily
in high-yielding,  non-conforming residential mortgage loans on one-to-four unit
properties  located  primarily in California and other Western  states.  It also
originates  similar  loans for sale to investors  on a whole loan basis  through
CAFC, its wholesale mortgage banking subsidiary.

Certain oral and written statements of 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, 415/288-9575 (CEO)


                                       18
<PAGE>
                                   EXHIBIT "B"

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


SAN  FRANCISCO--(Business  Wire)--September  23,  1999--Capital  Alliance Income
Trust Ltd.  ("CAIT"),  a home mortgage real estate investment trust (AMEX: CAA),
announced  that its Board had declared  its common share  dividend for the third
quarter at $.085 per share.  The dividend will be payable on October 15, 1999 to
shareholders of record on October 1, 1999.

Thomas B. Swartz, CAIT's Chairman and CEO, noted that CAIT's Board will continue
to review the progress of CAIT's operating results during the fourth quarter and
will, as required by the REIT Rules, distribute 95% of CAIT's net income for the
1999 fiscal year.

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, 415/288-9575 (CEO)



                                       19
<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 15, 1999 By:          /s/ Thomas B. Swartz
                                        ----------------------
                                        Thomas B. Swartz, Chairman and
                                        Chief Executive Officer

Dated:   November 15, 1999 By:          /s/ Dennis R. Konczal
                                        -----------------------
                                        Dennis R. Konczal, President
                                        and Chief Operating Officer




                                       20